The Evolution Of eChecks

The earliest surviving check doesn’t look like much. It’s a rectangular slip of gray paper with a trace of red sealing wax in the bottom left corner. Written across the page is an instruction to Mr Morris and Mr Clayton to pay £400 to a Mr Delboe. The slip is signed by Nick Vanacker and dated “London the 16th of February 1659.”

It might be nearly 400 years old but that early check has almost all of the elements that are found in a modern check. The amount (a sizable sum in 1659) is written in numbers and letters. A signature authorizes the payment, the name of the payee is included, and the check is sent to the bank at which the payer holds an account. Morris and Clayton were London-based bankers and scriveners.

Even the shape of the document would be familiar to anyone who owns a checkbook today. The only differences, in fact, would be the absence of an account number, a routing number and a check number… and the copperplate handwriting.

The reason that checks have changed so little since the seventeenth century is that they haven’t needed to change. They’ve always been an efficient way of informing a holder of funds to release some of those funds to someone else. They contain no more information than they need to and all of the information required to complete the transaction.

Even as credit and debit cards became more important, moving payments immediately from the account of a payer to the account of a payee, checks have continued and will continue to have a role.

In the same way that television hasn’t entirely supplanted radio, so paper checks are unlikely to disappear completely in the foreseeable future. But the rise of eChecks does appear to represent the old fashioned checks biggest threat, an even greater than payments made by plastic and greater than the slow take up of NFC payments.

For both businesses and customers, eChecks seem to be the sound future. And, the speed of processing an eCheck has already come down, and it’s likely to come down even further. One way to look at the history of the development of checks is to see it as continual progress towards greater clearance speed and higher processing efficiency. Between 1939 and 1952, the number of checking accounts in the United States doubled to reach 47 million. Around 8 billion checks were written in 1952, a figure that’s less than half of the 20 billion written in 2015. But without a change in the way that checks were processed, that growth would not have been sustainable. In the early fifties, if a check was deposited at a bank that wasn’t used by both the payer and the payee, it would be sorted by hand and tallied at least six times before it cleared. In a branch employing 40 members of staff, at least seven would be needed just to process checks full time.

The adoption of machine readable accounts, routing and check numbers at the bottom of the checks made the work more efficient. The more recent practice of scanning checks when they’re deposited so that the physical check has little use once it’s reached the bank and no longer has to be transported has made the process easier and faster still.

The removal of the whole paper stage of the check process was really inevitable. Why write the check details down, when everyone now has a computer terminal in their pockets and can key in those details directly?

The challenge to that growth has always been a mixture of tradition, legislation and technology. Millennials are changing all of that — quickly. People are often reluctant to change a method that they feel works for them and may be more willing to spend time writing checks by hand than learn a new way of creating them. Legislation is changing too. The Uniform Electronics Transaction Act and the Electronic Signatures in Global and National Commerce Act (ESIGN) have both gone a long way towards codifying the acceptance of digital signatures and providing a framework for the digital processing of checks. At the same time, the increased sophistication of public key cryptography, the commercial use of digital signatures, and secure data networks have all helped to make eChecks safer and more reliable.

The result is that recent years have seen a merging of the processes used to send eChecks and those used by automated clearing houses. Once the writing of a check moved away from the check book and onto the screen the name itself began to look like an anachronism. Send or receive an eCheck and you are in effect making an electronic funds transfer.

That merging is likely to continue until the next generation comes to pay their rent… and wonders what the “check” part of an “eCheck” refers to.