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February 11th, 2010

U.K. Says Goodbye to Paper Checks — Will U.S. Follow?

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By October 31, 2018, banks in the United Kingdom will no longer clear paper checks. The banks voted to end the 350-year payment method as a way to save millions:

The reason behind the banks’ desire to stop clearing checks are not hard to understand. The initiative’s drivers are two-fold:

  1. Checks cost around one pound to process, which is four times as much as an electronic payment. Eliminating checks will potentially save banks hundreds of millions of pounds.
  2. There has been a decline in check use for several years running. In 2000, checks represented a quarter of all non-cash transactions but by 2008 they accounted for only one in eleven. Compared with a peak of 10.9 million checks issued per day in 1990, by 2008 there were just 3.9 million a day. Many retailers in the UK such as Marks and Spencer no longer accept checks — for this reason and others, the UK expects this trend to continue.

While the U.K. bankers say they will provide payment alternatives to those who rely on checks, those alternatives are still “unknown and no action has been taken to date to define them,” according to AccuitySolutions.com.

What about the elderly?

Although this initiative is eight years out, what will the impact truly be? One case in point to consider is the initiative’s impact on “late adopters” within the UK who are reliant on paper checks and have not yet made the switch to other methods of payments. One such group is elderly people. The UK has documented that 6.4 million elderly people have never used the Internet — one of the proposed alternatives to initiate/view payments. If checks are completely eliminated and this group doesn’t “go online”, will elderly people be forced to store large amounts of cash in their home to complete their transactions? If so, an unforeseen consequence of the elimination of checks could be an increase in the crime rates on the elderly.

To our knowledge, we haven’t heard of any talk that U.S. banks have decided to no longer clear paper checks. Yet, you can’t ignore that in the U.S. the use electronic banking is naturally phasing out paper checks, perhaps even paper money to some degree:

The automated clearinghouse, or ACH, system is the electronic backbone for services such as automatic bill pay or direct deposit, and ACH Federal account executive Craig Cotter believes that the growing industry has room for another competitor.

British regulators said [...] that they will completely phase out the use of paper checks by 2018, and Mr. Cotter said ACH Federal is positioned to take advantage of similar trends in the U.S.

“All the payrolls in the country, every big business, even the government with the federal income tax, everyone want to do ACH now,” said Mr. Cotter.

Part of the reason for the popularity of ACH has to do with the expense of check processing. Keith Sanford, executive vice president for First Tennessee Bank, said the new way is cheaper and less manpower intensive.

READERS: How many of you still use paper checks? Would you be willing to given them up?

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4 Responses to “U.K. Says Goodbye to Paper Checks — Will U.S. Follow?”

  1. Lucia Says: February 11th, 2010 at 8:55 pm

    I keep only enough money in our checking account to cover the paper checks we write for bills that are mailed and a couple online payments. Some retailers and utility companies process our checks like debit payments, and our bank doesn’t return our paper checks, but stores them in pdf format.

    I try to limit online payments because they are vulnerable to hackers. For everything else, we pay with cash money. I think e-payments and e-paychecks are very convenient, but vulnerable to hackers. Why should we make ourselves vulnerable to a terror attack on our power system or bank records?

    I heard that the government would like to have all monetary transactions be online, including wages, purchases, and tax payments. I think they may be penny wise but pound foolish.

  2. Tim Manni Says: February 12th, 2010 at 10:45 am

    Lucia,

    Good hearing from you. I think if the entire banking system went electronic — for everyone — it could, as you say, make us quite vulnerable.

    Allow me to propose this thought: When banks are socked with added costs — like the president’s new bank tax, for example — they’re passed along to the consumer (added fees, etc.). Once banks (in England at least) start to save millions by eliminating paper checks, do you really think those savings will be passed down to consumers? I doubt it, and I bet you do too.

    Thanks for giving us your input,
    Tim

  3. Mitch Says: March 24th, 2010 at 2:48 pm

    Luckily for us, the U.S. doesn’t usually like following anything that’s happening in Europe, so I see this one as being way out in the future were it to happen here.

  4. Tim Manni Says: March 24th, 2010 at 3:49 pm

    Mitch,

    HA, well the U.K.’s law doesn’t go into effect for eight more years anyway, so you’re right: “I see this one as being way out in the future were it to happen here.”

    Good hearing from you,
    Tim

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