CNN
—
First came the penny. Will paper checks be next?
When the United States Mint stopped making pennies last month for the first time in 238 years, the news raised eyebrows. But efforts to stop using paper checks are also advancing, more quietly.
The government stopped sending most paper checks at the end of September, as part of an initiative to completely modernize the payment of federal benefits. And this Thursday, the Federal Reserve published a notice in which it proposes – only as a possibility – “gradually ending” the check processing services it currently offers to banks.
The central bank’s statement notes that, as an alternative to reducing those services, it is considering increasing investment in its check processing services, but warns that this would come at a higher cost. However, it is also considering not making any such investment, in order to keep costs virtually unchanged. This would result in lower reliability of those services in the future.
“Over time, check use has steadily declined, digital payment methods have grown in availability and use, and check fraud has increased,” the Federal Reserve notice states. “In addition, the Federal Reserve Banks will need to make substantial investments in their checking infrastructure to maintain the same level of service in the future.”
A Federal Reserve Bank of Atlanta report released in June found that last year, more than 90% of consumers surveyed said they preferred to use a means other than a check to pay their bills, and only 6% paid by check. This is a significant drop from the 18% of invoices paid by check in 2017.
Consumers also said they rate checks as the second-worst option for convenience and speed of payment, ahead of money orders. And they classify them as the least secure form of payment, apart from cash.
But while options like direct deposit, automatic bill pay, and electronic payment systems like Venmo, PayPal, and Zelle have reduced the need for traditional checks, paper checks are still an important part of the payment system. They represent about 5% of transactions and 21% of the total value of all such payments, according to a statement from Michelle Bowman, the Federal Reserve’s vice chair for supervision, who took issue with the Fed’s Thursday statement.
“Checks continue to be an important payment mechanism for consumers and businesses,” he said. “Suspending the Federal Reserve’s check services is not an efficient solution to the rise in fraud, especially considering the role that checks continue to play in the payments system.”
The history of checks is a bit uncertain, but it is believed that they date back almost 2,400 years. The first modern checks gained popularity more than 500 years ago.
“In the early 16th century, in Amsterdam, Holland, … people who had accumulated cash began depositing it in Dutch ‘cashiers,’ for a fee, as a safer alternative to keeping the money at home. The tellers then agreed to pay debts with the money in each account, relying on the depositor’s written order or ‘note’ to do so,” according to a post on the history of checks on the site Checkeeper, an online check printing service.
The end of paper checks could cause problems for consumers who do not have access to a traditional bank account and still rely on these small pieces of paper to receive part of their income, including their paycheck. According to the Federal Reserve, about 6% of adults were unbanked in 2024, meaning neither they nor their spouses or partners had a bank, savings, or money market account. This percentage of people without a bank account increases to 22% in the case of those with incomes of less than US$25,000 per year.
Older consumers, who may not be as comfortable with new technologies, or the 10% of Americans who don’t even own smartphones, could also be greatly harmed by a further move toward electronic payment systems.
Additionally, checks remain an important form of payment for some merchants, or a way to save costs, rather than paying the high transaction fees associated with accepting credit card payments.
“Checks are clearly not used as much as they once were, but they are still an important part of the financial system, especially for people with low incomes,” said Doug Kantor, general counsel for the National Association of Convenience Stores, whose members often offer check-cashing services for cash to customers, as well as accepting checks for some payments, such as auto repairs. According to him, the elimination of the check system would cause incalculable problems that are difficult to foresee.
He also notes that many people continue to use checks to pay their monthly bills, in some cases without even realizing they have instructed their bank to make various payments on their behalf. He states that he does not imagine that the check system will disappear in the near future.
“At some point, it is very possible that they will be eliminated completely. It is very difficult to know how long this situation will last,” he said. “I don’t think they’re ready to put an end to it yet, and I hope they’re not, because there are a significant number of people — certainly a minority — but still a significant number who depend on the system.”
