14

Some years ago, a friend of mine visited a US city, and went to a supermarket. Upon trying to pay with his credit card, the transaction failed, and the cashier asked if he could write out a check instead. My friend replied "check?" in a bit confused tone. The cashier replied, "well, maybe someday you will get those in your country too".

The thing is though, checks has been practically extinct in Norway, and surrounding countries, for as long as I have activly used my bank account, closing in on 20 years. We manage our accounts online. Absolutely every bank have online options, and the vast majority of all transactions happen through the internet. Lately mobile transactions though smart phones has become popular too.

How come the US still use checks in such a large scale, when there are so many modern solutions that seemingly are so much better?

jumps4fun
  • 258
  • 2
  • 9
  • 6
    This question has been asked before. The answer, in the end, boils down to "why not?". It works, it avoids the need to deal with vendor accounts and transaction surcharges, it's no less valid an alternative than cash or card or whatever. " So much better" is opinion, not fact; the trade-offs are different but not inferior. – keshlam May 03 '16 at 13:28
  • 4
    If it has been asked before, I would very much like to see a link. Why Not? It is less practical, more time consuming, and more complicated than other solutions. They need manual handling, whereas online electronic solutions don't. In other words, I would expect that there must be a better reason for it, and particularly why there are so big differences between our countries there. I would think that the banks in particular would want things to run more automatically. – jumps4fun May 03 '16 at 13:33
  • The app makes posting duplicate-of links difficult. If nobody else does so, I'll post it later from a browser. Meanwhile, searching on "checks" should find it. – keshlam May 03 '16 at 13:36
  • 1
    Couldn't find it directly, but a similar question about how the systems work can be found here: http://money.stackexchange.com/questions/3015/do-americans-really-use-checks-that-often . I myself have lived in the US, and knew first hand how it worked, but I am still wondering why. – jumps4fun May 03 '16 at 13:44
  • 1
    Hi @KjetilNordin. It's normal for europeans to notice that (for example) incredibly almost no banks in the US use a passcode-generator fob for online banking; and wait until you try to send a "wire! transfer!" in the US. Hell, try opening a multi-currency account in the US. But there's no point being snotty about this. The US is "doing pretty well" you know? As Aganju explains below, the system makes money for actors involved: that's that. – Fattie May 03 '16 at 14:51
  • (Indeed, people from singapore, etc, think we europeans are way backwards in transaction technology ... there's "no mystery", you know?) – Fattie May 03 '16 at 14:55
  • It was not my intention to be snotty. I actually work in bank software development, and saw a post about checks, and it simply made me wonder. One of the reasons I am puzzled, is because the US is "doing pretty well" in most businesses. I consider the US to be the lead innovators of a lot of technologies, and so I figured there had to be some kind of benefit to checks, that I am unaware of. – jumps4fun May 03 '16 at 14:58
  • @KjetilNordin I provided a longer answer to your question about benefit. As regards "innovation" in your comment (and other comments), innovation is focused on transactions that people want to make. Check deposit from smart phone, for example, is a way to bridge "old" with "new." B/c the US is big and the average consumer by far never transacts any foreign business directly (including travel out of US), retail bankers have a very different client base than in smaller countries and smaller economies, and also less pressure to conform. That necessarily influences where "innovation" gets focused. –  May 03 '16 at 17:36
  • 1
    Re "mobile transactions though smart phones", not everyone has a smart phone (I don't). In the US, especially between the Rocky Mountains and the California coast, significant numbers of people live where there is no mobile service at all. (There are also probably a number of urbanites, especially undocumented people, who don't have access to mobile banking.) Checks work for them. – jamesqf May 03 '16 at 17:42
  • @keshlam I would disagree: it's a far less valid alternative in the age of identity theft, because the numbers printed on the bottom of each check are essentially the keys to the kingdom. There's no good reason to be handing those out to anyone, especially with the number of people who have already been burned by it. – Mason Wheeler May 03 '16 at 18:55
  • 5
    As you've discovered, checks are a little bit more fault tolerant than credit cards. – Chloe May 03 '16 at 19:23
  • 2
    "We manage our accounts online. Absolutely every bank have online options, and the vast majority of all transactions happen through the internet. Lately mobile transactions though smart phones has become popular too." This is all also true of the U.S. I get the feeling from your question that you drastically overestimate the use of checks in the U.S. Personally, I don't recall the last time I used a check for anything other than donating to a charity (and even then I usually don't use a check) or paying my annual car registration fee. – reirab May 03 '16 at 20:10
  • 2
    Is this really a personal finance question? If so, we may as well ask the question why do we use cash at all, why isn't every transaction electronic? – JTP - Apologise to Monica May 03 '16 at 20:26
  • 1
    @JoeTaxpayer: The answers to that one are pretty obvious. First, with cash nobody's taking a percentage off the top for processing. Second, lots of people don't want their every financial transaction recorded. – jamesqf May 03 '16 at 22:00
  • I pay my bills on line with no fees. I understand the potential for big brother tracking. Which is why the man wants to get rid of the $100 and even $50 bills. – JTP - Apologise to Monica May 03 '16 at 22:08
  • If the European lectronic payment system is so convenient, then why, when I lived in Europe a few years ago, did I have to make a trip to the ATM every month for cash to give to my landlord, instead of just writing a check? – jamesqf May 03 '16 at 22:13
  • @jamesqf The bigger question is why you didn't just transfer the money through an internet bank. If the landlord insisted on in-hand payment, he might not have been paying his due taxes... – jumps4fun May 04 '16 at 08:16
  • @KjetilNordin: Well, that's certainly a point for HIS convenience :-) – jamesqf May 04 '16 at 17:30
  • @KjetilNordin: Also, doing the transfer electronically, while it was possible, was quite a complicated process involving knowing account numbers & other info (forgive me for having forgotten the details) that took 10 minutes or so and the help of my friendly bank teller. So much simpler just to hand over cash, or (if I was in the US) just write a name & amount on a piece of paper. – jamesqf May 07 '16 at 04:20

3 Answers3

19

Check use is declining here too, but it still has some practical advantages over electronic means:

  1. It does not require the receiving party to provide any account number to the paying party (directly or indirectly). The receiving party does not even have to have a bank account at all, since a check can be cashed at the bank on which its drawn.
  2. The receiving party can frequently deposit a check with no fees. For the most part businesses taking payments electronically pay for the service. Many small "mom & pop" businesses don't want to pay or cannot afford to pay those fees.
  3. It works (as in the example you gave in the question) when electronic transactions fail, precisely because it is low-tech.
  4. Even online transactions sometimes get converted to check in the end. I can use "online bill pay" for almost any transaction (including to pay back a friend where no real "bill" exists), but the bank sends a physical check to many such parties (especially if it goes to a friend who isn't going to be registered in the bank's system).
  5. It's a matter of opinion whether the electronic transactions are "better." I certainly find them to be more convenient in many cases, but people used to the old system still like it, and it generally works, so there's no specific reason to kill it.
  6. For some specific purpose like paying taxes, you get slightly better treatment paying by check because most transactions are credited based on the postmark on the physical mail but get debited from your account based on when the check clears the banking system. That only buys you about a week, but for some people that week might be worth the "hassle" of writing a physical check.
  7. Relative to cash, the check is safer and creates a self-documenting transaction because the cleared check is a legal record of the transaction. (Obviously electronic transactions also share these features.)
  • 6
    Dean Inge quote: "There are two kinds of fool. One says 'this is old, and therefore good.' The other days 'this is new, and therefore better.'" Electronic payment is new, but for many purposes not sufficiently better to motivate changing existing practices. Pick your preferred trade-offs. – keshlam May 03 '16 at 17:05
  • 2
    deposit a check with no fees might be true on your side of the Atlantic. Here (Germany) it is very common to pay a fee upon depositing or cashing a check. This adds to the effort to either walk to your bank or snail-mail the check (is this supposed to be a safe thing?) which makes checkes less desirable (in my eyes). – Ghanima May 03 '16 at 18:15
  • 3
    @Ghanima The question was specifically about why checks are used in the US. –  May 03 '16 at 18:31
  • That's right. And I will not argue whether you stick to them or not ;) – Ghanima May 03 '16 at 18:34
  • Did you ever try to cash your paycheck without having an account? These poor guys pay 15% of their paycheck just to get the remainder out in cash. – Aganju May 03 '16 at 20:00
  • The check is the most insecure payment you can ever get - even a month after posting it can still blow up because the writer of the check suddenly didn't have the money after all. And if you cashed it out and don't give it back it's considered fraud. I would never take a check as payment. – Aganju May 03 '16 at 20:02
  • 1
    Also, many rental properties require payment by check and when you set up direct deposit for work, they also require a voided personal check. It does seem quite antiquated and outside of those two factors I haven't used checks in more than a decade. Also, sending money as a gift is safer with a check. If it gets lost, you can stop the check. Even a cashiers check from the bank isn't that safe. – coblr May 03 '16 at 20:05
  • 2
    @Aganju I think you're confusing a payday loan with what I said. If you take a check to the bank on which it's drawn, they will usually cash it for you for free or at worst a small fee. If you take it to a "check cashing" business, then all bets are off. –  May 03 '16 at 20:13
  • Thank you. Very educational. About your third point, I would just like to add that I have never been unable to pay for anything using my card, when in my own countries (Norway, and Denmark now). The systems sometime have down-periods for sure, but then reverts into offline reserve-solutions, where everyone signs their transaction by pen and paper, instead of using their PIN, as the PIN can not be verified. Processing these signed slips takes time though... – jumps4fun May 04 '16 at 08:23
  • @fractalspawn I've never had to provide a voided check for direct deposit, only the appropriate numbers. (I've referenced checks for those numbers, though!) – JAB Oct 04 '16 at 22:44
2

Because it makes money for all parties, and because the general public is reluctant to any change.

  • people pay (sometimes) the bank to get checks printed
  • people pay a store for envelopes
  • people pay USPS for mailing the check
  • people pay (sometimes) for depositing the check

Who should have an interest to change that? People. And they have no say in it.

You can actually do a lot without paper checks nowadays (I only use one per year for car taxes, as they do not accept anything else), but many people shake their heads about even online banking and would never trust it.

Aganju
  • 37,683
  • 7
  • 57
  • 119
  • Makes sense. We had the same issue with light bulbs. The cheapest ones to buy, were the least efficient, but made the stores and the producers the most money, as they needed to be changed more often. So even if better solutions were available, people still went with the old, cheapest-to-buy-per-bulb items. But then after some years, they were simply banned by the government. – jumps4fun May 03 '16 at 13:38
  • 2
    FWIW it's worth noting that many economists would disagree with your take on lightbulbs. (1) the only reason the "new" lightbulbs were developed was for corporations and government to make more money (the talk about "efficiency" "green" etc was just words) (2) overall, the "new" bulbs will cost consumers more money. (3) in the future, a new "new" lighting system will come along, which will take more money again from consumers. Note that it's extremely well known that when fluoros came along for industrial use, industrial users simply ..... used far more lighting, hence spending more overall. – Fattie May 03 '16 at 14:54
  • The economy of my light bulb statement is pretty simple. It's all about energy consumption and lifespan, compared to one time price of buying it. I would be higly suprised if any economists would disagree with my former comment. – jumps4fun May 03 '16 at 15:01
  • 1
    There's an interesting attempt to quantify the costs for three different bulb types here. – Peter K. May 03 '16 at 15:40
  • 5
    This is just wrong. Card processing fees are much higher than the cost of checks and I've literally never heard of anyone paying to deposit a check. Also, for the situation described in the question, there is no envelope or stamp involved. – reirab May 03 '16 at 19:52
  • The question was about check paying in general, not the specific situation. And there are other alternatives outside of credit cards, and credit card fees are paid by the seller not by the buyer. I think your critique misses the point of the question as well as the answer. – Aganju May 03 '16 at 19:57
  • 1
    Specific situation or not, the fact remains that there's way more money being made by the banks in cards than in checks, thus, the first premise of this answer is wrong. – reirab May 03 '16 at 20:06
  • If you think so - although the banks who give you credit cards are not necessarily the ones to give you checking accounts. So by merging that all-in-one 'banks' the argument becomes undefined. It is the same as claiming 'there's much more money made by selling gas' - yes, maybe, but this is another company that's making it. – Aganju May 03 '16 at 20:10
  • 3
    @Aganju - You are wrong about the credit card fees being paid solely by the merchants. If I want to pay any of my government taxes/fees by credit card (debit is not an option) then I will be whacked with a big surcharge. If I want to pay my homeowners association dues, once again big surcharge. There are other examples but there are still ample uses for checks and the only reason that online banking is more convenient is because you can setup autopay. Otherwise, writing a check versus logging in to each site to pay the bill is about the same level of pain. – Dunk May 03 '16 at 21:02
-2

In a system where electronic payment is well developed you can consider the following 2 scenarios:

  1. A person pays by cheque
  2. A person pays by card

Now let us zoom in.

1. What happens when you pay by cheque

  • A cheque is physically created, and arrives at your home
  • The check is physically transferred to the seller
  • The check is digitized for processing

2. What happens when you pay by card

  • You use your card
  • The transaction is electronically verified

Regardless of what costs are actually charged, it should not be hard to see which system is most (real cost) efficient once electronical payments are well developed.

And so, the conclusion is not hard to reach:

The electronic payment system is not yet well developed in all of the US.

Community
  • 1
Dennis
  • 1
  • 2
    If you are a merchant and you have a phone, be it mobile or landline then for like $50 + a percentage of each transaction a merchant can take credit card payments. There's not much more to be developed. – Dunk May 03 '16 at 21:06
  • 1
    @Dunk: But if once in your life you have to make a payment to Joe Blow (who's not right there so you can hand him cash), you can either go through the hassles of getting what, 17 digits of a bank account number correct, or you can mail a piece of paper with "Joe Blow" written on it. And the bank will probably accept it even if it's made out to "Joe Blew". – jamesqf May 03 '16 at 22:10
  • This answer doesn't include transfers from companies to private citizens, or inbetween people. It only adresses people paying for services or goods at a company. It is also not very well documented or argumented... – jumps4fun May 04 '16 at 08:20