In 2019, we have so many opportunities to pay for things digitally — whether by typing in credit card numbers for online purchases, sending friends money via Venmo or tapping our phones against mobile readers at stores — that we could potentially go days without taking our credit cards out of our wallets. And those advances make another form of payment — paper checks — seem particularly archaic. In fact, they beg the question: Is there any need for checks? Here’s where the old-school paper payment stands.
When do you need to use a check?
“We mostly see checks being used by those in the older generation who are distrustful of using a credit [or] debit card, or don’t know how to submit an electronic payment,” said Keith Smith, CEO of Wonder Technologies. But even members of the youngest generations can still find themselves subjected to check payments from time to time. “You may occasionally come across an old-fashioned landlord that requires a security deposit in check or money order form, but the instances are so rare.” Some landlords may also require rent to be paid via check; and certain service providers (like home repair companies) also ask for written payments.
What are the upsides of paying by check?
Businesses have to pay processing fees when they accept credit card payments (usually in the range of two to 5 percent, according to Bankrate); and in some cases, they may pass that charge on to you. “Sometimes we run into Millennials, usually in larger cities where rents are high, using their credit cards for rent to pick up extra rewards point, especially when they have a card that gives them 2x or 3x points [per dollar],” said Priya Malani, co-founder of Stash Wealth. “Although we are all about hacking rewards points, the math here almost never makes sense due to the convenience fee charged for using a credit card. In these cases you’re better to use a check, or billpay from your checking account.”
And then there’s the fact that, as NerdWallet pointed out, you don’t need to be online to use a check. While these days, we’re rarely offline, it’s still possible for your phone to lose connection when you need to make an electronic payment or for a store’s card payment system to be down — have a couple checks in your bag can give you an alternate option in the event that happens.
Some people also find value in the paper trail checks leave — it’s very easy to see exactly who you paid and what for when looking at carbon copies in your checkbook or digital images in your online bank account. While you can track debit and credit card transactions online as well, some charges are labeled in mysterious, unclear ways that can cause serious confusion when reviewing your statements.
And the downsides?
One of the biggest downsides of using a check is the lag-time from when you write it to when it gets chased and clears your account. “A check takes several days to clear, which means the transaction is not immediately viewable on a consumer’s digital account summary,” said Brian Milton, head of retail products and payments for Union Bank. “Debit transactions are reflected on a consumer’s account balance immediately after purchase, providing consumers with greater ease in managing cash flows.” That said, Todd Christensen, the education manager at Money Fit by DRS, Inc. and author of Everyday Money for Everyday People noted that the Check 21 Act that went into effect in 2004 has allowed banks to process checks fairly quickly.
If there is a delay, whether by the person you paid not cashing the check right away or the bank processing slowly, it can make it harder to keep track of how much of the money in your account is actually still yours to spend. “Since money is not withdrawn immediately from a bank account when writing a check; bouncing checks happens more often, which can wreak havoc on your credit score,” Smith said.
And, while you may be saving on credit card processing fees, checks can cost you in other ways. “It is free to report a lost debit card, whereas most banks and credit unions have fees for placing a stop on a check,” Christensen said. And while some banks provide free checkbooks to customers, many charge. In some cases, according to Bankrate, you could pay upwards of $35 for a box of checks — which is particularly costly if you only need a few. To avoid that expense, Christensen recommended you “check with your bank or credit union to see if they can provide free temporary checks every few months.”
Are checks more or less secure than other payment methods?
As Vice reported, some see checks as more secure than electronic payments because of the possibility of digital hacks; but according to the Association for Financial Professionals annual fraud survey, checks are more susceptible to fraud than any other payment method. “A check can be a treasure trove of information for fraudsters, as a consumer’s account number, name, address, bank and routing number are all printed on each check,” Milton said. “If a consumer writes out a check at a retail location, [they] may also be required to provide their driver’s license number or even their Social Security Number (in certain states). As a result, there is a risk that a consumer’s account or personal information gets compromised each time they pay with a check.”
Debit card payments, on the other hand, have multiple forms of built-in security. “EMV chips and PIN numbers help ensure that payments are appropriately authorized by the account holder, and fraud detection tools and card management controls provide additional protection when unauthorized activity is suspected,” Milton said.
Are checks on their way out?
According to the Federal Reserve, the number of check payments per year has steadily declined since its peak in the mid-1990s; and all signs point to that trend continuing. “Almost all businesses only accept cash and credit [or] debit payments, and less and less will be willing to accept checks as payment as time goes on,” Smith said.
While Milton doesn’t believe checks will become obsolete anytime soon, he also doesn’t see a need for every person to carry (or have) paper checks on them. “As the world becomes more digitized, more merchants and individuals alike are accepting more secure, faster and easier forms of payments than checks,” he said.
Malani also said she doesn’t see checks disappearing in the near future — but she does see it happening eventually, especially with services like Venmo serving the same purpose. “Digital payments are more convenient and easier to trace,” she said. “Eventually, newer technology replaces most things that we are reliant on. Who carries a camera anymore or has a landline in their home?”