The Right to Bear Checks

"Why Do We Use So Many Checks?" by Sujit Chakravorti and Timothy McHugh, in Economic Perspectives (2002: Third Qtr.), Federal Reserve Bank of Chicago, 230 S. LaSalle St., Chicago, Ill. 60604–1413.

Every month in the United States, more than 15 checks per person are written. That’s more than three times the number in Canada and at least 15 times the number in Italy and several other European countries. What happened to America’s commitment to the brave new checkless world?

Checks may be less efficient than electronic payments, according to Chakravorti and McHugh, a senior economist and a senior analyst, respectively, at the Federal Reserve Bank of Chicago, but American consumers don’t see much individual benefit in quickly switching to the new format. While credit cards are now more popular than checks for point-of-sale transactions, total check volume went up in America during the 1990s, while it declined in most other industrialized countries. Of the nearly 50 billion checks written in the United States in 2000 (total value: $48 trillion), consumers wrote slightly more than half.

Consumers perceive each check as virtually free. Instead of per check transaction fees, most prefer bank accounts with fixed monthly fees, or minimum balance requirements and no fees. In any case, the costs are hidden.

With the rapid increase in the use of check verification systems, most merchants now have little reason to stop accepting checks. The systems cut the cost of accepting checks to 60 cents per $100 of sales, which is less than for any other form of payment, including credit cards ($1.80) and even cash (90 cents).

And check services are a big business for financial institutions. "On average, they charge customers 21 cents and merchants five cents to process each check." In 1995, they collected $8.1 billion in fees for bounced checks while losing only $400 million on bad checks. Even if banks wanted to discourage check usage by imposing a small fee for each check (as Norwegian banks did, thereby cutting check usage about 90 percent), competitive pressures might keep them from doing so. There are a few signs that consumers may be changing, but most seem to act as if the only way anybody will get their checkbooks away from them is by prying them from their cold, dead fingers.