Check-less Checking Accounts: The Wave of the Future?
January 14, 2010
The UK Payments Council, a policy-setting body made up of a consortium of British banks, wants to get rid of paper checks. The formal goal is to completely phase out paper checks by the year 2018. Studies show, however, that paper checks are still popular with checking account customers, especially those age 65 or older. The paperless movement will therefore face hurdles.
Regardless of how it plays out in the long run, this move by British banks sparks a debate about the role checks should play in the lives of bank customers, as well as societies as a whole.
Consumers Like Paper Checks
The British banks have pegged the cost of processing a paper check at 1 British pound per check. Electronic payments are much cheaper to process. It's natural, then, that the banks should want to get rid of paper checks. But consumer affection for checks is also a factor. According to a December 2007 study by Harland-Clarke, a firm that works closely with financial services clients, nearly 3 in 10 checking account users still regard paper checks as their preferred method of payment. Debit cards recently overtook the top spot, with 34%, but checks still come in second.
More stats from the study:
- 67% of checking account users write 10 or more checks per month.
- 53% of respondents said their check-writing has not decreased over the last five years.
- More than one-fourth of respondents write more than 20 checks per month.
Statistics like these indicate that even if banks want to get rid of paper checks, consumers may not be quite ready to take that step.
Closer Cooperation Between Banks and Payees Could Bridge the Gap
Debit cards and electronic transfer payments are easy and convenient when you're paying certain people. For instance, it's easy and convenient to buy groceries with your debit card. However, other payees are less electronic payment-friendly. Landlords and utility companies are two payees that fit in this category.
In order to phase out checks while still meeting the desires of checking account customers, banks may have to coerce the payees into better facilitating electronic payments. This is already underway to some degree--many utility companies now encourage consumers to pay online. In the meantime, though, paper checks will remain a popular option to pay certain bills.
Low Bank Deposit Rates and Excessive Bank Fees Play a Part, Too
To encourage the phase-out of paper checks, banks can also try to satisfy customers in other ways so that customers are willing to accommodate the bank's desires to cut down on paper checks.
As of right now, with checking account interest rates, money market account rates, and savings account rates at historic lows and bank transaction fees multiplying like rabbits, checking account users may not see the benefit to them in helping banks lower check processing fees. If interest rates paid on deposits were to rise appreciably and/or the average consumer were happier with their banks generally, the transition to paperless checking accounts might go more smoothly.