By Chris Isidore, NCS
(NCS) — First the penny. Next, paper checks?
When the US Mint stopped making pennies final month for the first time in 238 years, it drew a number of consideration. But there have been quiet strikes to cease utilizing paper checks as effectively.
The authorities stopped sending out most paper checks to recipients as of the finish of September, a part of an effort to completely modernize federal advantages funds. And on Thursday the Federal Reserve put out a discover that recommended it’s contemplating – however solely contemplating – the “winding down” of checking providers it now gives for banks.
The central financial institution’s assertion stated that as a substitute for winding down these providers, it’s mulling extra funding in its test processing providers, however famous that might come at a better value. But it’s also contemplating not making any such investments, so as to hold prices roughly unchanged. That would result in diminished reliability of these providers going ahead.
“Over time, check use has steadily declined, digital payment methods have grown in availability and use, and check fraud has risen,” stated the discover from the Fed. “Also, the Reserve Banks will need to make substantial investments in their check infrastructure to continue providing the same level of check services going forward.”
But even when it’s true that choices corresponding to direct deposit, computerized invoice paying and digital cost methods corresponding to Venmo, PayPal and Zelle have all diminished the want for conventional checks, paper checks are nonetheless an essential a part of the cost system. They make up about 5% of transactions and characterize 21% of the worth of all these funds, in response to a press release from Michelle Bowman, the Fed’s vice chair for supervision, who dissented from the Fed’s Thursday assertion.
“Checks remain important payment mechanisms for consumers and businesses,” she stated. “Discontinuing Federal Reserve check services is not an efficient solution to the growing problem of payments fraud, particularly in light of the ongoing role of checks in the payments system.”
The historical past of checks is a bit of unsure, however they’re thought up to now again practically 2,400 years. The first trendy checks gained recognition greater than 500 years in the past.
“(In) the early 1500s, in Amsterdam, Holland, …. people who had accumulated cash began depositing it with Dutch “cashiers,” for a payment, as a safer different to preserving the cash at residence, then the cashiers agreed to pay the money owed out of the cash in every account, based mostly on the depositor’s written order or “note” to take action,” stated a publish on the historical past of checking on the website of Checkeeper, a web based test printing service.
The finish of paper checks may trigger issues for shoppers who don’t have entry to a standard checking account and nonetheless rely on the small slips of paper to obtain a few of their funds, together with their paycheck. About 6% of adults had been “unbanked” in 2024, in response to the Federal Reserve, that means neither they nor their partner or companion had a checking, financial savings, or cash market account. That unbanked share rises to 22% for these with an revenue under $25,000.
Older shoppers who won’t be as snug with new applied sciences, or the estimated 10% of Americans who don’t even have smartphones, may additionally be tremendously drawback by an additional transfer in direction of digital cost methods.
And checks can nonetheless be an essential way for some retailers to be paid, or to avoid wasting prices, relatively than paying excessive transaction charges related to accepting bank card funds.
“Checks are obviously not used nearly as much as they used to be, but they’re still an important part of the financial system, especially for low-income people,” stated Doug Kantor, basic counsel for the National Association of Convenience Stores, whose members typically present money checking providers for patrons in addition to accepting checks for some funds, corresponding to auto repairs. He stated it might trigger untold and tough-to-foresee issues to wind down the checking system.
He additionally factors out that many individuals nonetheless use checks to pay their month-to-month payments – in some instances with out even realizing it – if they’ve directed their financial institution to make numerous funds on their behalf. He stated he couldn’t think about winding down the checking system any time quickly.
“At some point, they may well be eliminated entirely. It’s really hard to know how long a tail there is there,” he stated. “I would think they’re not ready to wind it down yet, and I would hope they’re not ready to wind it down yet because there are significant numbers of people – a minority, no doubt – but still significant numbers who rely on the system.”
The-NCS-Wire
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NCS’s Bryan Mena contributed to this report.