The news cycle over the last few months has not been kind to checks.
First came the news that check fraud is on the rise. Then Target joined several other major retailers in announcing it would no longer accept checks at nearly 2,000 American stores.
Meanwhile, according to data collected by The Washington Post, less than 10% of those aged 25 or younger write checks on a regular basis. The digital natives of Gen Z seem to favor more modern solutions.
Add it all up and you could be forgiven for thinking that checks are dead and buried. So, should we draft an obituary for this centuries-old payment method? Or is there life left in the humble promissory note? Let’s dive in.
Checks in Modern America – A Main Street Guide
Since 1999, Main Street has delivered high-quality checks to community banks and credit unions across the nation. Even so, we’re not blind to the challenges checks face in the 21st century.
Check fraud, a decline in usage, and a lack of acceptance by major retailers may paint a bleak picture. But bombastic headlines can’t convey the nuance behind these issues.
Check Fraud by the Numbers
Identity theft, data breaches, phishing schemes – the imagination of crooks knows few bounds. But in an age where the most sophisticated scammers focus on 0s and 1s, others are using decidedly low-tech means to make an ill-gotten buck.
What is Check Fraud?
For our discussion, check fraud can be defined as the act of manipulating, printing, or stealing checks for the purpose of defrauding accountholders and financial institutions.
Is Check Fraud on the Rise?
Yes, sadly: check fraud saw an increase in 2023. That said, the issue may not be as disastrous as those headlines suggest. Data collected by the Association for Financial Professionals (AFP) can add some much needed context to the troubling trend.
To measure annual check fraud, the AFP weighs the prevalence of attempted fraud/actual payments made. The figures collected represent the percentage of institutions affected each calendar year.
As we wait for the 2024 numbers to roll in, we can look at past years to chart the rise of check fraud.
Check Fraud in 2023 Fell Short of 2018-2019 Peaks.
Taking the last four years at face value, we see a steady (if somewhat inconsistent) increase. But if we go back just a few more years, we notice that the issue isn’t quite as new as advertised.
By all accounts, 2018 and 2019 were worse years for check fraud than 2023. Additionally, the mean average tells a different story.
So, is Check Fraud Really Rising?
Yes, check fraud is definitely trending upward. But it’s not as high as it has been in just the recent past. The trend has ups and downs. In times of acute economic hardship, or in times of intense social disruption (COVID-19, for instance) we may expect a temporary spike.
While the recent rise of fraud should worry us all, it shouldn’t be seen as the harbinger of ultimate doom that some headlines make it out to be. In any event, it certainly doesn’t spell the end of checks as we know them.
If checks could survive from 2016 to 2019, they can survive the current trajectory, too.
Why are Major Retailers Not Accepting Checks?
Setting our skepticism aside, we might take major retailers at their word. Fewer people are paying with checks, so why accept them at all? Add in the element of check fraud and it seems like a sensible thing to do.
That’s certainly the easiest explanation. But there may be other motives at play, especially when you consider the implications of not accepting a certain form of payment across thousands of stores.
Processing Fees
While plenty of major retailers and mom-and-pop stores accept checks, some of America’s leading brands (Whole Foods, Aldi, etc.) have decided against it. Another possible culprit could be the fees associated with processing those checks.
All businesses are subject to automatic clearing house (ACH) or interchange fees – small payments made to financial institutions or card issuers for the convenience of accepting payment methods.
For cards, an interchange fee may be a percentage of the sale (something like 0.03% for example) but seldom in excess of 20 cents or so. For checks, processing fees can be higher.
According to Paystand, check processing fees can range from $4 to $20 per check – a significant increase from the cents paid per card transaction. In an age where fewer people are relying on checks, $4 may not seem like a lot. But when multiplied across thousands of stores, check processing fees can add up and eat into profits.
Waiting for Checks to Clear
The time it takes to receive payment could be another contributing factor in the decision not to accept checks. When a consumer pays for a good or service with a card, the money transfers more or less immediately.
Checks, however, take just a bit longer. With the exception of certified checks and cashier’s checks (which clear much quicker), major retailers could wait up to one or two business days for payment.
For freelancers or small businesses, 24 to 48 hours may not seem like a lot of time. But for big businesses especially, money in hand is better than money eventually. Together with processing fees, this delay could contribute to new policies from some of America’s largest brands.
Who’s Using Checks Anyway?
The answer to this question is: more people than you think. Returning to The Washington Post analysis, we see that Americans younger than 25 are the least engaged with checks. That said, even Gen Z writes them for big-ticket items.
Of course, Gen Z is just one datapoint on the long-term, check-writing demographic spectrum. The same fear of a “tech-savvy generation” abandoning checks could have been said of Millennials – inarguably the first “digital natives.” So, what do we see from that and other generations?
Millennials are using checks at nearly three times the rate of Gen Z – more than 25% write them every 30 days or so. While we continue to see enthusiastic usage among Baby Boomers, age is only part of the equation. Checks may enjoy greater adoption by older Americans simply because older Americans make larger purchases more frequently.
According to Jason Young of the Wisconsin Bankers Association, the average amount of checks is increasing. We may use them for fewer purchases, but those purchases are bigger and more significant to our lives.
So, What’s Next for Checks in America?
Regardless of usage trends and the actions of major retailers, we can all agree that check fraud is a hefty issue.
Some pundits have even called for the elimination of checks entirely. This is, of course, a silly solution. By most accounts, money order and debit card fraud are much more widespread, though no one is calling for an end to either payment method.
What industry insiders are demanding, though, is the creation of substantial policy addressing the lax practices that empower fraudsters.
Demanding Action from Elected Leaders
In searching for a solution, we must first identify the root of the problem. In an open letter to Senators Sherrod Brown and Tim Scott, Christopher Williston, President and CEO of the Independent Bankers Association of Texas, lays the blame squarely at the feet of our nation’s largest banks.
On August 7, 2024, Williston sent a letter to members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs outlining the mangled web of communication and reimbursement resulting from check fraud.
Without the safeguards common in community banks and credit unions, Williston argues, larger banks are enabling fraud and making it difficult for smaller financial institutions to request or receive restitution.
At the time of writing, no response has been issued by the senators or larger committee. But we can all hope that the issue is taken up and that our nation’s leaders demand more from the largest national banks.
Main Street Believes in Checks. You Should, too.
For the last 25 years and counting, Main Street has marked the ebb and flow of the financial world. We know the vital role that business and personal checks play in American life and have dedicated ourselves to the maintenance of thriving check programs nationwide.
Our 2,000+ clients believe in checks. Their accountholders believe in checks. So, to serve them better, we never charge for customer service, always provide free marketing materials, and guide programs to profitability through strategic account management at no extra charge.
Checks have been around for more than a millennium. They’re not likely to disappear overnight because of bad actors, major retailers, or the advent of digital payment methods – period.
Invest in Checks & Profitable Check Programs. Reach out to Main Street Today.
Checks aren’t going anywhere. In fact, most Americans prefer checks for life’s biggest purchases. At Main Street, we believe in check fraud prevention. Our high-security checks, custom check designs, and strategic account management services drive engagement and satisfy accountholders for robust and profitable check programs. To learn more, contact us today!
Sources:
Zagorsky, Jay L. 2024. “Target Just Became the Latest US Retailer to Stop Accepting Payment by Checks. Why Have so Many Stores given up on Them?” The Conversation. July 16, 2024.
Van Dam, Andrew. 2023. “Analysis | Paper Checks Are Dead. Cash Is Dying. Who Still Uses Them?” Washington Post. September 15, 2023.
“Finance and Treasury Survey Research & Economic Data.” 2024. AFP. 2024.
Martinez, Zazil. 2024. “Understanding Paper Checks: Insights for B2B Transactions.” Paystand.com. Paystand. June 13, 2024.
Stevens, Theresa. 2024. “How Long Does It Take for a Check to Clear?” Forbes, July 11, 2024. https://www.forbes.com/advisor/banking/checking/how-long-does-it-take-for-a-check-to-clear/.
Young, Jason. 2024. “How Positive Pay Helps Fight Check Fraud – Wisconsin Bankers Association.” Wisconsin Bankers Association. June 17, 2024.
Elder, Laura. 2024. “Large Banks Abetting Rampant Check Fraud, Advocacy Group Argues.” The Daily News. August 14, 2024.