Check Out: Increased use of debit, credit cards phasing out check writing

Kirk Baird

Monday, Oct. 18, 2004 | 8:18 a.m.

Paper or plastic?

What remains a standard question by baggers at grocery stores has taken on a new meaning to consumers: paper or plastic currency?

And for the first time since the debut of credit cards four decades ago, plastic is the preference.

A 2003 study by American Bankers Association, a Washington, D.C.-based trade association for banks, found that in December more consumers relied on credit and debit cards to pay for items at the point of sale than cash or checks.

"What's causing those shifts is debit," said John Hall, spokesman for American Bankers Association, speaking from his office in Washington "Debit usage is eating into check usage around the country."

While a true cashless society still seems to be a prospect of the future, checks are becoming part of the past.

Mortgages, loans, bills, once prime reasons to write a check, can all be paid through direct debits of banking accounts.

In fact, it's possible to exist in an entirely check-free world. Las Vegan Anne Landers made the transition about a year and half ago.

Previously, she wrote at least eight checks a month for various bills. Today she writes on average one check a month for the odd payment to, say, the PTA.

"It's totally easier," she said. "I do all my banking online now. I get statements every day. Once you have everything set up to your payee, it takes about three clicks to pay" the bill.

"And you don't have to have an envelope with stamps."

Landers certainly isn't alone in her move away from checks.

In the mid-1990s Americans wrote a peak of 50 billion checks a year. This year estimates are for 37 billion checks to be processed.

Carol Carney, vice president of central services manager for Silver State Bank, has noticed the steep decline in the number of checks used by bank customers. She estimates the number of checks processed by the bank has decreased by a third in the last two years.

The reason? Debit cards and the ability to pay bills online.

"Go back five years and you hardly saw debit cards used or online payments," Carney said. "Over the last two to three years, you're seeing that accelerate."

There are several advantages to paying with a debit card or online instead of a check, she said.

For one, there's no postage. There's also less chance of a handling or coding error associated with checks.

As far as risks of identity theft, Carney said paying with debit cards and through the Internet (E-payment) is as secure as writing a check.

"The government has made it where the consumer is covered very well in terms of liability if identity theft does occur," Carney said. "The regulations are set to secure the consumer and make them feel secure in putting anything out there."

While consumers are quickly making the switch from paper checks, banks and many businesses are eager for the transition.

Handling checks is burdensome to banks and businesses. But electronic payments are faster, easier and cheaper.

For example, banks have to transport an estimated 101 million checks each day at a cost of 16 cents apiece, according to a recent article in U.S. News & World Report. Clearing an E-payment, however, costs only 2 cents.

Those savings are a major impetus behind the Check Clearing for the 21st Century Act (Check 21), a law that goes into effect Oct. 28.

According to the Federal Reserve Web site, "Check 21 is designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation."

Confused?

Essentially, the law allows banks to shorten check handling by converting the paper check to a digital image and to deliver the electronic "substitute check" to other banks.

"The substitute check would be the legal equivalent of the original check and would include all the information contained on the original check," the Federal Reserve states. "The law does not require banks to accept checks in electronic form nor does it require banks to use the new authority granted by the act to create substitute checks."

Under the Check 21 law, banks and businesses will continue to accept paper checks and consumers will notice a difference in the processing time.

For example, if you write a check at a Wal-Mart the checker will take the check, load it into a machine that scans it for pertinent information (such as the bank and account number) and then converts it to digital form. Before the checker hands the check back to the customer, the information already has been processed.

The time period of waiting for a check to clear, normally a 3-to-5 day process, is digitally streamlined to 1 to 3 days.

"The bigger banks could get a check image back and forth from the East Coast to the West Coast in the same day," Carney said. "That's going to be the initial hardship for the consumer to get used to, the quicker clearing times of the checks." While checks are clearly going through a transitional phase into the digital age, it's still premature to disregard the convenience of having a checkbook.

"You can't pay your baby sitter with a debit card," Hall said. "Some things are more convenient to write a check for."

Which is why checks may always be around in some form.

"People have been predicting the demise of the check ever since the credit card was introduced 40 years ago," Hall said. "I compare that to people's predictions with ATMs' introduction that we would no longer have tellers. People love ATMs, but people love tellers and still use them. In fact, we have more branches than we ever have."

Plus, there are those who simply prefer paper payment methods over plastic.

Deanna Lopez, a nail technician at Hair Attic, a small salon in the central Las Vegas Valley, operates on a cash-only basis. The salon doesn't have a debit or credit card machine and Lopez rarely takes checks.

"I've had too many problems from people bouncing checks," she said. "And it's more convenient for me to take cash." She also doesn't own a credit or debit card.

"With credit cards I can run up the bill," she said. "But if I don't have cash, I can't buy it.

"If I can't afford it, I can't get it."

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