Frequently Asked Questions About Checks and the Check Payments System

Q: How popular are checks in comparison to other forms of payments?

A: Even when faced with a number of payment options, the vast majority of consumers still choose to write checks making them the dominant form of non-cash payments. Look at the following 2002 updated numbers in Federal Reserve's Depository Financial Institution (DFI) Check Study:

• For every 15 billion credit and charge card transactions there are 42.5 billion transactions via checks, totaling about $39.3 trillion in payments, as opposed to just over $7 trillion for all other electronic payments.
• American consumers make approximately 60 percent of non-cash payments by check.
• A check today is 65 percent more likely to be used than all electronic payments combined.

Q: How many Americans have checking accounts?

A: Writing a check is a common experience shared by Americans of all backgrounds and income brackets. According the Federal Reserve Board's DFI check study the average American household writes 19 checks a month. In 1998, the Board of Governors of the Federal Reserve System said that nearly 90 percent (87 percent) of all U.S. households have a checking account (Board of Governors of the Federal Reserve System, 1998, Survey of Consumer Finances for 1998, Washington DC: Federal Reserve System.)

Q: How popular are checks in the United States compared with other countries.

A: In the United States, consumers have spoken and they want to keep their checks! American consumers continue their love affair with the checks like no one else. The United States is the only major economic powerhouse to experience a growth in total check volume and value during the 1990s (Federal Reserve Bank of Chicago, Economic Perspectives 30/2002 "Why do we use so many checks?").

Q: Is check use increasing?

A: Overall check usage has increased 54 percent since 1979. The Federal Reserve estimates that in 2000, 42.5 billion checks were written in the United States accounting for nearly $40 trillion. If you combine the value of checks and electronic payments in the United States, checks account for 84 percent of the total value (Federal Reserve Board, Retail Payments Research Project, 2001, Updated 2002).

Q: How have checks adapted to new technology?

A: Many predicted that the "paperless" world would spell the end of the check. In fact, checks have evolved over the last 30 years to become more safe, reliable, efficient and consumer-friendly. Technology now allows the vast majority of checks to be verified at the point of sale providing convenience and security for consumers and business. The Federal Reserve estimates that between 75 percent and 97 percent of checks written were verified at the point of sale in 2000 (Federal Reserve Board, Retail Payments Research Project, 2001, Updated 2002).

Check manufacturers and distributors also use technology to amplify the consumer benefits of checks and respond to customer needs. For example, the Internet is now the fastest growing order channel for checks and many consumers can now view cancelled checks through digital imaging and online banking programs. Check electronification - in which a check is scanned for account information at the register - turns a paper check into an electronic transaction, cutting costs for stores and preventing losses through fraud. It also makes checks faster and easier for a bank to process.

Q: How can you guarantee security when people use checks?

A: Over the last 30 years checks have evolved to become more secure for customers. Today, a variety of fraud prevention practices are working to prevent fraud including bank employee training, signature verification systems and the use of new account screening software. The American Bankers Association in its 2002 Deposit Account Fraud Survey reported that large banks prevent more than 80 percent of check fraud cases.

Technology has also increased consumer protection. Checks are printed with a variety of security features that protect against alterations and duplication including micro-printing which makes reproducing checks by using laser printers and photocopiers more difficult; security-screened designs on the back of the check; and multi-stained security paper which prevents chemical alteration of names and amounts.

Consumers can also look for the padlock icon that appears on the front and back of a check. This important symbol indicates that the check contains security features recommended by the Check Payment Systems Association.

Q: How is check fraud being prevented?

A: Check fraud remains relatively small in comparison to other payment methods. Still, banks employ a number of tactics to prevent check fraud. First, banks and merchants are practicing more due diligence in the process of "knowing your customer" and are working to better educate the consumer. Second, there is a large movement toward increasing the use of technology in fraud prevention. New leading-edge technology is already helping to reduce fraud in many areas by validating the identity of customers through fingerprinting or retinal scanning techniques during check cashing transactions.

Q: Why should a consumer pay with a check?

A: Although bombarded with advertisements and offers for electronic payments, American consumers make approximately 60 percent of non-cash payments by check. A recent study by The Federal Reserve Bank of Chicago stated three key reasons why consumers find checks easy to use. First, nearly 90 percent of U.S. households have checking accounts. Second, checks are a widely accepted form of payment by merchants at the point of sale. Third, checks are the most popular payment method for paying bills because they are almost always accepted. The study also concluded that consumers perceive checks to be low-cost payment instruments that give them greater control over timing and payments and lead to better budgeting. In short, consumers are comfortable with checks and are reluctant to change their payment habits (Chakravorti, Sujit and McHugh, Timothy, 2002, "Why do we use so many checks?" Federal Reserve Bank of Chicago, Economic Perspectives 30/2002).

Q: Is it possible to shop online and pay by check?

A: Yes, some online retailers allow you to make purchases by check. Some sites have customers send a check and then process the order once the check has been received and cleared by the bank. Many, however, are moving to an ACH debit transaction called WEB. The customer enters their check data in the designated spaces. The data is then used to initiate an ACH debit. This speeds up the process of ordering as well as merchandise shipping and receipt. Some Web sites also offer those who are concerned about Internet security a 1-800 customer service line to call in and give their data. This too is an ACH debit called TEL, whereby the debit is initiated by a telephone authorization from the customer.

Q: Often, when customers purchase items with a check in a retail store, the store scans the check, prints a slip for the customer to sign and returns the check. Why does this happen?

A: This process is called check electronification. A customer's check is scanned for account information at the cash register and converted to an electronic transaction. An authorization slip is printed out for the customer to sign - similar to a credit card transaction. This process allows stores to cut down on costs and helps prevent losses through fraud and closed accounts.

Q: Many people are on tight budgets. How can writing checks help them learn to stay within their budgets?

A: Writing checks helps consumers stay in control of their spending habits. Check writing encourages effective record keeping and strong personal financial management skills. Using duplicate checks helps even more, as consumers are able to keep a carbon copy of all of the checks they have written. Checks also give consumers more control over when to pay than pre-authorized ACH payments that automatically deduct amounts for checking accounts each month (Mester, Loretta, 2000 "The changing nature of the payments system: Should new players mean new rules?" Business Review, Federal Reserve Bank of Philadelphia, March/April, pp. 3-16).

Q: How many people use checks to pay bills such as credit cards and utilities?

A: Using checks to pay bills is a hands-on approach to family budgeting that helps give people control over their finances. It improves record keeping and provides a reliable and simple way for people to track where their money is going and to whom. According to a recent survey conducted for Western Union, checks remain the most popular form of bill payment in the United States (Opinion Research Corporation International, Oct. 14 2002. Survey conducted for Western Union. "New Survey Uncovers Eye-Opening Facts About American's Bill-Paying Habits", PR Newswire).

Q: If I need to access a check from my records how can I get this information and how long will it take?

A: Some banks now offer digital images that can be accessed online at an ATM or at a special kiosk located at some branches. With this new technology, banks can access checks within minutes of a request and provide customers with a copy. However, online banking access for this information is far more prevalent, as very few ATM machines currently offer this service.

Q: What types of transactions do people write checks for?

A: According to the Federal Reserve's most recent DFI study, most checks are written for remittance or bill payment (25.7 percent of check volume). The next most popular reasons for check writing are point-of-sale purchases (19 percent) and salary and benefits payments from businesses and governments to consumers (17.8 percent). The Federal Reserve System also estimates that consumer-to-consumer payments accounted for 11.2 percent of total check value in 2000 (Federal Reserve Board, Retail Payments Research Project, 2001, Updated 2002).

Q: Hasn't check use has been on the decline for some time?

A: Rumors of the check's death have been greatly exaggerated for some time. The truth is that even when given a number of payment options -- the vast majority of consumers still choose to write checks, making them the most popular and trusted form of non-cash payment in America. A check today is 65 percent more likely to be used than all electronic payments combined. Consumers rely on and trust checks to always be readily available, to be easy to use, and to be accepted when other forms of payments are not possible (Federal Reserve Board, Retail Payments Research Project, 2001, Updated 2002).

Q: Shouldn't we be encouraging people to adapt new electronic payment methods? Isn't this better for the consumer?

A: If there is one-thing consumers have shown us over the years it is that they want to have a choice when it comes to payment options. Consumers choose to write checks because of their convenience, reliability and safety. Consumers - not financial institutions -should be the ones to decide what payment options works best in their lives.

Q: Aren't there more electronic payments then checks in the United States?

A: It's true that electronic payment use is growing, but it still represents only a fraction of payment transactions in the United States. Nearly $40 trillion travels through the monetary system by checks - only $7.3 trillion travels through all other electronic payment systems combined (Federal Reserve Board, Retail Payments Research Project, 2001, Updated 2002).

Q: Aren't more people beginning to pay their bills online?

A: According to the Federal Reserve Board of New York, the spread of online bill paying has been very slow, falling far short of initial projections (Chris Stefanadis, Federal Reserve Board of New York, 2002 as cited in Dow Jones/AP News, August 28, 2002, "Online Bill Paying runs up against cost, consumer reluctance"). For example, AT&T, one of the nation's largest sender and collectors of bills started taking electronic payments over the Internet four years ago. In January 2002 it reported that one million of its 50 million customers pay their bills online. This means 49 million still send a check (Newman, Richard, September 9, 2002, "Snail Mailers: Many still pay bills the old-fashioned way," The Record, Bergan County NJ).

Q: Aren't people much more likely to pay by credit card than by check?

A: Although bombarded with advertisements and offers for electronic payments, American consumers make approximately 60 percent of non-cash payments by check. Consumers rely on and trust checks to always be readily available, to be easy to use, and to be accepted when other forms of payments are not possible (Federal Reserve Board, Retail Payments Research Project, 2001, Updated 2002).

Q: Aren't Americans the only ones still writing checks? Are we a little behind the times?

A: In the United States the customer is always right, and their desire to continue to write checks is a large reason that the United States seems to have experienced growth in total check volume and value during the 1990s. In every other Group of Ten (G-10) country, consumers are actively encouraged not to write checks. When the choice to write checks is no longer readily available, the volume of checks written and their value in these countries understandably declined throughout the 1990s. U.S. consumers demand choice from their banks and they will continue to view checks as an important financial tool.

A recent study by the Federal Reserve Board of Chicago concluded that consumers will continue to write checks because they perceive them to be low-cost payment instruments that give them greater control over timing and payments and lead to better budgeting. In short, consumers are comfortable with checks and are reluctant to change unless there are strong incentives to do so (Chakravorti, Sujit and McHugh, Timothy, 2002, "Why do we use so many checks?" Federal Reserve Bank of Chicago, Economic Perspectives 30/2002).

Q: Don't checks account for only a small fraction of the money in the U.S. monetary system?

A: The death of the check has been greatly exaggerated. Although electronic payments are rising, they still represent only a fraction of payment transactions in the United States Nearly $40 trillion travels through the monetary system by checks - only $7.3 trillion travels through all other electronic payment systems. Of the $47 trillion combined value of checks and electronic payments, checks account for 84 percent of the total value (Federal Reserve Board, Retail Payments Research Project, 2001, Updated 2002).

Q: Isn't it expensive for businesses to accept checks from customers?

A: In reality, the opposite is true. According to research conducted by the Food Marketing Institute in 2000, a erified check is actually the cheapest form of payment for a merchant to accept. A verified check costs a merchant them 60 cents per $100 in sales. The cost of a verified check per $100 is significantly less than cash, off-line debit cards and credit cards.

Q: Okay, but how many checks actually get verified when they are written?

A: The Federal Reserve estimates that between 75 percent and 97 percent of checks written were verified at the point of sale in 2000.

Q: Hasn't check use been on a rapid decline over the last twenty years?

A: Since 1979, check usage has increased 54 percent. In 2000, 42.5 billion checks were written in the United States, accounting for nearly $40 trillion. The value of checks written in 1979 was $24 trillion.

Q: Isn't it time we give up the check as old-fashioned? Aren't consumers really looking for a faster, more convenient way to pay?

A: Checks are a payment choice that consumers do not want to give up. They are reliable, safe and convenient. Checks also fill a vital consumer need, and can be used where other forms of payment are not possible. Unlike electronic options, checks can be used for person-to-person payments - for payment to a babysitter or lawn trimmer, for example, or for use as gifts.

Checks are always keeping in lock step with the times. Check manufacturers and distributors today use technology to amplify the consumer benefits of checks and respond to customer needs. They have carefully integrated technology into their business models to ensure that checks remain pro-consumer. For example, the Internet is now the fastest growing order channel for checks.

Q: Don't checks simply take too long to write?

A: Check manufacturers and distributors continue to make improvements to checks to make them faster and safer. For example, check electronification - in which a check is scanned for account information at the register - turns a paper check into an electronic transaction, cutting costs for stores, preventing losses through fraud and speeding up transactions for the customer It also makes checks faster and easier for a bank to process. Checks also fill a vital consumer need, and can be used where other forms of payment are not possible. Unlike electronic options, checks can be used for person-to-person payments - for payment to a babysitter or lawn trimmer or for use as gifts.

Q: Isn't increased use of the Internet bad news for the check industry? Wouldn't the Internet increase electronic payment methods and decrease check use?

A: Actually the opposite is true. Check manufacturers and distributors use technology like the Internet to amplify the consumer benefits of checks and respond to customer needs. They have carefully integrated technology into their business models to ensure that checks remain pro-consumer. For example, the Internet is now the fastest growing order channel for checks.

The Internet is also continuing to make checks more convenient for consumers and businesses. For example, digital imaging technology is speeding check delivery to customers through "snapshots" of cleared checks now available to many customers through online banking programs.