About a year ago, we set out to address the biggest question in banking for which no one ever seems to have a real answer: How much longer will paper checks continue to exist? The mathematical models we used to predict the future of checks in our white paper, titled The Disappearing Check: How Much Longer Until the End?, indicated that we can probably expect them to stick around in meaningful numbers until at least the mid-2020s, but where they go after that is anyone’s best guess.
So, what happens next? We’re all used to seeing new payment methods come about, but none of us has ever been around to witness the end of one as widespread as the check. No one will be there to tell us “It’s over” – so how, and when, will we know when time is up?
First, a little good news: It looks as if there may be some new information that backs up our theory that checks in America will last into the 2020s. For that to happen, their current rate of decline – about 2 billion per year, which has remained steady for the past decade – would have to slow appreciably, or we would reach zero checks per year in 2021. Official statistics on check usage are published once every three years by the Federal Reserve Bank, with the next report due out later in 2016. In the meantime, other signs – such as the growth rates in ACH and credit card transactions, for example – seemed to indicate the decline may be slowing to about 1.5-1.6 billion per year. (For the complete statistical breakdown of why this may be happening, you can download our full report here.)
One near-certainty is that checks will NOT end simply by declining to zero on their own – there is no scenario in which they dwindle from the billions to the millions and then the thousands, until finally only one person is still writing them. Instead, there will be a “tipping point” at which there are so few checks that the economy of scale disappears; businesses will stop accepting them, and the banking infrastructure will become too expensive to maintain. So the end for the check will probably come via an organized phase-out, in which the banking industry, either unilaterally or with the help of regulators, chooses a date after which paper checks simply will not be accepted any more.
In fact, that’s exactly what happened recently in Great Britain, where the industry moved in 2009 to shut down its central check-processing system by 2018. But after lengthy public and political discourse, the country reversed course and voted to keep checks indefinitely, modernizing the clearing system instead. Could this give us a clue about how much longer the check has in the U.S.?
Well, Americans write a lot of checks. More than anyone else in the world, it turns out. Five times as many (per person) as Britons, twice as many as Canadians, and nine times as many as Brazilians – all of whom recently moved to modernize their countries’ check-clearing systems rather than shut them down. In absolute terms, that means Britain and Canada both process fewer than a billion checks per year, while Brazil generates between 1-2 billion.
Considering what other countries have done, and making adjustments for population and geography, the most likely number for the U.S. would be about 3 billion checks written per year – we’re currently at 18.6 billion – in order for serious consideration of a phase-out to become likely.
So what happens when the industry decides to get rid of checks once and for all? There would doubtless be an advance notice measured in years to allow people to prepare for the transition. The nine-year lead time originally proposed in the UK is probably at the long end of the likely range. However, we would expect at least a three-year notice, and perhaps five, depending on how eager the industry was to get rid of them. Ultimately, the remaining lifespan of the paper check probably depends on an issue that was the focus of our original white paper: How hard it is to eliminate the last remaining checks once we get down to about 8 billion or so per year.
Some examples of these “difficult” checks might include small businesses without websites or online payment capabilities, consumers with limited internet access, payments to consumers without bank accounts, and so forth. While the technology to displace some of these checks already exists – for example, the ability to send a payment using only the recipient’s email address – it remains to be seen how quickly they will gain mass adoption among the market segments that matter.
So to make a long story short, it still seems like a mid-2020s demise for the paper check with an official phase-out in 2030 is the earliest realistic date for the checks to end; but whenever the end may come, we can expect it to arrive with a flat certainty, not a drawn-out process of hanging on.