August 10th, Marketplace had a segment on paper checks. It featured Professor Jay Zagorsky of Boston University. I decided to write to the show about some of the points made during the segment. The more notes I made and the more I double-checked claims, the more I knew the email would be too long to be read. So, here is my response.

[Note marketplace.org does not support industry-standard oEmbed or provide a standard way of embedding their posts, so here is the actual URL for the segment, a picture of which is included below followed by an audio stream of the show.]

The ACH system in America is really deficient to the point of being broken, and it is costing ordinary Americans actual money and putting them at risk every day due to the fragmentation of banking and money.

The rise of third-party apps, PayPal, Venmo, and Cash App, etc. just confuses and makes it increasingly difficult and expensive for everyday Americans. Even eBay now demands $2 to actually pay out directly; otherwise, it takes 1-2 days to payout. PayPal and Venmo all have charges to get direct access to your actual money, or you have to wait 1-2 days. [I’ve posted about the ACH/American Banking systems many times.]

The current deficiency requires everyday Americans to have a patchwork of ‘phone apps and web browsers. This increases the “attack front” for bad actors; more apps mean more passwords and an inconsistent series of two-factor authentication processes, one or more authenticator apps, passwords ad nauseam.

The inefficiency of the ACH opens the door to a pigs-at-the-trough situation; everyone except the individual can take their cut, and it’s normalized being slow and paying for a fast lane.

I do accept that payment requires an Internet connection and some parts of the country are still a baron landscape for both cellphone and data networks. However, increasingly satellite systems such as Amazons’, Starlink etc. are much closer to solving that – even if the Biden era infrastructure act doesn’t get there first ^[1]https://www.slashgear.com/1965463/best-starlink-alternatives-satellite-internet/

The Zagorsky Points

When I came to critic the points made by Professor Zagorsky, I actually looked for information rather than depend on my own bias and likely inaccurate memory.

Small Business: Zagorsky mentioned that a small business might be “only doing a couple of million dollars per year,” which doesn’t really hold up. The CFPB and several federal regulations often define a small business as having gross revenue under $1 million, which matches many of the small businesses we interact with. Our own business brings in around $500k in revenue per annum, has 9 employees, and includes five offices in our commercial space occupied solely by sole proprietor, medical-adjacent businesses ^[2]https://www.ecfr.gov/current/title-12/chapter-X/part-1002/subpart-B/section-1002.106.

Checks: We have not written a check in a year or more, and we ditch vendors who will NOT receive or send money electronically. We require all bills to be paid via ACH or Zelle and have an accommodation for individual “sole provider” businesses to use Venmo as a last alternative. (No, we won’t use bill pay as there is no practical way for our business to get whitelisted and included for electronic transfer.)

We switched banks because Chase refused to raise the limits on daily/weekly/monthly electronic transactions, instead pushing us toward wire transfers or cashier’s checks. Neither option is quick or cost-effective. We now have direct ACH access via a commercial banking suite.

Zagorsky alludes to the “benefits of checks” but never actually explains what they are.

Really, the days of checks being great as they gave you an “invisible” float of cash are no longer acceptable. Having $10k sitting in an account pending a check deposit sometime in the next 5-days isn’t helpful or financially savvy. Suppliers, wholesalers, retailers, and even big businesses are increasingly looking for faster payment. That simply can’t be done with a traditional 7-day reconciliation process based on the timing of the Pony Express. The ACH must modernize.

Checks No More: In the segment, Zagorsky named Germany and Australia as countries that had announced the end of paper checks. The list is much longer if you take into account those that have effectively stopped using checks. The list includes New Zealand, South Africa, and Singapore. The Nordic countries have not stopped checks, but they’ve effectively stopped using and issuing them; that includes Norway, Sweden, Denmark, Finland, and Netherlands.

Dear Sir or Madam,

I recently received a cheque from you. I would like to ask you to pay me using a different method in the future. From 1 January 2020, my bank (ABN AMRO N.V. in the Netherlands) will no longer accept cheques. ABN AMRO will stop processing cheques because they are now hardly used, which makes processing them expensive.

Would you therefore be so kind as to pay me in future by electronic funds transfer?
This can be done to the following account number:
IBAN: [your account number]
BIC: ABNANL2A
Bank: ABN AMRO

We thank you in advance for your cooperation!
Kind regards,

Cheques verzilveren is gestopt per 2020 – https://www.abnamro.nl/nl/media/Cheques_tcm16-39426.pdf

THOSE “FOR CHECKS ARGUE THEY DON’T WANT TO PAY THE “EXTRA 3% OF A CREDIT CARD PAYMENT” – A MODERN ACH WITH REALTIME SETTLEMENT SHOULDN’T COST ANYTHING.

If you don’t have the money to pay a bill, forcing checks and inefficiency on everyone else is a different problem entirely ^[3]https://theconversation.com/should-paper-checks-be-abolished-like-the-penny-287451.

Other benefits of a checkless future

Bank Lock-in: There is little competition among retail/consumer banks and where there is, it is at the margins – charges, minor interest differences. There is little around service because ultimately they are all beholden to the ACH system.

In America, paying by check or the dreaded Bill Pay system almost completely locks you in by locking you out. The alternative requires to give companies stagnant routing and account numbers if you want them to debit your account; it’s the same if you want to pay their bill or invoice. While Americans seem OK to do this for government, utilities and mortgage providers, they seem less willing to do this elsewhere ^[4]https://www.gobankingrates.com/banking/checking-account/payment-through-checking-and-routing/. When was the last time you were asked for a cancelled check?

Either of these effectively locks you into your current bank. If you want to switch banks you are required to work out all the debit timing, account details and change them either online or by calling. It is both expensive and time consuming as well as error prone. If you want to move banks.

Can you imagine a standardized bank switch system? If you live outside the USA you frequently don’t have to. The UK has had a switching service for many years that handles the process of switching banks free ^[5]https://www.currentaccountswitch.co.uk/about-the-service/

If we can’t have an honest conversation about faster payments that highlights the benefits then America is doomed to fall further and further behind. Don’t even get me started on crypto.

Footnote: The author was recruited from the UK in 1983 to work on virtualization and the world’s first home banking system, PRONTO, at Chemical Bank in New York. Later, I was part of the team that developed the first automated credit card approval system, and at 25, I became one of the youngest employees at the bank to be appointed “Assistant Treasurer.”

In 1987, Mark joined IBM UK to support the testing infrastructure for UK banks’ Year 2000 readiness. In the mid-1990s, he was part of a team that earned a Queen’s Award for Industry for their work on World Wide Web exploitation by IBM Europe. By the late 1990s, he was the lead software infrastructure architecture consultant for several major Internet banking solutions. I continued working on projects related to financial services until my retirement in 2015.