English banks are phasing out checks:

After more than three centuries, the humble check is set to become a historic relic after British banks voted to phase it out in favor of more modern payment methods.

The board of the UK Payments Council, the body for setting payment strategy in Britain, agreed on Wednesday to set a target date of October 31, 2018 for winding up the check clearing system. The board is largely made up of Britain’s leading banks.

As others have suggested, it’s likely that this move will be redundant. Probably not for everybody, though. The advantages of checks is that anybody can cash one. I assume that between now and 2018 that they will work it so that it will be easy for people to accept funds into their bank account with a minimum of fuss. It’s not difficult now, of course, but you still have to kind of get set up for it. Right now, when I go to an automatic draft, all of the information I need is… on my checks. Just the other day I was trying to figure out if there was a good way that I could buy my sister-in-law an iTunes gift card without having my having to open an iTunes account. Apple does not seem to want things to work that way, so I thought about finding someone that did have an account, paying them, and then having them buy the gift card. But right now it’s an open question as to who can easily accept online payments. While checks presented their own problem (in this case, it would take too long), it’s still the universally accepted form of payment.

For credit cards to have worked in the first place, one of the things that needed to happen was for the consumer not to be charged to use it. This means that the retailers could not charge you an extra 50c for a credit card transaction over the regular purchase price*. This was a bitter pill for a lot of retailers to swallow (and many ignore the rule), but it ended up helping the retailers as well as the banks because it got people used to using credit cards. Since they do charge retailers and vendors, though, this would not be the case for people that presently accept checks for free. On the other hand, I don’t know if they get charged when you send money directly from your account to theirs.

However they do it, though, they’re going to need to find a way to differentiate between businesses and people. If you make money transfers simple and easy, you’re going to see a lot of businesses preferring that to credit cards and the banks lose a significant form of revenue. Likewise, if you treat individuals like banks, they’ll just wants checks or cash. Or they could charge everybody for everything to make sure they get their cut. Sure seems like this is where everything is headed. On one hand, if it actually costs the banks $1.60 to cash a check (that was a shock) then passing that on to consumers could be fair play (although, it’s worth pointing out, that’s precisely what they prohibit retailers from doing). On the other hand, the whole thing could simply reinvigorate the cash economy for all person-to-person and maybe business-to-person (instead of person-to-business or business-to-business) transactions.

That brings me to James Joyner’s supposition that the question is not whether checks will go the way of the dodo, but whether cash will. As much sense as that makes in the eyes of many, I find it extremely unlikely that will ever be the case. Privacy concerns would create a tremendous backlash. I say this as someone that believes that Americans’ supposed concern for privacy is generally overestimated. By making everything digital, you’re turning over every single transaction over to either the government or corporations. Sure, we mostly do that now, but that’s because most of the time we don’t care. Sometimes we do.

Further, the assumption that it would even be possible is only valid insofar as everyone has an account from which they can stuff and draw money. That’s true a good bulk of the time and if necessary could be true even more, but we live in a country where some people still don’t even get a valid form of photo identification. In order for this to work, you would have to give everybody an account and you would have to force there to be no minimums. You’d need some entity to look over all of this. Banks often do it now, but they do it because there is money in it for them. For those that they right now do not serve? Not so much money in it for them. So do we create a Public Option for banks? That’s a path fraught with peril.

Ever since credit cards first really hit the seen, a lot of “forward thinkers” have said that they’re eventually going to replace cash. There are reasons to believe that they may, but honestly I put it in the same category where I put cloud computing and the notion that all computers in the future will be smartphones/PDAs. I’ll believe it when I see it and not a moment before.

* – They are, however, allowed to have “cash discounts”. What’s the difference? As near as I can tell, the credit card companies are saying that you can discriminate against credit cards as long as you discriminate against personal checks or any other non-cash forms of payment.


Category: Market

About the Author

Will Truman (trumwill) is a southern transplant in the mountain east with an IT background who bides his time taking care of their daughter while his wife brings home the bacon. You will probably be relieved to know that he does not generally refer to himself in the third-person except when he's writing short bios on his web page.

7 Responses to Neither Cash Nor Check

  1. Linus says:

    I would argue that checks are far from “the universally accepted form of payment.” Businesses have declined to accept out-of-state checks for decades, and many businesses here don’t accept checks at all (I assume because they’ve had so many bounce). Cash is the only universally accepted form of payment right now, with credit/debit cards gaining ground but still not usable everywhere.

    Also, keep in mind that although businesses may not be able to charge extra for certain payment methods, their prices DO rise to cover the additional costs. So really, it’s mostly the consumers who pay more, which I view as fair given the convenience (and built-in record keeping) of digital transactions.

    That being said, like you I don’t see cash going anywhere anytime soon. Even if 80% of citizens in industrialized nations conduct less than 5% of their transactions in cash, it will take a long time to remove the last 5% – think vending machines, technically-illegal office betting pools, spouses that want to hide purchases from one another, etc. And then there’s the fact that not everyone has a bank account. We’ll still have some form of cash for at least another 50 years.

  2. ~trumwill says:

    You’re absolutely right about the non-universality of checks. For some reason my mind was more in the domain of payments between private parties. Businesses that have mechanisms to accept credit/debit cards have less reason to accept checks. And yeah, cash is more universally accepted, though even there it doesn’t work for distance transactions.

    Vending machines are a great example of something that won’t be taking credit cards or debit cards any time soon. Who needs a 50c transaction fee on a $1 purchase? Your timeline makes sense, too. Contrary to what Joyner says, maintenance on shifting numbers around is not presently cheaper than slipping someone four quarters. And since it’s people that bear the brunt of transaction fees, they will gravitate towards what is cheaper for them.

    Do you think that establishments should be able to charge credit card premiums? So that those that aren’t costing the store money can save on that? I go back and forth. It doesn’t seem fair that everyone should pay for a convenience whether they use it or not, but I do think that the shift away from cash has been an overall positive one (to this point, anyway).

  3. web says:

    A local (very sizable) Colosse-based “fine foods and liquor” chain takes Monstercard/Veesa (but not VeryDisco or American Distress). They offer a blanket 10% discount on all products, provided you are paying with either (a) cash or (b) debit. Checks and Credit Cards pay full price.

    They say it’s to cover the cost of processing these forms of payment, which I can believe. I’ve seen plenty of merchants that impose a minimum purchase size (usually $10, though sometimes as high as $25 and in one case, $50) for credit card purchases. When these exist, every time the justification is that if they process a sale of much smaller on a credit card, the processing fee means they actually lost money on the sale.

  4. ~trumwill says:

    Web,

    They’re not supposed to do that. Mastercard has a website where you can report them. Visa also bans the practice. American Express seems to have a more lenient policy as long as you’re not singling them out (but if a merchant accepts MC or Visa, then you’re singling them out). That applies both to minimums and processing charges. The only exception is a strict cash discount.

    Merchants have a good argument that this practice isn’t fair, because as you point out it can lead to them losing money on a sale. But those are the rules. And in Delosa, minimum sales are the law.

    Interestingly, requiring identification is also a no-no (unless it’s required for age-verification purchases). This is also pretty routinely ignored.

  5. web says:

    Given that credit cards don’t ordinarily have a picture ID (though fake ID would be an issue anyways), I can’t really blame a merchant who would want to check a photo ID as at least a rudimentary way of trying not to get burned by stolen cards.

    As for the minimums, it’s irked me from time to time (minimum $10 when a dozen donuts ran $4.50 for instance) but I can see their side. I know someone who works at a company that does credit card processing, and the cost-per-swipe is actually pretty high. When that $4.50 swipe costs the vendor $2 just to process, I could see them going out of business quick. Imagine swiping 100 of those in a morning – all of a sudden your cost for the credit card machine is worse than your staffing cost.

    Plus, other services are allowed a minimum. For example, most pizza delivery places or chinese delivery places have around a $20-25 order minimum before they’ll send their driver around. Anything less, you need to come pick it up from them.

  6. trumwill says:

    I don’t have any problem with merchants wanting to check ID. But the credit cards apparently do. In cases of fraud, aren’t the credit card companies the ones on the hook? Or do the merchants have to give the money back?

    My old comic book store in Phillippi had an informal 50c charge for any purchase under $10. They were straight with me that they couldn’t demand that I pay it. I did so anyway because I could understand the position they were in and I liked them. While I don’t think that minimums should be instituted, I think allowing a surcharge for purchases under a certain amount seems fair.

    The pizza places I ordered from in Estacado had a similar policy in regards to deliveries. It was free for orders above $25 or so, but they charged for deliveries under that. I think that there was a $10 absolute minimum, though.

    I think that as long as you apply the minimum to cash purchases, the credit card companies are fine with that. I think that they basically just want the purchases to be treated like cash. Of course, cash doesn’t cost 75c per transaction. But the credit card companies have the muscle to force the vendors to sign undesirable contracts.

  7. web says:

    In cases of fraud, aren’t the credit card companies the ones on the hook? Or do the merchants have to give the money back?

    Generally speaking, the credit card company is “legally” on the hook, but they routinely pull one of two stunts:

    #1 – refuse to honor the charge (there’s a 24-48 hour window between swipe and actual payment, and they will kill ALL payments of any card reported stolen in that time)

    #2 – attempt to “chargeback” the merchant (as if the customer were contesting the charge for other reasons) if the theft report is filed afterward.

    Of course, cash doesn’t cost 75c per transaction. But the credit card companies have the muscle to force the vendors to sign undesirable contracts.

    The other reason I don’t quibble as much about minimums is that generally speaking, it’s the tiniest businesses that get screwed the most. Large-scale businesses can negotiate tremendously good deals (Wal-Mart, for example, pays far less per swipe and far less for their card-swipe equipment). It’s the smaller businesses – the ones with only a few storefronts, if they even have more than one – that really get hosed. The traveling vendors that go to various conventions or places like renaissance fairs, for instance, get hosed to the tune of $2-3 per swipe PLUS some percentage. So it’s not surprising that they would insist on either (a) trying to pass that on or (b) instituting a minimum purchase that allows them to still make some semblance of profit.

    It’d be one thing if the rates were the same for every business. Unfortunately, the credit card processing fees seem pretty much designed to screw the smaller guys, and so if they have to “retaliate” by refusing to pass certain purchases (too small, no ID, etc) through the system, I’ve got enough sympathy that I’m not going to be too angry about it. It’s either that or a lot of boarded-up donut shops.

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