Whatever else we do in banks, we're also bank customers. And our experiences as customers shape our expectations as bankers.
I recently asked my bank to send me more blank checks. Instead of the checks, I got an unexpected declaration: "There will be no more checks. You can use electronic payments, or cards."
You might think this has no relevance to you, since I live and bank in Switzerland, rather than the U.S.
But what happens in Europe tends eventually to reach the U.S. For instance, handheld card terminals were ubiquitous in Europe before I saw any in the U.S.
The bank in Switzerland that refused to send me more checks is no slouch. It's opening lots of new branches. It attracts increasing numbers of new customers and makes a healthy profit. And it also has hundreds of competitors. This bank's elimination of checking isn't the result of some anti-check conspiracy. Perhaps it was facilitated by the simple fact that many Europeans have not used the term "checking account" in years. My account is a "current account" and was never a "checking account."
It's obvious why some banks would want to suppress checks. This saves a lot of operating expense — from check printing onward — for which customers in many cases aren't directly paying.
But, how can you get away with eliminating your customers' checks? In the U.S., where it took decades even to make check truncation stick, this is surely a riveting question. Yet, the issues are different. If I write on a piece of paper and it draws my money, then it's reasonable for me to want to get back that piece of paper, or at least its image.
But, truncation of card transaction slips was much easier to put across than truncation of checks — because the slips were merely a byproduct, and the financial transaction underlying them was obviously electronic. At the end of the day, the last holdout, American Express, capitulated and stopped including transaction slips with monthly statements after it became obvious that consumers attached little if any value to getting these back in the mail. It doesn't look like many consumers have refrained from using debit card instead of checks because they don't get a transaction document back.
Some banks are bold in taking away what had been thought to be cherished consumer goodies, such as debit card rewards, without a lot of anguish. But they aren't yet taking away checks. Why?
Could the many billions in annual overdraft fees be a significant reason? Recent regulatory changes make it easier to impose such fees on checks than on electronic payments.
Suppose the other foot hit the ground, and check overdraft fees were eliminated or minimized by government action — as they have been in other countries. Would more banks then think harder about how much they could save by transitioning consumers to payments not made on paper? Or, if the European method is thought to be too ham-handed for our consumerist economy, then U.S. banks could at least start charging specifically for the use of checks.
It's not just the overdraft fees that render check elimination financially unappealing to banks. There are also the returned-check fees. But we're not charging for electronic dishonors. If your card transaction is rejected or charged back, you're not likely to incur a fee. Yet writing a dishonored check is very expensive, which is also useful in motivating consumers to say that they like paying $39 to have their overdraft checks honored!
There is some justification for the dishonor fees: returning checks costs banks more than paying them. But at the systemic level, this is one more reason to do away with the checks altogether, or charge for their use. Eliminate the extra expense.
The last stomping ground for checking is P-to-P payments where, in the absence of the two participants' unlikely joint presence on a network such as PayPal, noncash alternatives have been scarce. Visa and MasterCard and their member banks have not facilitated this for the simple reason that any transaction that doesn't generate interchange (hence revenue to the networks) is anathema.
Nature sustains oligopolies, but not forever — as the three big check printers can already confirm.
At the personal level, I've been refusing to take my friends' P-to-P checks for many years. It's too much trouble to deposit them. The onus should be on the payor to get the money into the payee's account in such a way that he can track it to its source.
More efficient payments carry less cost, hence less revenue to both networks and banks. Kick, scream, and dig in your heels. Others will move first, charge less and take away the checks and some of your best customers. Maybe the time has come to charge for checks rather than for the "checking" account.
Andrew Kahr is a principal in Credit Builders LLC, a financial product testing and development company. He was the founding chief executive of Providian Corp. and can be reached at akahr@creditbuilders.us.com.
