Paper or Plastic? Checks Aren't Dead Yet, Merchants Say

The check, as you may have heard, has lost its lofty place as a preferred method of payment.

According to the Federal Reserve, checks constituted 30.5% of all noncash payments in 2006; just three years later, that figure had fallen all the way to 24.5%. And the numbers are far lower when it comes to actual point-of-sale purchases at retailers. In a 2009 survey of holiday shoppers by the National Retail Federation, for instance, just 4% of respondents said they would be paying for most of their gifts with personal checks. As debit cards provide the same service with increased convenience, it’s not hard to see why their usage has soared as checks have fallen.

And one has to imagine that retailers are relieved to see checks go the way of the Dodo. After all, nothing brings a line of shoppers to a halt quite like a person digging out a checkbook and a pen, and bottlenecked checkout lines can certainly result in fewer sales.

“Transaction processing is clearly one of the things driving conversion, or lack thereof, and when that gets long it can impact things,” says Mark Ryski of the Headcount Corporation, a retail analytics firm focused on turning shoppers into buyers. “And the notion of scribbling on a paper check and showing ID is archaic and profoundly slower.”

It’s also riskier for the merchant. Debit and credit cards are verified on the spot; if there are no funds, the transaction won’t go through. Sure, there’s always the chance that the card will turn out to be stolen and the merchant will wind up taking a hit when the issuer does a chargeback. But accepting a personal check is taking a leap of faith that the account in question has enough funds to cover the transaction. Short of pinning bad checks on a wall of shame behind the register, there’s not a whole lot a merchant can do when a check bounces.

“Instances of bad checks as a percentage of total checks is going up,” says Bob Meara, a senior analyst for research firm Celent who specializes in check processing and other payment topics. “Check volume is declining, but it’s leaving the same number of bad guys.” That shouldn’t really come as a surprise: When debit cards are so much more convenient (and still free to use, at least for now), it’s not unreasonable to suspect that anyone still pulling out a checkbook may be doing so because they don’t have funds to cover their purchase.

So checks slow things down at the cash register and expose the merchant to potential fraud. Since barely anyone uses them to pay anyway, why not just refuse to accept them?

Some merchants, particularly those with an emphasis on fast service, have done exactly that: Starbucks, for instance, banned personal and traveler’s checks a few years ago. And while hard statistics on check acceptance are hard to come by, Meara says that more merchants are indeed instituting policies against taking checks as a form of payment. Restaurants seem to be one category of merchant with little tolerance for personal checks; a spokesperson for the National Restaurant Association tells us that “it’s certainly not uncommon” for restaurants to refuse to take checks, mainly because of concern over bounced checks.

But such businesses are the exception rather than the rule. In one survey of small businesses conducted by Celent, 89% said they accepted personal checks, more than any other payment method. Many of those businesses, it should be said, are of the B2B variety, and were referring to how they like to be paid by vendors rather than customers. Still, it’s a good sign that checks haven’t become all that taboo.

“The vast majority of merchants still accept checks, and the primary reason they do is that checks don’t cost anything to use, as opposed to virtually any electronic method,” says Meara. While the Durbin Amendment capped swipe fees on debit cards, merchants are still taking a percentage hit on every transaction conducted with plastic, while they can keep 100% of the number on the check. Retailers are hardly going to turn away someone who wants to cut out the middleman by paying with a check.

“Many merchants still like checks, as they avoid the swipe fee that credit cards charge,” agrees Mickey Klein, a retail analyst at the Astor Group. He adds, though, that checks could become less attractive to retailers if that fee advantage dwindles. “I see a marked decrease in checks if credit card swiping fees come down and more merchants gear up for credit cards with tools such as Square.”

In the meantime, though, merchants will typically set their check policy based on factors like customer demographics and how much personal checks will gum up the works. Take grocery stores, for instance. Given how much emphasis there is in keeping things moving quickly in the checkout line – this is the retail sector that gave us self-checkout, after all – it’s not hard to imagine that grocers wouldn’t be crazy about taking personal checks. Yet Meara says that fear of losing the patronage of older customers has made most grocery stores reluctant to refuse checks, with the exception being chains like Whole Foods that tend to have younger, more affluent shoppers. Indeed, Whole Foods experimented with refusing checks in 2009, though a spokesperson tells us that the chain’s decentralized structure means that there isn’t an overarching check policy for its 300-plus stores.

So if you like paying with checks, you can still find plenty of places willing to take your money, even if your options have dwindled from a decade ago. But at the same time, it must be said that the advantages of checkbooks are similarly dwindling. Check float, that waiting period between when a check is written and when the money is actually withdrawn from your account, no longer exists, so you can’t write a check a few days before payday and expect the funds to be there by the time the bank processes it. And while some people like checkbooks as a way of keeping track of their spending, there are convenient online tools that provide the same functionality without searching for a pen.

Finally, keep in mind that checks aren’t exactly the most secure financial instrument to be toting around in your purse or pocket. Sure, most places will ask for a photo ID with a check, so a thief who gets a hold of your checkbook is unlikely to go on a check-writing spree. But those numbers on the bottom of the check can unlock a world of hurt for your checking account.

“With the routing and account number an imposter can go online and make purchases, pay bills, or create counterfeit checks,” explains Identity Theft 911 fraud investigator Vicki Volkert, who adds that there have been cases of cashiers and other employees using checks written by customers to commit fraud of this kind. And the consequences of such fraud are greater than those of simple card fraud. Not only will you likely have to cancel your account (as opposed to simply getting a new card), but you may not have the liability protection associated with credit and debit cards. In other words, you could be on the hook for whatever fraud happens on the account.

Image: CarbonNYC, via Flickr