It is not uncommon to hear statements like: “Paper checks will likely be extinct by 2026.” Or “The remaining lifetime of checks is directly related to the death rate among citizens over age 65.”
However, checks are still with us even though they have been declining since the 1990’s. The number of checks being written is dropping by 1.8 billion a year, and at that rate, it is safe to assume that checks will be gone sooner than later.
Whether we really reach zero checks is questionable. We can question two factors that affect the use of checks.
- Is the decline of checks closely related to the death rate of those over the age of 65? Some numbers suggest that the habits of senior citizens are not singlehandedly keeping the check alive. It is based, among other things on the number of other payment methods available. The number one option to replace checks is debit cards. It is no surprise that younger consumers lead seniors in the adoption of the debit card, but not by as much as you might think. Debit card penetration among Generation X and Millennials is near-universal. Around 70 percent of seniors and 80 percent of the 55-65 group use debit cards as well. Forty-seven percent of seniors use online banking compared to just over 60 percent of the general population. It appears the older counterparts aren’t quite the technologically bankrupt fuddy-duddies we imagine. While anecdotal evidence may seem to indicate that check usage and age are tightly linked, cost, convenience, and adoption of other payment methods are the real driving forces behind the decline of the check. Age may be a coincidental demographic symptom of these factors or may even act as a modifier. However, no one ever said, “I’m going to avoid checks just because I’m young,” or “I’m going to keep writing checks because I’m old.”
- Is the decline of business checks closely related to the use of credit cards and ACH transfers? Not so. Although check use has continued its decline, it is estimated that checks account for approximately 42% of all B2B transactions. When used in the traditional way, licking stamps and stuffing envelopes with checks are inefficient and expensive, yet remain prevalent among small business owners. Why? Partly down to the confidence that they offer: checks are tried and tested and provide a clear paper trail. Also, consider that small businesses have found themselves on the wrong side of a power balance where the other side requests a check. Another explanation may be small business owners are creatures of habit. Many small business owners know paying with checks is not the most efficient way to pay and handle the bills, yet they tend to stick with the devil they know, rather than take the time to learn a new method. In the years between 2003 and 2018 check use by American businesses declined at about the 4% – 8% range per year, while in 2020 it plunged by 50%, according to the Federal Reserve. 2020 was the most difficult year on record for small US businesses and the steep drop in the use of paper checks reflects how they have changed their behaviors in the face of extreme adversity due to COVID 19 lockdowns. The upside is that we have seen a major uptick in digitization, and pivoting to new products and services, exemplifying just how resilient and adaptive small businesses can be. Small business owners and vendors are far from a homogenous group and will each have moved away from check use for varying reasons. It is likely however that each side took the time in 2020 to work out how to ensure maximum efficiency in everything that they do and a shift from checks to ACH was one of the methods they came up with.
From rent checks to the check that comes in your birthday or graduation card, there are still plenty of instances where paper checks are preferred. However, when it comes to saving time, money, and resources, electronic payments continue to reign. Will we see the demise of the paper check? Time will tell. There have been surveys and statistics over the past decade that have predicted paper checks will be gone. One thing is for sure, with 84% of all U.S. households owning a computer and close to 100% of small businesses using computers, we’re no longer fumbling to find an envelope and stamp. Paying online is faster and cheaper than writing a check.
One last item that may or may not affect the decline of checks. Schools no longer teach cursive, they teach keyboard. Very few schools, if any teach manual bookkeeping, it is all done on computers with software doing the thinking for them. As our children and grandchildren move into the working world, it is a world of software automation and digitization. The process of “writing” a check and balancing a checkbook is foreign to them. They will and do opt for online banking, ACH transfers, and debit cards. As we proceed down this path, what happens to “cash” not just checks? Something to think about.