The personal check is disappearing. Here’s what’s next

One of the first checks ever recorded was issued in the 11th century, in a market in Basra, in present-day Iraq. There, a merchant issued a sakk: written instructions to your bank to make a payment from your account.

A thousand years later, this form of payment is finally disappearing. Target said it would stop accepting checks starting July 15; other retailers, including Whole Foods and Old Navy, have already stopped accepting them. It’s just the latest sign that the payment method is approaching obsolescence: The average American writes just one check a year, down from three in 2016, according to one study. Federal Reserve Research.

“I absolutely believe we are moving toward a ‘zero check’ world,” says Scott Anchin, vice president of Independent Community Bankers of America. “As we see new payment methods emerging, we see new opportunities for consumers and businesses to move away from using checks.”

From a security perspective, this is positive. Checks are not particularly secure ways of sending money. They have your account and routing numbers, sensitive information that criminals can use. They can be stolen in the mail and exchanged to be given to different people or for different values. For example, in April 2023, a U.S. Postal Service employee stole $24 million in checks from the mail and sold them through Telegram, a popular messaging app, according to a federal indictment in the Western District of North Carolina.

See more information: Why mail theft is on the rise

As flawed as checks are, they haven’t disappeared entirely because many people still rely on them, especially to pay rent and utility bills. But experts say a new type of payment could finally change that.

Instant payments come to the fore

The newest type of payment – ​​the first to be introduced in the US since the ACH network in the 1970s – is called instant payments, in which money is immediately transferred from your account to another account. You might think you already use instant payments with services like Venmo, but you don’t – behind the scenes, the money can take some time to move and it doesn’t come directly from your bank account, but from a Venmo account, for example.

Here’s how instant payments work: Different types of payments – wire transfers, checks, ACH – happen through what’s called rails. A rail is essentially the system that takes your money from one place to another. Think of a pile of money in a briefcase. You could move that folder from one place to another in a car, bus, train or plane; These transportation methods are like the rails that move your money. Instant payments are a new type of payment method, but a user interface is still needed to allow consumers to access them. Some payments on Zelle already happen on an instant payment system, says Bridget Hall of ACI Worldwide.

A year ago, the Federal Reserve launched FedNow, an instant payment system that allows people to send money to each other if they are enrolled at participating institutions. Another payment method, RTP, short for Real Time Payments, was launched in 2017 by The Clearing House, a private payments system infrastructure owned by large commercial banks. But that have fewer participants than FedNow, which has about 900 participating banks and credit unions.

Instant payments are unlike anything else out there now, including bank transfers, ACH payments, and debit cards. Wire transfers can take 24 hours to reach customer accounts and are not available 24/7; ACH payments are processed in batches and can only occur during banking hours; Debit card purchases are not settled on accounts immediately. But instant payments happen in real time, at any time of the day, and cost the sender nothing.

Real-time payments accounted for just 1.5% of total payments in 2023, representing about 3.5 billion transactions, according to ACI Worldwide, which sells software that facilitates real-time payments. Experts expect this number to grow to 14 billion real-time transactions until 2028.

Instant payments are already extremely popular in other parts of the world. In India, real-time payments were launched in 2010 and now make up 84% share of all electronic payments – there are 129 billion transactions. Brazil had 37 billion real-time payment transactions in 2023, and Thailand had 20 billion, according to ACI Worldwide.

But the two avenues for instant payments in the US – FedNow and RTP – are relatively new. It took so long for the U.S. to adopt real-time payments because there were intermediaries like PayPal that allowed people to feel like they were paying someone else instantly, Hall says.

There are some big advantages to instant payments. Say you need to fund a lunch account at your kids’ school: You can provide a credit card (and you’ll be charged a transaction fee) or write a check, which takes days to process and could mean your child will have than skipping a few days of tater tots. The speed of instant payments is also good for businesses; Instead of waiting for a check to arrive and then cashing it to discover there is no money in the user’s account, an electricity company can be paid instantly.

“If we start looking at the payment methods used to complete a transaction today,” says Hall, “we will have a lot of use cases where the options are not great or not good enough.”

Some people may already be using instant payments and not realize it – some transactions on Zelle, a digital payments network run by large banks, go through instant payment tracks. Your payment may exceed instant payment limits if both parties to the transaction are part of member banks that use RTP or FedNow.

There are disadvantages to real-time payments. People without cell phones or access to computers, or who are not comfortable with technology, may have difficulty switching to real-time payments. And real-time payments are irrevocable, meaning that once sent, you can’t get them back – a potential problem in a world increasingly plagued by fraud involving sending money from one person to another.

See more information: Defrauded? Banks may not return your money.

But most payment methods have some kind of disadvantage. Consider the check, for example. Long after their medieval origins, checks slowly became popular around the world, growing in the US between 1938 and 1952, when the number of checks issued annually reached 8 billion, according to a Federal Reserve Bank history of Atlanta.

Banks had to process all of these checks, usually manually, meaning they had to be handled by employees who wrote down all the information on them as they were passed from one bank to another. Then, credit cards began to gain popularity and consumers switched to what was more convenient, which represented a huge cost saving for banks. This move toward convenience – and cost savings – is happening again.