Undoubtedly, one of the milestones that will mark the history of the United States has been the end of penny production last fall. However, what seemed to be merely symbolic has a deeper background: the gradual dismantling of paper payments. As the federal government moves toward eliminating physical benefit checks in favor of purely electronic methods, the Federal Reserve has raised doubts about the feasibility of maintaining the infrastructure needed to process bank checks.
This digital transition faces severe criticism, such as that of Michelle Bowman, Vice Chair for Supervision of the Fed, and trade representatives like Doug Kantor, who warn that the disappearance of the check would harm the most vulnerable populations and small businesses that rely on this low-cost system.
Goodbye to pennies in the United States
The closure of the one-cent coin minting presses, which had been operating for more than two centuries in the United States, captured the nation’s attention. However, the background of this measure is going largely unnoticed, even though the impact is more than significant. With the end of the production of these coins, the government intends to continue down the path toward completely eliminating payment via paper checks, favoring fully electronic payment methods. The plan is ambitious: to stop issuing almost all physical benefits checks, forcing millions of citizens to integrate into electronic systems.
While direct deposit is common for much of the population, it is also true that a considerable portion would suddenly lose their ability to choose how to receive their money. The Federal Reserve also announced a review of the future of the check processing services it offers to banking institutions. The central bank’s intention is clear: maintaining the operational infrastructure requires massive investment at a time when check usage is plummeting and cases of fraud continue to rise.
Voices against
Although it is the Fed that also promotes these measures, not all of its members agree with them. This is the case of Michelle Bowman, its vice president of supervision, who has publicly expressed her opposition, arguing that although checks account for only 5% of total transactions in the country, their economic importance is disproportionate, as they represent about 21% of the total value of transactions.
According to Bowman, “Checks remain important payment mechanisms for consumers and businesses.” She maintains her discontent by explaining that last year, about 6% of adults in the U.S. did not have a bank account. This financial exclusion gap rises to 22% in the case of people with incomes below $25,000 per year, reflecting the country’s social reality.
Another voice that has spoken out against it is Doug Kantor, general counsel of the National Association of Convenience Stores, who has highlighted the logistical problems this would entail, as payment by paper checks remains one of the cheapest payment methods for merchants with lower profit margins. In addition, it is not being taken into account that many automatic bill payment systems end up issuing a physical check on behalf of the customer without their knowledge, and if the basic infrastructure collapses, these everyday payments would be the first to fail.
Frequently asked questions
Why does the government want to eliminate the paper check system?
The government aims to digitalize all payments to reduce infrastructure costs and combat fraud. The plan includes replacing physical benefit checks with mandatory electronic transfers.
What economic impact do checks currently have?
Although they represent only 5% of transactions, their economic value is huge, accounting for 21% of the total money moved in the country, according to Michelle Bowman from the Fed.
Who is most affected by the disappearance of physical payment?
Mainly the most vulnerable: 22% of people with incomes under $25,000 do not have a bank account. Additionally, small businesses prefer checks as they are one of the cheapest payment methods.