Why do we use checks? | Hacker News Reader

Why do we use checks?

bentilly.blogspot.com

16 pointsbtilly50 comments

Send my banking info to a potential customer? Ask them to GO to their Bank and send me the money I request? This is a problem solver how? Sounds frustrating and awful.

The benefits of checks are huge:

1) They take time to process, so if you have to move money around, you can give someone a check and then go put the money in that account.

2) You control when the vendor gets paid. If you give someone a credit card number, they can just charge you. With a check, they have to ask ME for money, and I decide when or if I'm going to pay.

3) Signed, written, record.

4) NO FEES attached for the vendor. I LOVE getting paid by check because I don't have to give 5-10% away to some bank.

I am going to teach you something. It is important: please pay attention.

Pull out one of your checks. Can you locate your name on it? Good. You'll see two groups of numbers on the bottom of it. The first group of numbers, typically, is your ABA routing number. That tells me where you bank. The second number is your bank account number at that bank.

These three pieces of information are all I need to debit your bank account. There are a variety of ways to do it -- the simplest method is printing a "demand draft", which is essentially a check drawn against your account but printed on my printer. In place of signature it says "Authorized By Account Holder". (Signed, written, record!)

Every person who has ever held a check -- ANY CHECK -- from you in their hands, regardless of what is written on it, can debit your account at will. Every waiter, every grocery store clerk, every person involved in the processing chain.

Many people think checks are magically more secure than credit cards. Those people are not well acquainted with payment processing.

Incidentally, this is why Donald Knuth stopped sending people his famous checks for $2.56

You are correct on the technical side. On the legal side, there is clear support to protect fraudulent use of a written check. If you go to your local police station and try to file a criminal report on someone abusing your Visa or PayPal account, your most likely going to get puzzled looks as to what to do.

The laws are so strong that they have been co-opted in a seedy way to support the "payday check" industry. You write a post-dated check and if the money is not in the account by that date and the check bounces, the payday company uses your local sheriff's office to arrest you. This is a terrible abuse of public services but shows how strong the laws are.

If you go to your local police station and try to file a criminal report on someone abusing your Visa or PayPal account, your most likely going to get puzzled looks as to what to do.

I'm looking for a piece of information in your profile like "I live in rural Afghanistan" which would make this crazy story sound plausible, but not finding it. If you live in a first world country like, e.g., the US, your local police department is quite familiar with the notion of credit card fraud. They'll tell you a) fill out this police report and b) bring it to the attention of your bank to get the charges reversed and c) the odds of us catching the guy are slim, which (they will not tell you) is the same as almost all financial crimes, including most fraudulent uses of checks.

There are similar laws for credit fraud, of course, so the stated benefit of "I don't have to give someone my details!" is confusing.

In any kind of "pull" system where I have to give someone else credentials to access my account, there's going to be the potential for fraud. A "push" system, where you have the ability to deposit into an account but not withdraw from it, sounds much more secure.

I agree, the stated benefit of I don't have to give my details, is not just confusing but plain wrong. Checks leak as much if not more information. I was replying the parent post of why checks do have some value.

The laws for check fraud are different than credit fraud and the like. In most cases (each U.S. state is different), check fraud laws are old and quite strict. These laws have statutory obligations to fulfill to enable criminal prosecution. These requirements in turn force law enforcement and banks to take action. This may not always happen, but there is a framework for pushing it to happen.

You can create one if you like but it's a bit inconvenient.

Open a checking account and deposit enough cash into it to avoid fees. Now call up the bank and tell them you lost some of your checks and you need to close the account against withdrawals (you may need to do this in person).

Now you or anyone else can deposit all the money you want to into that account, but the only way to get money out is if you go to the bank and show ID.

It's not quite "hacking the bank" but it may be useful to know in a small set of cases.

"Every person who has ever held a check -- ANY CHECK -- from you in their hands, regardless of what is written on it, can debit your account at will. Every waiter, every grocery store clerk, every person involved in the processing chain."

And what's to stop every person who has ever held your Credit Card from doing the same? Thankfully many institutions are now asking for a zip code when you use a credit card online but most still don't and that means every waiter, grocery store clerk, etc... who has held your credit card long enough to write down the number could use it to go on a shopping spree.

This varies by country, but in the USA by law your maximum possible financial loss from this is $50. The credit card issuer is liable, and that is why they put energy into fraud detection systems.

By contrast the immediate damage to you from misuse of your check information is much worse.

>Many people think checks are magically more secure than credit cards.

Yeah but they are not any less secure either. Buy something off amazon give them your credit card details number, expiration date, and security number off the back, and they can charge your credit card how much and whenever they want just the same as a check. Fraudulent activity (at least in the US ) has similar liability and penalty rules.

>Fraudulent activity (at least in the US ) has similar liability

Not hardly. Until you can collect from someone who rips off your checking account (good luck on that), YOU are liable for the amount (at least until your bank puts a stop payment on the account). With a credit card, you are liable only for the first $50, the card issuer is liable for anything over that.

Your right it is better to use a check. In the event of a fraudulent check you are liable for $0, if you report it within 30 days of your statement same time period for credit cards. More than thirty days latter you split the responsibility with the bank, for credit cards it is your problem. The bank that cashed the check is on the hook for the funds in the case of check fraud.

good list. I'll add

5 - There are strong criminal laws for abuse of checks. If someone misuses my Visa info, I have to go through Visa for complaints and maybe could get some response from law enforcement. With someone writing or modifying a bad check, I can go straight to my local law enforcement and they know how to take action.

OTOH, if someone misuses your Visa, you aren't out any money. If someone empties your bank account, your rent check bounces and you have to fight to get your money back while the bank investigates.

My experience with this kind of transfer system is limited to the posted article, but the benefits sound enormous!

> 1) They take time to process, so if you have to move money around, you can give someone a check and then go put the money in that account.

With the giro transfer method, it sounds like you're in more control -- it's a push, not a pull.

> 2) You control when the vendor gets paid. If you give someone a credit card number, they can just charge you. With a check, they have to ask ME for money, and I decide when or if I'm going to pay.

Right, but after you give them the check, it becomes exactly like a credit card. They can charge you at-will. And, just like your credit card, there are stiff penalties for fraud. And just like your credit card, fraud still happens.

> 3) Signed, written, record.

How is physically stepping into your bank and personally authorizing a transfer of funds any less of a signed record than a check?

> 4) NO FEES attached for the vendor. I LOVE getting paid by check because I don't have to give 5-10% away to some bank.

Why do you assume that there's a vendor fee here?

Personally, if I never saw another paper check that'd be fine. They're nothing but a hassle. Having a quick and easy ability to accept deposits and authorize transfers without the use of a paper check is such an amazing convenience that I'm shocked we haven't adopted such a system.

I don't think you fully grokked the article. With cheques, the buyer gives the seller their bank account info and notes how much the seller should take out. With giro, the seller gives the buyer the bank account information, and the buyer decides how much to send to the seller.

I don't see why this couldn't be done online, so "GO"ing to the bank isn't an issue.

1) I consider this a bug: checks are inefficient enough that people can put you at risk while appearing to pay on time by giving you a check they can't honor at that time. It's debatable, but I'll give you that giro would not have this "feature."

2) You still control when the vendor gets paid. In fact, you control it more directly. With checks, you give the check then you have to pretend that amount of money is out of your account until the person holding the check decides to cash it. With giro you send the money exactly when you want to, and the money goes to them directly.

3) This is a potential point, but what is stopping us from using "reverse cheques" for the same purpose?

4) This also doesn't apply. We're not talking about cards, we're talking about reverse cheques.

Actually, since I've moved to the Netherlands I've only used GIROs a handful of times, since the NL has an even better option.

GIRO Transfers are particularly handy when it comes to recurring transfers, but for one time payments they're annoying.

The other alternative is one-time online transfers. They're free, and instant. All you need to know is the recipient's account. There are other fields for specifying what the payment is for (PO Number, for example). You can make them recurring.

Banks are responsible for the security, and take it seriously. My bank gives me a thing they call an "eDentifier" which is a calculator-thing that I drop my smart ATM card into. I then unlock it with my PIN number, and enter in the code presented to me by my bank. The device displays my card's response, which I then give back to the website to log in or send payments. With this scheme the bank knows I physically have the card, and that I know the PIN number (better than a signature). This is the most common way, but I once saw another system which confirmed by sending a code via SMS to the sender's cell, to be entered on the web site.

Unlike checks, I can't make the transfer unless that money in actually my account (and the recipient can't spend part of that money thinking it will clear to find out later it didn't). Thus there can be no NSF/overdraft fees. Also unlike checks, it's instantaneous, so the money is never on hold by banks in a limbo state, unavailable to both parties. Nobody has to buy any checks, nobody can be ripped off by check advance fees, and there can be no check processing fees to the recipient.

For all of those reasons it will never happen in America.

Too bad the article didn't answer the question very convincingly. I'm in Europe (Sweden), at age 34 I think I've handled exactly one check. Most bills are, of course, paid through Internet banking nowadays, although the bills still use the giro system. You just send the giro payment instruction electronically rather than on paper.

I'm from the UK, I've never written a check and never saw anyone write a check until I came to Canada. Chip and Pin was fully implemented in the UK in 2004, we're just getting it here in Canada in late 2009 and it's certainly not implemented well with some places swiping only, some using the chip only and some use the pay-pass system up to $80.

Not to mention debit is barely accepted online through the Interac service. Back in the UK debit is accepted everywhere online and when it's not (usually only certain cards, IE non visa/mastercard debits) it's such an annoyance that I've actually called the company and bitched at them (yes I'm talking about you expedia.co.uk).

Since I've come to Canada, everyone seems to get paid in checks (archaic), lots of people use checks for transferring money and for payment of large purchases. It just appears as though the country is lazy to adapt, and I'm not even blaming this on the ineptitude of Harper and the previous administrations protecting their monopolies from outside competition and inside advancements.

We use checks because it's the only transaction-fee-free way (aside from cash) to exchange money. Anything else for person-to-person transfers winds up taking a 2%-4% processing fee out of the equation. Until that changes, check usage will continue.

Isn't the use of checks in the USA partly path dependent? They worked fine as long as humans were in the check processing loop.

Right now, businesses in the USA like to use them because they have lower transaction costs than credit cards. The US government does all the check-clearing for free, as I understand it, while Visa/MasterCard/Amex/Discover all charge upwards of 1.75% of all transactions to shuffle all the (notiontal) money around.

The transaction costs is a key point in the inertia of the system. I have 2 bank accounts in 2 different banks. If I walk into one bank and want to deposit money in the other I am charged $25. OTOH I can write a check for a trivial amount of overhead.

In reality there is a considerable overhead to processing checks. And banks recover it in various ways, including reducing the amount of interest on checking accounts. Similarly every business uses tracking systems for every payment made and received so that they can catch and flag any checks that are cashed which they did not write. This is also not free. But by and large these are so much taken for granted that people aren't even aware of this overhead.

In retail checks are not needed thanks to debit cards that have the same transaction cost as checks and are even faster to use than credit cards.

I'm guessing the reason is that checks are simple, and you are in control of when and to who you give your money. The risk of your money being stolen is small enough that we generally don't worry about it, at least when dealing with things like paying the bills through the mail or paying for groceries (damn you, old woman in line.)

Never underestimate the power of cultural inertia. I think this is one of the big reasons checks are still widely used in the US. There is considerable inertia in the legal system, for example.

This is also the reason why there is an iPhone app that can submit checks using a photograph of the check. Many banks process checks by using their digital images, because it's cheaper. To save money, they spent the money on lawyers to make this kosher legally. The iPhone app just plugs into this process.

http://www.mysanantonio.com/business/local/USAA_Federal_Savi...

Also, the US is a fairly trusting place, compared to other places I have lived (namely, Italy). It's something I miss, to tell the truth.

Never underestimate the power of cultural inertia.

This affects Europe too with payments. I was just in Germany again recently. I was staying in a short-term apartment and instead of being able to pay at the reception by credit card, I had to go to the local bank, get cash from the ATM, then fill out a giro transfer form and hand it to the bank employee, who processed it by hand. Then I had to go back over to the reception at the apartment and hand them the receipt so they'd know they had been paid before I left. Although Germany has greatly increased its acceptance of credit cards, etc, this kind of thing is incredible frustrating when you run into it.

Why, indeed? Paper checks are a security hole and an inconvenience wrapped into a handy slip of paper!

The main advantage of the Giro Transfer method (it seems) is that it's a PUSH rather than a PULL.

With credit cards or checks, I give you full run of my account to pull funds when you like. Feel free to request as much money as you like, and if there's a problem, I've got to fight to prove that it wasn't an authorized request.

With a push request, I have account info for you, but all I can do is put money in. You never get to pull money indiscriminately. Sounds like a big win to me.

The only reason I use checks is to pay my rent. I live in the second floor of a two-story house, where the landlord lives downstairs. He doesn't own any other property, so I'm his only tenant, and he has no electronic methods of receiving money, just cash or checks. Paying with checks is more convenient and secure for me, since walking around New York City with more than $1000 in cash is really not a wise thing to do.

I'm sure my case can't be the only situation where checks are more useful, or the only method of payment.

Checks? How quaintly backwards those US of A are in some things...

Checks have been phased out in most of the rest of the world at least 20 years ago.

I heard some of them also still use pagers! ;)

One of the big scams when Cheques were still in use in the UK was that banks would take 7 working days or so to 'clear' the cheque. There was no technical need for it, but it made them quite a bit of cash in interest since it was neither in the source account or the destination, the bank could "use" it for 7 days.

Many places in the UK refuse to accept cheques now. Which is good. Nothing worse than waiting for students to pay for their drinks at the bar by cheque :)

On the down side, AFAIK the change to chip+pin meant the burden of proof also changed - with signature forgeries it was up to banks to prove it was you who signed it. Now it's up to us to prove we didn't tell anyone our 4 digit pin.

The only people I have seen in the US who still use pagers are hospital employees and that seems to be based on dubious reasoning at best (besides it possibly cheaper for the hospital).

What is the advantage of the chip+pin system versus magnetic strip + pin?

A friend of mine was visiting the US from Europe and had one of those cards with the magnetic strip on one side and a smart chip on the other and he tried to use it to buy something in a store here. The first time he swiped it it didn't work and then the people at the store looked at his card and refused to let him use it because they thought it was some kind of "hacking device" or something!

>> "What is the advantage of the chip+pin system versus magnetic strip + pin?"

Copying a magnetic strip is trivial. Hand your card to a waiter and they can swipe it in less than a second and create a clone card.

The chip however, is much harder to copy. Several places in the UK will refuse to swipe your card (magnetic), only allowing chip+pin now.

Yes, but you still need to enter the PIN.

Cardholder Not Present - the PIN is not absolutely required to perform a transaction.

You can't pay for goods with cheques in the UK but they're still reasonably common. I still handle them when:

* my grandmother sends me Christmas money

* I get an expense refund from the University

* my flatmates refund me bills

* I need to send money off with a postal form (recently renewed my driving licence and had to unearth my chequebook to do so)

* I need to withdraw cash from my business account (there is no card associated with the account because RBS are incompetent morons)

* I put a deposit down on a new (rented) flat, or have to pay rent which didn't come out of my bank account as usual due to some wanker committing card fraud and pushing me over my overdraft limit

I think that's it, but still definitely in use around these parts, just not for 'everyday' transactions. And if my flatmates/family were more tech savvy, that'd all be done via online banking. However, the push vs pull argument does weaken when you consider Normal People -- they are so trained against 'giving out bank details', that if I wanted to send money to one of my flatmates, he would prefer a cheque over giving me his sort code and account number...

true, true. Also what's up with buying a house?

Buy a car, and you can pay deposit by card. Few grand no problem.

But buy a house, and you must go to your bank and get them to give you a bankers draft for the amount which costs you £10 or something.

You sure can pay for goods with cheques in the UK, many places won't accept them but it's not illegal or anything it's just company policy.

On the "not giving out details front", a little tale. I went for pizza on Sunday. The guy at teh counter asked this lady for a name (so he could call her when the pizza was ready) she responds "I don't give out my details" and was quite determined not to give the guy a name to attach to her order. I proffered that he should just call "Bob" when her pizza was ready - he shrugged and completed the transaction ... sadly I didn't get chance to hear her verbally abusing him for calling her "Bob" when her order was done.

Every two weeks when Amazon deposits my Marketplace payment into my bank account (electronically) it takes five working days to clear, the same as if I had deposited a paper check at the bank; the only advantage is that at least I don't have to wait for the mail to get the check to me first.

I think the fact that checks worked (and continue to work) for decades says a lot about how, generally, most people are pretty honest. Sure there's some fraud, but it wasn't on a level that made the whole system untenable, like almost happened to PayPal.

It's not like credit cards or other forms of transferring money are immune to fraud either.

this is ridiculous. checks are useful for people to pay each other in sums larger than cash. i almost never have cash on me (speaking of handing someone paper that represents a value...).

i pay rent with checks, therapy and house bills. utilities are paid automatically from my coop's bank account, but normal people don't have credit card processers. the EASIEST thing is to write a check.

what do people do elsewhere? log on to Amazon or Paypal and send money to each other with a fee? Use an ATM to get hundreds of dollars and give each other cash?

i seroiusly couldn't tell if half the comments here were sarcastic or serious. most of the world is NOT as tech savy as this small niche. i personally don't have a smart phone or sms plan, and soe of the people i live with don't have a personal computer (when they want to finish an experiment after dinner they go back to the lab).

I use internet banking. Which costs me nothing. Log on to my bank's website, give it a branch number and acct number for the recipient, and a value - hit pay.

I never EVER use checks except when in the USA. It's like cellphones: you guys are just way behind (except that with cellphones you caught up with the iPhone).

I remember my mom being one of the very last people I knew to insist on using checks instead of a credit/debit card, and that was more than 10 years ago.

We don't. I'm 31 and I can't remember ever using a check. Heck, I hardly keep cash around. Why should I? Checks are for electronically impaired people. Need to pay? Use a credit-card. Need to transfer money? Use internet banking. Which, by the way, these days is accessible on your cellphone.

No fees (unless you are willingly using a the worst bank around) and a million times more secure than both checks and cash.

We don't and they're completely unheard of.

> giro transfer

that's what we do in EU. never wrote a single check. i'm 28.

And in Russia, basically, in cash we trust.

actually I think it depends on the state. Until recently, cheques were much more used (and cheaper) than bank transfers in Italy and AFAIK even more in France.

Online banking changed this.

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