Can we replace paper cheques?

Banks are doing some really useful things with technology. I recall a time where I used to pay bills at a teller. Later I would place a cheque and a payment slip from a bill into an ATM. Of course for many years now all of my bills are paid online without having to visit the bank or ATM, and without the need of a paper cheque.

This probably matches most people’s experience who started paying bills in the early 90’s and live in a country with modern financial institutions.

So why exactly do we still need paper cheques? Specifically, why must we wait for a piece of paper to arrive in the mail when a client wants to pay an invoice? There is nothing inherently secure about a paper cheque. Would a bank have to do any more work to clear a napkin that had all of the correct information on it? Probably – since machines could not help with the process – but the point is that a cheque is just a structured request. Person A and Bank A wants to give money to Person B at Bank B

Here are some reasons we often have to rely on cheques in my business:

• PayPal costs roughly 3% which can be a significant amount of money depending on the size of the payment
• Email money transfers have relatively low limits that are not appropriate for business
• Banks (in Canada at least) are ok at transferring funds between two accounts at the same institution, but there is no standard support between institutions
• Credit Unions are nowhere close to the major banks with electronic funds transfers
• Wire Transfers are slow and expensive

At my company, our payroll is processed quite easily and affordably by a third-party firm that takes money from the company bank account, and directly deposits it into the personal bank accounts of each employee. This process is efficient, accurate, and reliable. It’s also dirt cheap. Why can’t payments between companies be this easy and affordable? Why are will still using paper cheques?

Email money transfers contain essentially the same information as paper cheques. They are basically a solution to this problem, but are hindered by low limits (in terms of business transactions). I don’t see any reason why the same type of holds that banks put on large cheques, could not also be applied to large email money transfers. I don’t pretend to know the complexities involved in running a bank – but as a customer, I can tell when I’m being given an artificially hindered service.

This cannot be an unsolvable problem – but what bothers me as much as anything – is not understanding why banks even want paper cheques anymore.