Gavin Howe
Checks have been a fixture of the U.S. payments landscape for centuries, but the federal government is now taking steps to eliminate them. In March 2025, President Donald Trump signed an executive order directing the U.S. Treasury Department to phase out the use of paper checks for federal disbursements, including tax refunds, benefits, and vendor payments, by September 30, 2025. This move aims to modernize government payments, reduce costs, and mitigate security risks associated with checks, such as fraud and theft. While the use of checks has been declining, with a 75% drop in check-writing since 2000, they still play a significant role in government payments, with 23% of benefit recipients receiving assistance by check or voucher. The Federal Reserve, the central bank of the United States, has been working to enhance the efficiency of the payment system and reduce the reliance on paper checks through regulations and the adoption of electronic check collection methods. As the debate around eliminating checks intensifies, the question arises: will businesses follow the federal government's lead and eradicate checks altogether?
| Characteristics | Values |
|---|---|
| Reason for eliminating checks | Checks are slow, costly, and prone to theft and fraud. |
| Entities that have to eliminate checks | All federal departments and agencies, including the U.S. Treasury Department |
| Deadline for eliminating checks | September 30, 2025 |
| Forms of payment that will replace checks | Electronic payments, such as direct deposit, debit or credit card payments |
| Checks eliminated by the Federal Reserve | Paper checks |
| Checks still used by organizations | 75% of organizations continue to use checks |
| Checks still received by individuals | 23% of benefit recipients still receive assistance by check or voucher |
| Checks still useful for | Large one-off payments, such as charitable donations or real estate transactions |
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What You'll Learn
The US Federal Reserve's role in the payment industry
The US Federal Reserve System, often referred to as the Fed, is the central banking system of the United States. It was established in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Fed operates a major payment system, the Automated Clearing House (ACH), which converts transactions like debit-card swipes and direct deposits into credits and deductions from bank accounts.
The Federal Reserve's role in the payment industry is participatory, and it is well-suited to the structure of the US financial industry. The Reserve Banks process checks and provide a nationwide network for the collection of items ineligible for processing through normal check-collection channels, such as matured coupons, bonds, and banker's acceptances. The Federal Reserve Banks also provide check collection services to depository institutions. The number of checks written nationally has been declining since the mid-1990s as the use of electronic payment instruments has grown. The Check Clearing for the 21st Century Act (Check 21) further facilitated this shift by removing barriers to the electronic collection of checks.
The Federal Reserve's objective in the payment industry is to promote the integrity and efficiency of the payments mechanism and to ensure the provision of payment services to all depository institutions on an equitable basis. The Fed's dual role as an operator and regulator of the payments system can create a conflict of interest, especially given its responsibility to ensure the safety and security of the banking system.
The Federal Reserve System also moves trillions of dollars daily between banks throughout the US via the Fedwire. The Fed has also developed a new payment system called FedNow, which is designed to replace traditional and slower settlement systems. The Fed has an opportunity to improve the payment system, making it faster and more secure, which would benefit banks, fintech firms, and working Americans.
The US Treasury Department has been directed by the White House to eliminate check usage for all federal disbursements by September 30, 2025, citing unnecessary costs, delays, and security risks. While check usage has been declining, many organizations continue to rely on them, and it remains to be seen if businesses and consumers will fully let go of this payment method.
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The conflict of interest in the Fed's dual role
The Federal Reserve System, commonly known as the Fed, has a dual mandate to achieve maximum employment and keep prices stable. This dual role is seen as a conflict of interest by some critics, who argue that the Fed disproportionately serves the interests of the banking elite due to the backgrounds of its officials. The Fed's mandate for monetary policy involves promoting maximum employment and stable prices, which is interpreted as a stable inflation rate of 2% per year on average. The Fed's role in the payment industry is significant, as it operates the Automated Clearing House (ACH), which processes payments such as debit card swipes and direct deposits. However, the Fed has been criticised for the slow speed of ACH payments, creating an opportunity for fintech startups to colonize the market.
The Fed's dual role as both operator and regulator of the payment system can create a conflict of interest, especially given its responsibility to ensure the safety and security of the banking system. Losing their role in the payment industry would be a significant loss for banks, creating high stakes for the Fed. Additionally, the Fed must balance the private interests of banks with the centralised responsibility of the government, which can lead to conflicting goals.
The Fed's role has expanded over the years, particularly after events such as the Great Depression and the Great Recession, which led to the addition of moderating long-term interest rates to its objectives. The Federal Reserve Act of 1977 clarified the roles of the Board of Governors and the Federal Open Market Committee (FOMC), with Congress explicitly stating the Fed's goals as maximum employment, stable prices, and moderate long-term interest rates.
The Fed's dual mandate of price stability and maximum employment is also reflected in the work of the Federal Advisory Council (FAC), which represents the interests of member banks while considering broader public welfare. The FAC has influenced the Fed's understanding of the banking sector's needs. While the Fed's dual role can create conflicts of interest, it is subject to ethical guidelines, such as those outlined by the Federal Reserve Bank of New York, which aim to prevent conflicts of interest and promote transparency.
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The decline of check usage
The Covid pandemic accelerated this shift, with many Americans embracing contactless and digital payment methods. According to a 2024 survey, 46% of Americans did not write a single check in 2023, and only 15% wrote a few per month. Retailers have also been moving away from checks, with a growing list of them no longer accepting personal checks as payment.
The use of checks for business-to-business (B2B) transactions has also been declining, though checks still account for a large portion of these transactions. In 2023, 33% of B2B payments were made via check, according to the American Bankers Association. Checks are also still widely used for business-to-consumer (B2C) payments, especially for rebate checks or checks as part of a court order.
Despite the decreasing usage, check fraud has been on the rise. In 2023, fraudsters targeted checks more than any other payment method, with 65% of organizations experiencing actual or attempted check fraud. Check fraud is attractive to criminals because it is easy to pull off, and checks are relatively simple to steal from mailboxes. As a result, the federal government has been pushing to reduce check usage. In 2025, the White House issued an executive order mandating that the federal government cease issuing paper checks for all disbursements, including tax refunds and government benefits, by September 30, 2025.
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The rise of electronic payments
The use of electronic payments has been on the rise for several years, with the digitisation of money occurring gradually over the last few decades. The earliest forms of online payments date back to the mid-1990s, with the Stanford Federal Credit Union recognised as the first to offer such a service. Since then, the rise of the internet and e-commerce has meant that electronic payments have become one of the leading payment options.
The average number of digital payments per capita in Committee on Payments and Market Infrastructure jurisdictions increased from 176 in 2012 to 303 in 2019. This trend has only accelerated since the pandemic, with Gen Z leading the way in the adoption and use of digital payments. The digital payments industry is expected to reach over $15 trillion by 2027, up from a forecast of $7.5 trillion in 2021.
The Federal Reserve, which operates a major payment system called the Automated Clearinghouse (ACH), has also contributed to the rise of electronic payments. While the Fed has been criticised for slow payment processing times, it has taken steps to speed up ACH payments and enable the electronic collection of checks.
Overall, the rise of electronic payments has been driven by technological advancements, the growth of e-commerce, and the convenience and security offered by digital payment methods. With the increasing digitisation of money and the emergence of new payment technologies, it is likely that the use of electronic payments will continue to grow in the coming years.
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The benefits of electronic payments
The Federal Reserve has been working to reduce check usage, with the White House issuing an executive order to direct the US Treasury Department to eliminate check usage for all federal disbursements by September 30, 2025. This is due to checks being costly, slow, and susceptible to fraud.
Speed and Efficiency
Electronic payments are faster than traditional paper checks. E-checks, for example, are sent online instantly and typically take two to five business days to clear, whereas paper checks can take up to seven days to be delivered and settled. Electronic checks also reduce the number of steps and manual processes involved in traditional check processing, saving time and effort for both the payer and the payee.
Cost-Effectiveness
Electronic payments, such as e-checks, are generally less expensive to issue and process than paper checks. There are no physical production or postage costs associated with electronic payments, and merchants often pay lower fees for processing e-check transactions compared to credit card payments. This cost-effectiveness benefits both businesses and consumers, with some businesses passing on the savings to customers in the form of discounts or lower prices.
Security
Electronic payments offer enhanced security features compared to paper checks. E-checks, for example, have multiple security measures, including authentication, public-key cryptography, digital signatures, and encryption. Additionally, the Electronic Funds Transfer Act protects consumers against fraud, stolen cards, and unauthorized transactions for payments made through the banking system. While electronic payments are not immune to fraud, they are less vulnerable than paper checks, which can be physically stolen or forged.
Convenience and Accessibility
Electronic payments provide convenience and accessibility for both payers and payees. Payers can easily authorize and initiate payments from their devices, without the need for physical paperwork or visits to a bank. Payees benefit from improved cash flow due to faster deposits and reduced instances of unpaid invoices. Additionally, electronic payments enable seamless recurring payments, direct deposits, and online bill payments, enhancing the overall payment experience for all involved.
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Frequently asked questions
The Fed operates a major payment system called the Automated Clearinghouse (ACH), which converts things like debit-card swipes and direct-deposit paychecks into credits and deductions from bank accounts.
The Federal Reserve Banks provide check collection services to depository institutions. The Check Clearing for the 21st Century Act (Check 21) also enabled the electronic collection of checks, which has now become the primary method for collecting checks.
Paper checks are slow, costly, and prone to theft and fraud. The executive order mandating the phasing out of paper checks aims to "modernize how the government handles money, switching from old-fashioned paper-based payments to fast, secure electronic payments."
While businesses have made efforts to eliminate checks, many organizations continue to rely on them. It is unclear if businesses will completely let go of checks, but the federal government's push to reduce check usage may influence their decision.
