Today, roughly 40 percent of noncash payment in the United States is made by check, largely because the check remains the only way that most people can transfer money from one bank account to another without having to pay for the privilege.
But checks are an insecure and horribly inefficient way of paying people, especially if you’re sending them by mail. And the rest of the world has already moved on: in most countries, transferring money directly from one party’s account to another, without having to write a check, is easy.
In America, the question remains: What financial technology will replace the check? Don’t look to the banks for innovation—they have little incentive to replace the credit and debit cards that use their check-clearing infrastructure and generate billions of dollars in interchange fees. Services do exist that work around the banks, but they generally require both the payer and the payee to set up an account with them first, and most normal people have no desire to do that.
If we’re going to have a revolution in payments, the market isn’t going to get there on its own. The Federal Reserve created and paid for our check-clearing system, and it should do the same with its replacement—a secure, free, instant method for anybody with cash to move. A simple mandate should do the trick. Otherwise, the U.S. will always remain behind the curve, crippled by billions of dollars in hidden and unnecessary fees.
Next idea: Boot the Extra Point