Electronic debits moving money more quickly
It used to be that you’d write a check and mail it off, figuring it would take a good four or five days for the Post Office to deliver it, the payee to process it and your own bank to get it back and take the money out of your account.
But a growing trend of merchants converting paper checks into electronic debits has closed that gap. These days, it’s likely the cash is leaving your account within a couple of hours of your check arriving at its destination.
“About the only float you have left is with the Post Office,” said Rose Oswald Poels, senior vice president of the Wisconsin Bankers Association, the trade organization that represents 97 percent of the 310 banks in Wisconsin.
“Things have definitely changed, and I think changed for the better,” she said. “More and more, people need to know that when they write a check, they better have sufficient funds in their account.”
That advice is even sounder when the Post Office isn’t involved, as more retailers are using point-of-sale software that immediately converts a check into an electronic debit on the author’s account.
Under the old system, checks had to travel from a merchant, to the merchant’s bank, to a Federal Reserve Bank in Chicago and then to the customer’s bank before money was taken from the customer’s account.
Now, checks can be converted instantly to an electronic debit, removing money from the customer’s account immediately.
The surge in electronic debits is in large part the result of federal legislation that took effect in October 2004. The “Check 21 Act” allows the recipient of a paper check to create a digital version, thereby eliminating the need for further handling of the physical document.
In addition to a quicker depletion of their checking accounts, consumers are most likely to see the effects when they notice that certain checks are no longer returned to them with their monthly bank statement. Often, the electronic payments show up on the statement in both the check and debit areas.
The law also made it legal for businesses to use a computer scanner to capture images of checks and deposit them electronically, a process known as remote deposit.
Oswald Poels said it’s only a matter of time until the vast majority of merchants and utilities upgrade their computer systems to convert paper checks into electronic debits.
Part of that is due to the electronic age in which we live. Merchants want their money quicker, just as consumers expect to see funds available in their own accounts, she said.
While electronic payments might drain a consumer’s account quicker, they also make funds available much sooner, said Larry Squire, president of Johnson Bank in Janesville.
When electronic transfers are involved, transaction times are quicker, and that’s helped customers time payments more accurately when paying bills through the bank’s automated system, he said.
Electronic payments also help reduce check fraud because merchants on a live system can find out instantaneously if a check is good.
That was the impetus for Mounds Pet Food Warehouse to start scanning checks about five years ago, said Connie Esser, sales manager for the chain of stores in Janesville and the Madison area.
“The biggest thing for us was the number of bounced checks,” she said. “We were spending so much energy and money trying to collect on bad checks.”
Mounds is tapped into the nationwide TeleCheck system, a verification service helps merchants expedite the processing and handling of checks and reduce fraud.
“When these people see the TeleCheck sign, they turn and walk out of the store,” Esser said.
Electronic debits also help eliminate the paper trail created by millions of checks moving each day between merchants and the banking system.
“A lot of it came about after 9/11,” Oswald Poels said. “When planes couldn’t fly, checks didn’t move.”
Small plane crashes also have stagnated the system when checks were lost or destroyed, she said.
“Even though it’s now being forced on consumers for many different reasons,” she said, “people better have the money when they write a check because these things are now clearing in just a matter of a couple hours.”