The 'Check's in the Mail': A Costly Way to Pay Your Bills

There's a paper tiger lurking in the American economy, but it's no pushover.

It consumes a billion pounds of paper a year. It steals away perhaps as much as 1 percent of the nation's annual production. Yet it's rarely seen in its entirety.

It's the checking system - as costly and time-consuming as it is vast. Sixty-three billion times a year - 2,000 times a second - Americans sign a check to pay for something.

"I call it the invisible business," says Paul Connolly, national director of retail payments for the Federal Reserve System. "We all write checks. Most of us get them back from our bank. And we have absolutely no idea what happened in between."

Accounting for culture

Some Europeans are already leaving the paper check behind for cheaper electronic methods. But not Americans. For all the attention on digital commerce and Internet shopping, the United States is stuck with a paper-check system that will take years and billions of dollars to alter.

"It's tough to break people's habits," says Bill Fenimore, chief executive of Integrion Financial Network, an electronic-payment network based in Atlanta. "They feel safe and secure with a check. We're basically trying to do a major culture change."

The peculiarities of American culture will make that difficult, Mr. Connolly adds. For example, with fewer than a quarter of the people and an electronic payment system that's less automated, Britain handles roughly the same number of electronic transactions as the US does.

Why? Because the British accept the idea of companies dipping into personal checking accounts for bill payments. It's cheaper and more convenient - no envelopes to lick or postage to pay.

But Americans distrust large organizations and worry about giving them access to personal bank accounts, Connolly says.

Also, early versions of electronic billing and checking systems created enough problems, such as lost accounts and overdrawn bank accounts, that some users have gone back to paying by check. And, because no one's quite sure which electronic system will become standard - automatic payments, electronic banking, debit cards that charge your account, stored-value cards that actually "hold" cash - confusion reigns.

Just as consumers are reluctant to give up paper checks, so are banks and vendors. Electronic payments cost less in the long run, but infrequent use means vendors see little immediate return for their investment in new equipment, online banking experts say. Many stick with paper.

Fewer checks, less money

Nevertheless, these experts add, three trends may propel electronic transactions into serious competition with paper: the home invasion of the personal computer (PC); the rise of the Internet; and the federal government's mandate to eliminate most of its paper checks by Jan. 1, 1999.

The PC and the Internet are making consumers much more comfortable with electronic transactions. The government's move means that millions of government checks going to contractors, Social Security retirees, and welfare recipients will land electronically in their banking accounts. (Tax refunds are exempted.)

The savings look huge. The federal government spends an average 44 cents to print and send a paper check; an electronic deposit costs only 2 cents. The US Treasury Department says it sees $500 million in savings on postage and handling during the first five years.

Welfare advocates worry the new system will leave behind recipients without bank accounts.

Several solutions are under review. The Treasury Department, for example, hopes to persuade banks to set up low-cost accounts with debit cards, which Social Security recipients could use in stores. Several states are working on a similar program for food-stamp recipients.

One way or another, electronic technology whould create a faster, less-expensive payment system and the paper tiger would roar no more.

Converting to electronic payments instead of checks in the US would save:

* $26.7 billion to $46.7 billion in paper handling, processing, transportation, errors, and fraud.

* 1 billion lbs. of paper and hundreds of thousands of trees.

* 357 billion lbs. of trash in billing and bill-return envelope.

Sources: Federal Reserve Bank of Boston; National Automated Clearing House Association