What are the benefits of Check 21 relative to credit cards and other payment options?
In the 1970s, the plastic credit card was a financial innovation that moved us away from paper currency to plastic. This transaction is similar to the current transition from paper checks to digital checks. Today, credit cards are cleared almost exclusively electronically. The check's transition from paper to electronic clearing has been rapid in comparison to that of the credit card. The proportion of paper checks that were truncated (and presented as substitute checks or electronic images) reached over 40%, with the number of substitute checks having tripled over the previous year, highlighting the dramatic change brought about by Check 21.
One of the goals of Check 21 was to improve the overall efficiency of the U.S.'s payments system by encouraging financial institutions to switch from a paper-based to an electronic infrastructure. Thanks to Check 21, Federal Reserve banks were able to scale back and ultimately discontinue specialized air courier flights to transport checks between branches. Check 21 also allowed Federal Reserve banks to speed up the consolidation of their check processing offices and make funds from check deposits available more quickly.
In a nutshell, Check 21 has enabled banks to realize cost savings by eliminating check processing operations and air courier flights, getting funds credited to their accounts quicker thus accruing interest fees, and by moving from paper to electronic images. Check 21 makes checks more competitive with other payment options as it retains the properties that made checks popular in the past, with the added advantage of clearing electronically like a credit or debit card.
Broader reach compared to ACH
Check 21 can debit any U.S. checking account, even accounts that ACH cannot debit such as many credit unions, savings and loans accounts, small banks, brokerage accounts, business accounts, and credit card checking accounts. In fact, Check 21 provides you with access to more customers than any other single payment method.