Why do we use checks?

Think about this scenario. I hand you a piece of paper. This piece of paper has all of the information you need to take any amount of money directly from my bank account. It has written on it the amount I wish to give you. You assume that I can indeed give you that amount, and I assume that you will not steal from me.

Does this seem like a sane thing to do? Just think of all that can go wrong here. You could steal from me. You might be honest, but someone else could take the information from you and steal from me. (This happened to Donald Knuth - people would get a check from him, scan them and post the proof, then scammers looking for pictures of checks online found them and forged checks. Knuth's reward checks are now no longer valid because of this.) I may not have money in my bank account. Perhaps I don't now, but I hope to. Banks actually give a little leeway called "float" to as a convenience to their customers. But this can backfire. If someone arranges things carefully they can bounce a series of payments between accounts, get the bank ready to say that all of the accounts have money, withdraw the money, and leave the bank holding the bag!

Obviously I've just describe a check. But, you ask, what is the alternative? Funny you should ask. Several months ago I went to the Netherlands. They don't have checks there. What do they do instead?

Well if you're my utility company and you want me to pay you, you send me the information I will need to deposit money in your bank account. I go to my bank and transfer money there. You get notified when it arrives. The technical name for this in English is giro transfer.

Now stop and think about how many problems this solves. I never hand out my bank details to anyone. You never have to deal with a bounced check. There is no possibility of anything like a kiting scheme. And the only practical change is that instead of my giving you information that can be used to draw from my account, you give me enough information to put money into your account.

The moral is that checking systems are fundamentally flawed. The design of a giro transfer system is fundamentally sound. Unfortunately tradition is set so that checks are here for a while to come. And people are honest enough that the problems don't generally rise to the point that would make people object. Sure, the security problems are obvious when you think about it. But as always when people aren't being bitten by the problems, people forget about the security implications.

Of course checks are losing popularity between credit cards, easy cash withdrawals, and automated payments. So there is hope that some day they will be seen to be superfluous and will eventually be abandoned. In the meantime checks serve as yet another example showing how little we care about security, even when it comes to our money.