The Federal Reserve has announced the possibility that banking verification services may soon be eliminated after the Social Security Administration (SSA) opted to gradually phase out paper checks. This new measure taken by the Trump administration aims for all payments to be made electronically, which would pose a problem for people who do not have access to online banking tools and rely on paper checks to receive their income. Surveys show that the rise of electronic payment applications like Venmo, PayPal, and Zelle has reduced the need to use paper checks, but these remain important mechanisms for consumers and businesses, according to the Fed’s Vice Chair for Supervision, Michelle Bowman.
On the other hand, the general counsel of the National Association of Convenience Stores, Doug Kantor, has also spoken out against this measure, arguing that, although checks are not as common as they once were, they are still essential for low-income individuals. Another measure promoted by Trump to reduce costs is the elimination of the production of 1-cent coins after 238 years. It was last November when the United States Mint printed the final batch.
Goodbye to banking verification services
Recently, the United States Federal Reserve announced the possibility that the bank verification service may soon be eliminated, after the Social Security Administration (SSA) made the same change in its payments. As a result of the measures implemented by the Trump administration to reduce costs, the Social Security Administration has gradually reduced the use of paper checks to pay beneficiaries.
For this reason, the future of checks and physical bank branches is at risk. In this scenario, the Federal Reserve stated: “Over time, check use has steadily declined, digital payment methods have grown in availability and use, and check fraud has risen. Also, the Reserve Banks will need to make substantial investments in their check infrastructure to continue providing the same level of check services going forward”.
What implications would this measure have?
Although a June report from the Federal Reserve Bank of Atlanta found that more than 90% of respondents last year preferred to use something other than a check to pay bills, the fact is that there are people who do not have access to online banking tools and rely entirely on paper statements to receive their income. Additionally, older consumers who may find it difficult to navigate online banking should also be considered. 2024 data from the Federal Reserve showed that 6% of adults did not have an online checking, savings, or money market account, rising to 22% for people with incomes below $25,000, meaning this portion of demand must also be addressed.
Why is paper check verification so important?
It is undeniable that the increase in electronic payment applications such as PayPal, Venmo, or Zelle has reduced the use of paper checks. However, some have spoken out against the measure the Federal Reserve intends to take, such as the Fed’s Vice Chair for Supervision, Michelle Bowman, who said “Checks remain important payment mechanisms for consumers and businesses. Discontinuing Federal Reserve check services is not an efficient solution to the growing problem of payments fraud, particularly in light of the ongoing role of checks in the payments system”. She ensures that paper checks account for approximately 5% of transactions and 21% of the value of those payments.
On the other hand, Doug Kantor, general counsel for the National Association of Convenience Stores, whose job is to provide cash-checking services to customers, stated “Checks are obviously not used nearly as much as they used to be, but they’re still an important part of the financial system, especially for low-income people. I would think they’re not ready to wind it down yet, and I would hope they’re not ready to wind it down yet because there are significant numbers of people – a minority, no doubt – but still significant numbers who rely on the system”.
Frequently asked questions
What has the Federal Reserve announced?
The possibility of removing banking verification services.
Who would it affect?
To those people who do not have access to online banking tools and who rely entirely on paper checks.