Cheque book

A cheque book , or check (American English; see spelling differences), is a document that orders a ba-nk (or credit union) to pay a specific amount of money from a person’s account to the person in whose name the che-que has been issued. The person writing the che-que, known as the drawer, has a transaction ba-nking account (often called a current, che-que, chequing, checking, or share draft account) where the money is held. The drawer writes various details including the monetary amount, date, and a payee on the che-que, and signs it, ordering their ba-nk, known as the drawee, to pay the amount of money stated to the payee.

Although forms of che-ques have been in use since ancient times and at least since the 9th century, they became a highly popular non-cash method for making payments during the 20th century and usage of che-ques peaked. By the second half of the 20th century, as che-que processing became automated, billions of che-ques were issued annually; these volumes peaked in or around the early 1990s. Since then che-que usage has fallen, being partly replaced by electronic payment systems. In an increasing number of countries, che-ques have either become a marginal payment system or have been completely phased out.

The behavior of a cheque book

A che-que is a negotiable instrument instructing a financial institution to pay a specific amount of a specific currency from a specified transactional account held in the drawer’s name with that institution. Both the drawer and payee may be natural persons or legal entities. che-ques are order instruments and are not in general payable simply to the bearer as bearer instruments are, but must be paid to the payee. In some countries, such as the US, the payee may endorse the che-que, allowing them to specify a third party to whom it should be paid.

che-ques are a type of bill of exchange that was developed as a way to make payments without the need to carry large amounts of money. Paper money evolved from promissory notes, another form of a negotiable instrument similar to che-ques in that they were originally a written order to pay the given amount to whoever had it in their possession (the “bearer”).

History of che-que

The che-que had its origins in the ancient ba-nking system, in which ba-nkers would issue orders at the request of their customers, to pay money to identified payees. Such an order was referred to as a bill of exchange. The use of bills of exchange facilitated trade by eliminating the need for merchants to carry large quantities of currency (for example, gold) to purchase goods and services.

Early years

There is early evidence of using bill of exchange. In India, during the Maurya Empire (from 321 to 185 BC), a commercial instrument called the adesha was in use, which was an order on a ba-nker desiring him to pay the money of the note to a third person.

The ancient Romans are believed to have used an early form of che-que known as praescriptiones in the 1st century BC.

Beginning in the third century AD, ba-nks in Persian territory began to issue letters of credit. These letters were termed čak, meaning “document” or “contract”. The čak became the sakk later used by traders in the Abbasid Caliphate and other Arab-ruled lands. Transporting a paper sakk was more secure than transporting money. In the ninth century, a merchant in one country could cash a sakk drawn on his ba-nk in another country. The Persian poet, Ferdowsi, used the term “che-que” several times in his famous book, Shahnameh, when referring to the Sasanid dynasty.

Ibn Hawqal, living in the 10th century, quotes the use of a che-que worth 42,000 dinars in the Ghana Empire.

In the 13th century the bill of exchange was developed in Venice as a legal device to allow international trade without the need to carry large amounts of gold and silver. Their use subsequently spread to other European countries.

In the early 1500s, to protect large accumulations of cash, people in the Dutch Republic began depositing their money with “cashiers”. These cashiers held the money for a fee. Competition drove cashiers to offer additional services including paying money to any person bearing a written order from a depositor to do so. They kept the note as proof of payment. This concept went on to spread to England and elsewhere.

Modern era

Barclay’s and Co. che-que. For 39 pounds, 4 shillings, and 2 pence. Issued in London by Messrs Barclay and Tritton, 1793. On display at the British Museum in London

By the 17th century, bills of exchange were being used for domestic payments in England. che-ques, a type of bill of exchange, then began to evolve. Initially, they were called drawn notes, because they enabled a customer to draw on the funds that he or she had in the account with a ba-nk and required immediate payment. These were handwritten, and one of the earliest known still to be in existence was drawn on Messrs Morris and Clayton, scriveners and ba-nkers based in the City of London, and dated 16 February 1659.

In 1717, the ba-nk of England pioneered the first use of a pre-printed form. These forms were printed on “che-que paper” to prevent fraud, and customers had to attend in person and obtain a numbered form from the cashier. Once written, the che-que was brought back to the ba-nk for settlement. The suppression of ba-nknotes in eighteenth-century England further promoted the use of che-ques.

Until about 1770, an informal exchange of che-ques took place between London ba-nks. Clerks of each ba-nk visited all the other ba-nks to exchange che-ques while keeping a tally of balances between them until they settled with each other. Daily che-que clearing began around 1770 when the ba-nk clerks met at the Five Bells, a tavern in Lombard Street in the City of London, to exchange all their che-ques in one place and settle the balances in cash. This was the first ba-nkers’ clearinghouse.

Provincial clearinghouses were established in major cities throughout the UK to facilitate the clearing of che-ques on ba-nks in the same town. Birmingham, Bradford, Bristol, Hull, Leeds, Leicester, Liverpool, Manchester, Newcastle, Nottingham, Sheffield, and Southampton all had their own clearinghouses.

In America, the ba-nk of New York began issuing che-ques after its establishment by Alexander Hamilton in 1784. The oldest surviving example of a complete American checkbook from the 1790s was discovered by a family in New Jersey. The documents are in some ways similar to modern-day checks, with some data pre-printed on sheets of paper alongside blank spaces for where other information could be hand-written as needed.

It is thought that the Commercial ba-nk of Scotland was the first ba-nk to personalize its customers’ che-ques, in 1811, by printing the name of the account holder vertically along the left-hand edge. In 1830 the ba-nk of England introduced books of 50, 100, and 200 forms and counterparts, bound or stitched. These checkbooks became a common format for the distribution of che-ques to ba-nk customers.

In the late 19th century, several countries formalized laws regarding che-ques. The UK passed the Bills of Exchange Act 1882, and India passed the Negotiable Instruments Act, 1881; which both covered che-ques.

An English che-que from 1956 has a ba-nk clerk’s red mark verifying the signature, a two-pence stamp duty, and holes punched by hand to cancel it. This is a “crossed che-que” disallowing the transfer of payment to another account.

In 1931, an attempt was made to simplify the international use of che-ques by the Geneva Convention on the Unification of the Law Relating to che-ques. Many European and South American states, as well as Japan, joined the convention. However, countries including the US and members of the British Commonwealth did not participate and so it remained very difficult for che-ques to be used across country borders.

In 1959 a standard for machine-readable characters (MICR) was agreed upon and patented in the US for use with che-ques. This opened the way for the first automated reader/sorting machines for clearing che-ques. As automation increased, the following years saw a dramatic change in the way in which che-ques were handled and processed. che-que volumes continued to grow; in the late 20th century, che-ques were the most popular non-cash method for making payments, with billions of them processed each year. Most countries saw che-que volumes peak in the late 1980s or early 1990s, after which electronic payment methods became more popular and the use of che-ques declined.

In 1969 che-que guarantee cards were introduced in several countries, allowing a retailer to confirm that a che-que would be honored when used at a point of sale. The drawer would sign the che-que in front of the retailer, who would compare the signature to the signature on the card and then write the che-que-guarantee-card number on the back of the che-que. Such cards were generally phased out and replaced by debit cards, starting in the mid-1990s.

From the mid-1990s, many countries enacted laws to allow for che-que truncation, in which a physical che-que is converted into electronic form for transmission to the paying ba-nk or clearinghouse. This eliminates the cumbersome physical presentation and saves time and processing costs.

In 2002, the Euroche-que system was phased out and replaced with domestic clearing systems. Old Euroche-ques could still be used, but they were now processed by national clearing systems. At that time, several countries took the opportunity to phase out the use of che-ques altogether. As of 2010, many countries have either phased out the use of che-ques altogether or signaled that they would do so in the future.

Parts of  che-que

The four main items on a che-que are:

1. Drawer: the person or entity whose transaction account is to be drawn. Usually, the drawer’s name and account is preprinted on the che-que, and the drawer is usually the signatory.
2. Payee: the person or entity who is to be paid the amount.
3. Drawee: the ba-nk or other financial institution where the che-que can be presented for payment. This is usually preprinted on the che-que.
4. Amount: the currency amount. The amount and currency (e.g., dollars, pounds, etc.) usually must be written in words and in figures. The currency is usually the local currency, but may be a foreign currency.

As che-que usage increased during the 19th and 20th centuries, additional items were added to increase security or to make processing easier for the financial institution. A signature of the drawer was required to authorize the che-que, and this is the main way to authenticate the che-que. Second, it became customary to write the amount in words as well as in numbers to avoid mistakes and make it harder to fraudulently alter the amount after the che-que had been written. It is not a legal requirement to write the amount in words, although some ba-nks will refuse to accept che-ques that do not have the amount in both numbers and words.

Issue date was added, and che-ques may become invalid a certain amount of time after the issue. In the US and Canada, a che-que is typically valid for six months after the date of issue, after which it is a stale-dated che-que, but this depends on where the che-que is drawn. In Australia, a che-que is typically valid for fifteen months of the che-que date.A che-que that has an issue date in the future, a post-dated che-que, may not be able to be presented until that date has passed. In some countries writing a post-dated che-que may simply be ignored or is illegal. Conversely, an antedated che-que has an issue date in the past.

A che-que number was added and checkbooks were issued so that che-que numbers were sequential. This allowed for some basic fraud detection by ba-nks and made sure one che-que was not presented twice.

In some countries, such as the US, che-ques may contain a memo line where the purpose of the che-que can be indicated as a convenience without affecting the official parts of the che-que. In the United Kingdom, a memo line is not available and such notes may be written on the reverse side of the che-que.

In the US, at the top (when che-que oriented vertically) of the reverse side of the che-que, there are usually one or more blank lines labeled something like “Endorse here”.

Starting in the 1960s, machine-readable routing and account information was added to the bottom of che-ques in MICR format, which allowed automated sorting and routing of che-ques between ba-nks and led to automated central clearing facilities. The information provided at the bottom of the che-que is country-specific and standards are set by each country’s che-que clearing system. This means that the payee no longer has to go to the ba-nk that issued the che-que, they can instead deposit it at their own ba-nk or any other ba-nk and the che-que would be routed back to the originating ba-nk, and funds transferred to their own ba-nk account.

In the US, the bottom 5⁄8-inch (16 mm) of the che-que is reserved for MICR characters only. Intrusion into the MICR area can cause problems when the che-que runs through the clearinghouse, requiring someone to print a MICR che-que correction strip and glue it to the che-que. Many new ATMs do not use deposit envelopes and actually scan the che-que at the time it is deposited and will reject che-ques due to handwriting incursion which interferes with reading the MICR.

This can cause considerable inconvenience as the depositor may have to wait days for the ba-nk to be open and may have difficulty getting to the ba-nk even when they are open; this can delay the availability of the portion of a deposit that their ba-nk makes available immediately as well as the balance of the deposit. Terms of service for many mobile (cell phone camera) deposits also require the MICR section to be readable. Not all of the MICR characters have been printed at the time the che-que is written,

as additional characters will be printed later to encode the amount; thus a sloppy signature could obscure characters that will later be printed there. Since MICR characters are no longer necessarily printed in magnetic ink and will be scanned by optical rather than magnetic means, the readers will be unable to distinguish pen ink from pre-printed magnetic ink; these changes allow che-ques to be printed on ordinary home and office printers without requiring pre-printed che-que forms, allow ATM deposit capture, allow mobile deposits, and facilitate electronic copies of che-ques.

For additional protection, a che-que can be crossed, which restricts the use of the che-que so that the funds must be paid into a ba-nk account. The format and wording vary from country to country, but generally, two parallel lines may be placed either vertically across the che-que or in the top left-hand corner. In addition the words ‘or bearer’ must not be used, or if pre-printed on the che-que must be crossed out on the payee line.

If the che-que is crossed with the words ‘Account Payee or similar then the che-que can only be paid into the ba-nk account of the person initially named as the payee, thus it cannot be endorsed to a different payee.

Attached documents

che-ques sometimes include additional documents. A page in a checkbook may consist of both the che-que itself and a stub or counterfoil – when the che-que is written, only the che-que itself is detached, and the stub is retained in the checkbook as a record of the che-que. Alternatively, che-ques may be recorded with carbon paper behind each che-que, in ledger sheets between che-ques or at the back of a che-quebook, or in a completely separate transaction register that comes with a checkbook.

When a che-que is mailed, a separate letter or “remittance advice” may be attached to inform the recipient of the purpose of the che-que – formally, which account receivable to credit the funds to. This is frequently done formally using a provided slip when paying a bill, or informally via a letter when sending an ad hoc che-que.

Usage of a che-que

Parties to regular che-ques generally include a drawer, the depositor writing a che-que; a drawee, the financial institution where the che-que can be presented for payment; and a payee, the entity to whom the drawer issues the che-que. The drawer drafts or draws a che-que, which is also called cutting a che-que,

especially in the US. There may also be a beneficiary—for example, in depositing a che-que with a custodian of a brokerage account, the payee will be the custodian, but the che’que may be marked “F/B/O” (“for the benefit of”) the beneficiary.

Ultimately, there is also at least one endorsee which would typically be the financial institution servicing the payee’s account, or in some circumstances may be a third party to whom the payee owes or wishes to give money.

A payee that accepts a che’que will typically deposit it in an account at the payee’s ba-nk and have the ba-nk process the che’que. In some cases, the payee will take the che’que to a branch of the drawee ba-nk, and cash the che’que there. If a che’que is refused at the drawee ba-nk (or the drawee ba-nk returns the che’que to the ba-nk that it was deposited at) because there are insufficient funds for the che’que to clear, it is said that the che’que has been dishonored. Once a che’que is approved and all appropriate accounts involved have been credited,

the che’que is stamped with some kind of cancellation mark, such as a “paid” stamp. The che’que is now a canceled che’que. Canceled che’ques are placed in the account holder’s file. The account holder can request a copy of a canceled che’que as proof of payment. This is known as the che’que clearing cycle.

che’ques can be lost or go astray within the cycle, or be delayed if further verification is needed in the case of suspected fraud. A che’que may thus bounce some time after it has been deposited.

Following concerns about the amount of time it took the che’que and Credit Clearing Company to clear che’ques, the United Kingdom Office of Fair Trading set up a working group in 2006 to look at the che’que clearing cycle. Their report said that clearing times could be improved, but that the costs associated with speeding up the che’que clearing cycle could not be justified considering the use of che’ques was declining. However, they concluded the biggest problem was the unlimited time a ba-nk could take to dishonor a che’que.

To address this, changes were implemented so that the maximum time after a che’que was deposited that it could be dishonored was six days, what was known as the “certainty of fate” principle.

An advantage to the drawer of using che’ques instead of debit card transactions is that they know the drawer’s ba-nk will not release the money until several days later. Paying with a che’que and making a deposit before it clears the drawer’s ba-nk is called “kiting” or “floating” and is generally illegal in the US, but rarely enforced unless the drawer uses multiple chequing accounts with multiple institutions to increase the delay or to steal the funds.

Declining use

che’que usage has been declining for some years, both for point of sale transactions (for which credit cards and debit cards are increasingly preferred) and for third party payments (for example, bill payments), where the decline has been accelerated by the emergence of telephone ba-nking, online ba-nking, and mobile ba-nking. Being paper-based, che’ques are costly for ba-nks to process in comparison to electronic payments, so ba-nks in many countries now discourage the use of che’ques,

either by charging for che’ques or by making the alternatives more attractive to customers. In particular, the handling of money transfers requires more effort and is time-consuming. The che’que has to be handed over in person or sent through the mail. The rise of automated teller machines (ATMs) means that small amounts of cash are often easily accessible so it is sometimes unnecessary to write a che’que for such amounts instead.

Alternative on regular che’ques

Cashier’s che’ques and ba-nk drafts

Cashier’s che’ques and ba-nker’s drafts, also known as ba-nk che’ques, ba-nker’s che’ques, or treasurer’s che’ques, are che’ques issued against the funds of a financial institution rather than an individual account holder. Typically, the term cashier’s check is used in the US, and ba-nker’s draft is used in the UK and most of the Commonwealth. The mechanism differs slightly from country to country but in general, the ba-nk issuing the che’que or draft will allocate the funds at the point the che’que is drawn.

This provides a guarantee, save for a failure of the ba-nk, that it will be honored. Cashier’s che’ques are perceived to be as good as cash but they are still a che’que, a misconception sometimes exploited by scam artists. A lost or stolen che’que can still be stopped like any other che’que, so payment is not completely guaranteed.

Certified che’que

When a certified che’que is drawn, the ba-nk operating the account verifies there are currently sufficient funds in the drawer’s account to honor the che’que. Those funds are then set aside in the ba-nk’s internal account until the che’que is cashed or returned by the payee. Thus, a certified che’que cannot “bounce”, and its liquidity is similar to cash, absent the failure of the ba-nk. The ba-nk indicates this fact by making a notation on the face of the che’que (technically called an acceptance).

Payroll che’que

A che’que used to pay wages may be referred to as a payroll che’que. Even when the use of che’ques for paying wages and salaries became rare, the vocabulary “pay che’que” still remained commonly used to describe the payment of wages and salaries. Payroll che’ques issued by the military to soldiers, or by some other government entities to their employees, beneficiaries, and creditors, are referred to as warrants.

Warrants

Warrants look like che’ques and clear through the ba-nking system like cheques, but are not drawn against cleared funds in a deposit account. A cheque differs from a warrant in that the warrant is not necessarily payable on demand and may not be negotiable. They are often issued by government entities such as the military to pay wages or suppliers. In this case, they are an instruction to the entity’s treasurer department to pay the warrant holder on demand or after the specified maturity date.

Traveler’s cheque

A traveler’s cheque is designed to allow the person signing it to make an unconditional payment to someone else as a result of paying the issuer for that privilege. Traveler’s cheques can usually be replaced if lost or stolen, and people frequently used them on holiday instead of cash as many businesses used to accept traveler’s cheques as currency. The use of credit or debit cards has begun to replace the traveler’s cheque as the standard for vacation money due to their convenience and additional security for the retailer. As a result, many businesses no longer accept traveler’s cheques.

Money or postal order

A cheque sold by a post office, ba-nk, or merchant such as a grocery store for payment in favor of a third party is referred to as a money order or postal order. These are paid for in advance when the order is drawn and are guaranteed by the institution that issues them and can only be paid to the named third party. This was a common way to send low-value payments to third parties, avoiding the risks associated with sending cash by post, prior to the advent of electronic payment methods.

Oversized cheques

Oversized cheques are often used in public events such as donating money to charity or giving out prizes such as Publishers Clearing House. The cheques are commonly 18 by 36 inches (46 cm × 91 cm) in size; however, according to the Guinness Book of World Records, the largest ever is 12 by 25 meters (39 ft × 82 ft).

Until recently, regardless of the size, such cheques could still be redeemed for their cash value as long as they would have the same parts as a normal cheque, although usually the oversized cheque is kept as a souvenir and a normal cheque is provided. Any ba-nk could levy additional charges for clearing an oversized cheque. Most ba-nks need to have the machine-readable information on the bottom of cheques read electronically, so only very limited dimensions can be allowed due to standardized equipment.

Payment vouchers

In the US some public assistance programs such as the Special Supplemental Nutrition Program for Women, Infants and Children, or Aid to Families with Dependent Children make vouchers available to their beneficiaries, which are good up to a certain monetary amount for the purchase of grocery items deemed eligible under the particular program. The voucher can be deposited like any other cheque by a participating supermarket or other approved business.

Different Cheques all around the world.

Asia

In many Asian countries, cheques were never widely used and generally only used by the wealthy, with cash being used for the majority of payments. Where cheques were used they have been declining rapidly, by 2009 there was negligible consumer cheque usage in Japan, South Korea, and Taiwan.

This declining trend was accelerated by these developed markets’ advanced financial services infrastructure. Many of the developing countries in Asia have seen increasing use of electronic payment systems, ‘leap-frogging’ the less efficient chequing system altogether.

India is one of the few countries in Asia that did have significant cheque usage. It had a long tradition of using cheques and passed laws formalizing cheque usage as early as 1881. In 2009 cheques were still widely used as a means of payment in trade, and also by individuals to pay other individuals or utility bills. One of the reasons was that ba-nks usually provided cheques for free to their individual account holders. However, cheques are now rarely accepted at point of sale in retail stores where cash and cards are payment methods of choice.

Electronic payment transfer continued to gain popularity in India and like in other countries, this caused a subsequent reduction in volumes of cheques issued each year. In 2009 the Reserve ba-nk of India reported there was a five percent decline in cheque usage compared to the previous year.

Canada

In Canada, cheque sizes and types, endorsement requirements, and MICR tolerances are overseen by Payments Canada.

• Canadian cheques can legally be written in English, French or Inuktitut.
• A tele-cheque is a paper payment item that resembles a cheque except that it is neither created nor signed by the payer—instead, it is created (and maybe signed) by a third party on behalf of the payer. Under CPA Rules these are prohibited in the clearing system effective 1 January 2004.

Canada’s usage of cheques is less than that of the US and is declining rapidly at the urging of the Canadian ba-nking Association. The Government of Canada claims it is 6.5 times more expensive to mail a cheque than to make a direct deposit. The Canadian Payments Association reported that in 2012, cheque use in Canada accounted for only 40% of total financial transactions.^[41] The Interac system, which allows instant fund transfers via chip or magnetic strip and PIN, is widely used by merchants to the point that few brick and mortar merchants accept cheques.

Many merchants accept Interac debit payments but not credit card payments, even though most Interac terminals can support credit card payments. Financial institutions also facilitate transfers between accounts within different institutions with the Email Money Transfer (EMT) service.

Cheques are still used for government payments, payroll, rent, and utility bill payments, though direct deposits and online or telephone bill payments are more widely and increasingly used.

The Canadian government began phasing out all government cheques in April 2016.

India

The Cheque was introduced in India by the ba-nk of Hindustan, the first joint-stock ba-nk established in 1770. In 1881, the Negotiable Instruments Act (NI Act) was enacted in India, formalizing the usage and characteristics of instruments like the cheque, the bill of exchange, and promissory note.

The NI Act provided a legal framework for non-cash paper payment instruments in India. In 1938, the Calcutta Clearing ba-nks’ Association, which was the largest ba-nkers’ association at that time, adopted a clearinghouse.

Until 1 April 2012, cheques in India were valid for a period of six months from the date of their issue, before the Reserve ba-nk of India (RBI) issued a notification reducing their validity to three months from the date of issue.

Beginning in 2010, the RBI along with the National Payments Corporation of India (NPCI) piloted the cheque truncation system (CTS). Under CTS, cheques are no longer physically transported to different clearinghouses. They are processed at the ba-nk where they are presented, where an image of the cheque using Magnetic ink character recognition (MICR) is captured and digitally transmitted.

United States

In the United States, cheques are referred to as checks and are governed by Article 3 of the Uniform Commercial Code, under the rubric of negotiable instruments.

• An order check—the most common form in the US—is payable only to the named payee or his or her endorsee, as it usually contains the language “Pay to the order of (name)”.
• A bearer check is payable to anyone who is in possession of the document: this would be the case if the cheque does not name a payee,
• or is payable to “bearer” or to “cash” or “to the order of cash”, or if the cheque is payable to someone who is not a person or legal entity, for example, if the payee line is marked “Happy Birthday”.
• A counter check is one that a ba-nk issues to an account holder in person. This is typically done for customers who have opened a new account or have run out of personalized checks. It may lack the usual security features.

In the US, the terminology for a cheque historically varied with the type of financial institution on which it is drawn. In the case of a savings and loan association it was a negotiable order of withdrawal (compare Negotiable Order of Withdrawal account); if a credit union it was a share draft. “Checks” were associated with chartered commercial ba-nks.

However, common usage has increasingly conformed to more recent versions of Article 3, where check means any or all of these negotiable instruments. Certain types of cheques drawn on a government agency, especially payroll cheques, may be called a payroll warrant.

At the bottom of each cheque, there is the routing/account number in MICR format. The ABA routing transit number is a nine-digit number in which the first four digits identify the US Federal Reserve ba-nk’s cheque-processing center. This is followed by digits 5 through 8, identifying the specific ba-nk served by that cheque-processing center. Digit 9 is a verification check digit, computed using a complex algorithm of the previous eight digits.

• Typically the routing number is followed by a group of eight or nine MICR digits that indicates the particular account number at that ba-nk. The account number is assigned independently by the various ba-nks.
• Typically the account number is followed by a group of three or four MICR digits that indicates a particular cheque number from that account.
• A directional routing number—also known as the transit number, consists of a denominator mirroring the first four digits of the routing number, and a hyphenated numerator, also known as the ABA number, in which the first part is a city code (1–49), if the account is in one of 49 specific cities, or a state code (50–99) if it is not in one of those specific cities; the second part of the hyphenated numerator mirrors the 5th through 8th digits of the routing number with leading zeros removed.

A draft in the US Uniform Commercial Code is any bill of exchange, whether payable on demand or at a later date. If payable on demand it is a “demand draft”, or if drawn on a financial institution, a cheque.

The electronic cheque or substitute cheque was formally adopted in the US in 2004 with the passing of the “Check Clearing for the 21st Century Act” (or Check 21 Act). This allowed the creation of electronic cheques and translation (truncation) of paper cheques into electronic replacements, reducing cost and processing time.

The specification for US cheques is given by ANSI committee X9 Technical Report 2.

In 2002 the US still relied heavily on cheques due to the convenience afforded to payers, and due to the absence of a high volume system for low-value electronic payments. In practice, transfers of less than about five dollars are extremely expensive, and transactions of less than 50c impossible (transaction fees swallow the payment or exceed it).

The only methods generally available for individuals and small businesses to make payments electronically are electronic funds transfers (EFT) or accepting credit cards. EFT payments require a commercial checking account (which often has higher fees and minimum balances than individual accounts) and a subscription to EFT service costing anywhere from $10 to $25 a month,

plus 10¢ per transaction (making transactions of 10¢ or less impossible, and transactions under $1 very expensive.) Credit card payments cost the recipient (or the payer) 33¢ plus 3% of the transaction, making transactions of 33¢ or less impossible, and transactions of $1 or less have at least a 30% service charge. Generally, payments by che-que (as long as the payer has funds in their account) and the recipient deposits it to their ba-nk account, regardless of amount, have a service charge to both parties of zero.

Since 2002, the decline in cheque usage seen around the world has also started in the US. The cheque, although not as common as it used to be, is still a long way from disappearing completely in the US.

In the US, an estimated 18.3 billion cheques were paid in 2012, with a value of $25.9 trillion.

About 70 billion cheques were written annually in the US by 2001, though around 17 million adult Americans have no ba-nk accounts. Certain companies whom a person pays with a cheque will turn it into an Automated Clearing House (ACH) or electronic transaction. ba-nks try to save time processing cheques by sending them electronically between ba-nks. Cheque clearing is usually done through an electronic cheque broker, such as The Clearing House, Viewpointe LLC or the Federal Reserve ba-nks.

Copies of the cheques are stored at a ba-nk or the broker, for periods up to 99 years, and this is why some cheque archives have grown to 20 petabytes. Access to these archives is now worldwide, as most ba-nk programming is now done offshore.^{[citation needed]} Many utilities and most credit cards will also allow customers to pay by providing ba-nk information and having the payee draw payment from the customer’s account (direct debit). Many people in the US pay their bills or transfer money via paper money orders, as these have security advantages over mailing cash and require no ba-nk-account access.

frauds in Cheque

Cheques have been a tempting target for criminals to steal money or goods from the drawer, payee or the ba-nks. A number of measures have been introduced to combat fraud over the years. These range from things like writing a cheque so it is difficult to alter after it is drawn, to mechanisms like crossing a cheque

so that it can only be paid into another ba-nk’s account providing some traceability. However, the inherent security weaknesses of cheques as a payment method, such as having only the signature as the main authentication method and not knowing if funds will be received until the clearing cycle is complete, have made them vulnerable to a number of different types of fraud.

Embezzlement

Taking advantage of the float period (cheque kiting) to delay the notice of non-existent funds. This often involves trying to convince a merchant or other recipient, hoping the recipient will not suspect that the cheque will not clear, giving time for the fraudster to disappear.

Forgery

Sometimes, forgery is the method of choice in defrauding a ba-nk. One form of forgery involves the use of a victim’s legitimate cheques, that have either been stolen and then cashed or altering a cheque that has been legitimately written to the perpetrator, by adding words or digits to inflate the amount.

Identity theft

Since cheques include significant personal information (name, account number, signature, and in some countries driver’s license number, the address or phone number of the account holder), they can be used for identity theft. The practice was discontinued as identity theft became widespread.

Lockbox

Typically when customers pay bills with cheques (like gas or water bills), the mail will go to a “lockbox” at the post office. There a ba-nk will pick up all the mail, sort it, open it, take the cheques and remittance advice out, process it all through electronic machinery, and post the funds to the proper accounts. In modern systems, taking advantage of the Check 21 Act, as in the United States many cheques are transformed into electronic objects and the paper is destroyed.

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