How Bank of America is killing the paper check


FILE - A customer uses a Bank of America ATM in Charlotte, N.C. (AP Photo/Chuck Burton, file)

If paper checks are on life support, Bank of America is now fiddling with the plug.

This week, BofA rolled out a new checking account with all the traditional trappings--mobile payments, ATM use, access to call centers--sans the nifty booklet of paper checks we've all come to know and kind of love. 

The account, called "SafeBalance," is Bank of America's attempt to court customers in the market for low-fee options for managing their money. It essentially works like the prepaid debit cards offered by Wells Fargo and JPMorgan Chase, with a monthly $4.95 maintenance fee and no overdraft.

A few years ago, Bank of America stopped letting customers overdraw their accounts at point-of-sale purchases, but it was still possible to overdraft on other types of electronic payments. The new checking account extends that overdraft ban to all transactions, so customers don't run the risk of paying a $35 fee for overdrawing their account.

"SafeBalance is an alternative account option designed for a small segment of customers who want more predictability in the way they bank and added protection against overdrafts," explained Betty Riess, a spokeswoman for Bank of America.

BofA's core checking account, "MyAccess," waives maintenance fees for customers with at least $250 in monthly direct deposits. Reiss said the new account is targeting folks who come in under that amount or might not have the option of direct deposit.

Big banks have wrestled with how to serve customers who keep low balances. They tend to have lower incomes and less of a chance to qualify for mortgages, auto loans and other products that earn money for banks. Customers with low balances usually bear the brunt of bank fees--a charge for having an account, a charge for overdrawing the account.

In the last few years, big banks, like PNC and JPMorgan, have used prepaid cards to reach this group. But Reiss said Bank of America preferred a more traditional approach that would give customers full access to the financial system.

Greg McBride, senior analyst at Bankrate.com, says the bank made the right choice.

"Call me old fashioned, but if you're going to build wealth and save and invest for the future, you need to be part of the traditional financial system," he said.

But a checking account without checks? Novel, but not new. Remember the crop of online banks that popped up in the 2000's with the promise of high interest rates on savings accounts (think: ING)? Most of them offered checkless checking accounts as well. But few, if any, megabanks have gotten in on the action, until now.

Cutting paper checks out of the account experience makes sense. Americans wrote 28 billion checks in 2009, 5.3 billion less than 2006, according to the most recent data from the Federal Reserve of Philadelphia. At that pace, researchers at the Philly Fed expect checks could disappear all together in 12 years.

A 2003 change in the law on how banks process checks hastened their demise. Before then, banks sorted, then carted checks off onto airplanes for delivery to other banks. When the FAA grounded planes after the 9/11 terrorist attacks, lawmakers passed legislation to let banks use electronic images of checks to process payments.

Philly Fed researchers estimate that the electronic switch is saving banks $1.2 billion a year. Between the electronic processing and the rise of mobile banking, the days are numbered for paper checks. You might want to save one to show your grandkids some day.

Danielle Douglas-Gabriel covers student debt. Before that, she wrote about the banking industry.
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