4 Reasons Why this ’90s Throwback is Alive in ’25
Last week, AOL announced that it’ll be discontinuing its dial-up Internet service on September 30. If you’re like most people, your reaction when you read that was somewhere between “It’s 2025 – who knew dial-up still existed?” and “It’s 2025 – who knew AOL still existed?”
Surprising as that blast from the past may be, there’s no shortage of ‘90s throwbacks still hanging around: Sears still operates five stores in the mainland United States; everyone’s heard of the last Blockbuster Video location in Oregon; and even Tower Records is still going strong in Japan.
Also here in 2025, the check – yes, that old-fashioned way of paying someone, where you write their name and a dollar amount on a piece of paper – still has plenty of life left in it, with an estimated 11 billion being written every year according to the most recent numbers from the Federal Reserve Bank. While that’s only about a quarter as many as people wrote in the 1990s, the check is still the second-most used payment method in terms of total dollars exchanged, behind only ACH transfers. In fact, paper checks still move more money each year than all types of credit and debit card transactions combined. What?
When the value is high, people don’t want cards
Credit and debit cards collectively account for almost 80 percent of the total non-cash transactions made in the United States, but less than 8 percent of the money that changes hands. It turns out there’s a very simple reason for this: If the transaction is for any significant amount of money, businesses don’t want them.
This may come as a shock for the average consumer, who’s been taught his whole life that cards are just better. And for your everyday retail purchase, that’s pretty much the truth. A card is the fastest way, the least complicated way, and the most universally accepted way to pay for something in person or online – and if it’s a credit card, there’s a good chance you get some type of reward for using it, too. And if you’re the one paying with a card, it’s “free.”
On the business side, it’s not quite such a rosy picture. We put “free” in quotes because there’s definitely a cost associated with every card transaction, it’s just usually invisible to the customer. Card transactions carry a processing fee, or “swipe fee” that’s typically between 1 and 4 percent of the transaction, and then it’s up to the merchant to decide what to do about it:
- Eat the processing fee and accept a smaller profit margin;
- Incorporate the fee into your prices and silently pass the cost along to the customer;
- Put the decision in the customer’s hands by imposing an additional fee for card transactions or giving a “cash discount.”
It’s perhaps no surprise that customers aren’t keen on paying the credit card fee themselves. A recent JD Power study found that satisfaction drops significantly when there’s a card surcharge, and 81 percent of those interviewed said they’d used alternate payment methods when confronted with an additional fee for using a credit card.
Where is the tipping point for percentage fees? A $3 trillion question
Across all check and ACH payments, for which businesses and customers alike are charged no fee or a low flat fee, the average value per transaction is around $2,500, with only a slight difference between checks and ACH. Card transactions, on the other hand, average a measly $64 apiece.
Again, the conclusion is obvious: People are willing to put up with the card fee if all that’s at stake is a few cents, but the higher the transaction goes, the higher the fee goes as well. But at what point does it start to generate pushback?
If we assume a 2.75% fee that’s roughly in the middle of what card processors tend to charge, the average $64 card transaction carries a fee of $1.76 – actually pretty high for a run-of-the-mill purchase. But that’s nothing compared to the hefty $68.75 charge you’d incur if you were to use a card for the average $2,500 check or ACH payment, instead of one of those two methods.
Clearly, the inflection point is somewhere in between those two numbers – and based on the average transaction sizes, we’d guess it’s on the low end. The average value of a card transaction ($64) is only 2.5% that of a check or ACH transaction ($2,500), suggesting that the average merchant starts noticing the fee enough to be bothered by it at a very low amount, perhaps $200 or $300. Coincidentally, or perhaps not, that range would generate fees of $5-$8, or roughly double the $2-$4 that the Association for Financial Professionals estimates that it costs to use a check.
Of course, a business’s willingness to tolerate card fees depends on a lot of things, from individual preference to the nature of the business itself. A company with limited ability to pass the processing costs onto its customers — for example, a utility or a telecom company whose prices are regulated — has a much stronger incentive to push its customers away from cards than a clothing store, where prices and customer expectations are more flexible.
Across all payments in general, the Fed last reported $9.76 trillion per year in card transactions, and $114 trillion in ACH and check payments. Looked at another way, businesses and customers kept more than $3 trillion in transaction costs for themselves by avoiding cards for the $114T. Looked at another way, card fees would amount to more than 10% of domestic GDP ($29.1 trillion in 2024) if they were used for every transaction. While the processors would certainly like that, it’s easy to see why there’s a certain point at which using cards for everything becomes unrealistic.
A matter of access and interoperability
One thing you might wonder, in light of the above, is why people don’t just use ACH transfers for all the large payments, since those have the lowest cost of all, typically a flat fee of just pennies. And the answer is: They do, when they can.
ACH has nearly all the dollar-value growth in U.S. transactions, but historically the setup process to accept them has taken some effort. A large corporation probably has a way to handle ACH transactions, but a small business, a sole proprietor, or even an individual location of a larger company might not. And on the converse side of that, there are those individuals who can’t or don’t want to use a bank transfer to make a payment. But you can hand a check or cash to just about anyone and be reasonably sure they have a way to deal with it. And so, checks still have their place when one party or the other isn’t set up to easily use something cheaper.
What about payment apps?
Finally, given the explosive growth of all sorts of mobile wallets, payment apps, and other high-tech ways of moving money around, it seems downright insane that those didn’t completely replace paper checks a long time ago. But most of them face the same issues that we’ve already been over:
- Most of them are just alternate ways of making a card payment, with the same percentage fees; and
- Most of the rest are operated by tech companies who are not banks.
The important part here is that if a payment app isn’t using a stored credit card, it’s probably just acting as a middleman that triggers an ACH transfer done by a bank.
Banks can provide ACH transactions for dirt cheap, because they’re not really concerned about making money off the transfer – they care about the account underneath it. But if you’re a tech company running an app as a third party, you have to make money somehow, and that means taking a slice of the transaction. So, most apps of this sort still carry a percentage fee, even if they’re moving money by ACH behind the scenes.
Many of them are willing to give away the low-dollar personal transfers for free but make their money off the higher-value business payments – usually with pushback from merchants that’s proportional to the percentage they take.
We hope that you’ve found this an interesting look behind the scenes of the payments world, and that if you were wondering why checks still exist, you know now. Thanks for reading!
