I know BOA has this but I assume other banks do too. Basically, you can tell the bank to pay so-and-so such-and-such amount, and if they have some sort of banking arrangement with that person or entity, then they transfer it electronically, but if they don’t, they mail out a check. I’m wondering about a couple of things.
what’s in it for the bank? If you count the cost of the stamp and envelope and processing, it must cost them close to a dollar for each one, and it’s a completely free service.
what happens to checks which are not cashed by the recipient? Unlike personal checks, which the bank doesn’t even know about until presented for payment, the bank deducts the amount of these checks on the day received, regardless of whether the check is cashed. My question is what happens to checks which are lost by the recipient? Does the bank have to reimburse the money after a while, or do they get to keep the money? (If the latter, then this might answer the first question above )
I can’t say exactly what is in it for the bank other than customer retention. If you don’t have to write a check yourself, then you are more likely to bank with them. Also, given that they do bulk mailing their postal rates are assuredly lower than that of an individual so the cost is likely minimal. Also, depending on the bank, you can have monthly account fee that probably more than covers the cost.
As to what happens to the checks that are lost or not cashed, that I can answer with certainty. After a certain amount of time of them not being used, the amount reverts back to your account. Usually it is 90 days which is also what you often see in checks mailed to you by insurance companies and such.
I use this method to pay my apartment manager. I used to have the checks sent directly to the office downstairs and did so a week or two before month end but a couple of times, the building manager lost the check. So I contacted Citibank, which voided the check, returned the money to my account and I gave the manager one of my own checks.
As to what’s in it for the bank, well I think they count on the fact that the majority of the payees are big companies that can be paid electronically. I’ll bet that this sort of thing is cheaper for the bank than having all of the bank customers send paper checks to their payees.
The float. When I write a check and mail it, the money stays in my account until the check is cashed. When I used the bank’s epay system, the money is in the bank’s account immediately and stays there until the check is cashed.
That’s true, and is probably part of the appeal. But I think it’s mostly that they want you using the service to pay all of your bills and probably for most people, most of the bills can be paid electronically (cell phone provider, cable company, electrical utility, gas company, etc).
Agreed. However, even those don’t seem to get “paid” within 48 hours. They tell me “payment by xx date” even for ones that are obviously going to be electronic.
My bank leaves the money in my account until the check is cashed. I know this because I’ve had e-pay checks cashed a month or more after the due date and the money stayed in my account until the check is cashed.
There was a thread a few years back on this subject, some banks debit the money as soon as you file a payment request (electronic or check), some wait until the date the electronic payment is actually made (or the check is cashed). There were banking industry terms for each system, can’t remember what they were.
What does the bank get out of having the money in their account?
As I see it, either way, the bank needs to have the money available, whether because it’s “in [your] account” or because you’ve written a check on the account that could be deposited at any time. And assuming it’s like most checking accounts which don’t pay interest, then you’re not going to be credited with interest regardless of whether the money is in your account. So what’s the difference from the perspective of the bank?
Yes, that’s my understanding too. The bank has access to the funds no matter if it is a ledger entry against your checking account or against some internal account after they’ve moved it out of yours for the bill pay. They’ll invest it (providing loans, etc.) regardless.
I suspect it is mostly just a service they need to provide to remain competitive. It’s also one of those “stickiness” encouraging things. Once you’re entered all of your payees it’s an additional incentive not to have to redo it by moving to another bank.
I’m curious how expensive it is for them to mail out paper checks. It’s clearly a pretty automated thing. With that and a potentially discounted mass mailing rate perhaps it isn’t as expensive as we’re imagining.
If the bank takes the money out of your account to pay someone else, the journal entry is to reduce the liability they have to you, and increase the liability they have to someone else. The difference between these things is that they can’t prevent you withdrawing all your money and monetizing their liability, causing them potential cash flow problems, but they can prevent the person who they now have a liability to from accessing those funds for a few days, even if the entry is made electronically and takes no time at all to actually process. Thus it allows the bank to have less resources on hand available to immediately pay their depositors, as they know a certain amount of money can’t be accessed for a couple days. Knowing this is always going to be the case, it allows them to keep more of their resources in long-term assets that earn a return on the money rather than physical cash which costs money to sit on. I’m not really sure how the fact that most “withdrawals” aren’t being made in currency plays into this; I’m guessing that the banks have a credit limit with each correspondent bank, and if they ask for too many payments to be made to the correspondent’s customers without having received similar amounts of payments from the correspondent’s customers, they’ll have to make a delivery of cash, and it’s for this purpose that the ridiculously large denomination bills exist so they don’t have to take a truckload of benjamins. Or at least that’s how it used to work. Maybe. I’m not an expert in that area.
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