Nate Duehr wrote:

>>> I still think this cheques system is weird: you write on a piece of
>>> paper, which you give to someone else, who takes it to her bank, which
>>> reads it, and forwards the request to your bank, to transfer money to
>>> her bank, at which point your bank might find that you don't have that
>>> amount of money in your account. 
>> 
>> That's about the gist of it.
> 
> *ALL* monetary systems are based on trust, including cash.  

The main difference between a check-based system and a sender-initiated
transfer system is not that much trust, it is efficiency of procedures. 

For example, translating the check-based system into the online world has
been difficult and the likes of Paypal are milestones on this difficult
path; translating the sender-initiated transfer system into the online
world was almost a no-brainer. I, as a normal banking customer, could
initiate online transfers in Germany in the 80ies, way before Internet
banking (or the Internet) was known, and this included paying my bills,
receiving client payments and paying taxes (as all this comes automatically
with the sender-initiated transfer system). No need to set up a "bill
payment system" that's separate from other types of transactions with
special contracts with hundreds of service providers (as every bank has to
do that provides a bill payment system -- imagine the collective effort to
set all that up!), because this functionality is already built in from the
start. No need for third party transaction handlers to enable people to pay
taxes with something other than paper checks sent by mail, because that
functionality is also already built in from the start. 

But it is /also/ about trust. There is much less trust needed for the
sender-initiated transfer system; the sender is only talking to her bank,
and the receiver is only dealing with his bank. The document (if it is a
paper document) that initiates the transaction doesn't go through several
hands and mail stretches; it goes straight from the sender to her bank. In
most cases now, there is no paper document involved at all, just a unique
transaction number (like Wouter explained earlier). Once the money of a
sender-initiated transfer reaches the receiver's account, it is there for
good (unless the bank made an error). No possibility as with a deposited
check that the funds may be withdrawn from the receiver's account up to a
month later if the check bounced, with all the associated costs and hassle
for both the sender and the receiver: the late withdrawal may cause the
receiver's account to go into overdraft, may cause some of the receiver's
own checks and payments to bounce, and so on. I very much prefer not to
receive a client's (direct) payment (in the case they have no money) than
to receive a check that bounces. The "not received deserved payment" part
is the same, but the "collateral damage" part is practically non-existent
with sender-initiated transfers.

Anyway, I think it can be revealing to understand a
sender-initiated-transfer system and do a comparison with a check-based
system. The question of "why oh why" is almost inevitable :)

See also http://en.wikipedia.org/wiki/Cheque#The_future_of_cheques 

Gerhard

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