America’s check-cashing tax

In Japan, real-time bank transfers have been the norm since the Zengin payments system launched in 1973: deposit a paycheck, withdraw your money.

In the US, that might take three days. 

In 2026.

This is not a technology issue. Zengin is a hub-and-spoke network of mainframe computers connected by old-school telecom lines. The fact this sufficed for real-time transfers — before the internet! — shows that where there’s a will, there’s a way.

In the US, there’s been no will.

Not among the regulators responsible for making it happen, at least. Economist Aaron Klein argues that the US remains saddled with an antiquated payments system “because the Federal Reserve is in the pocket of the banks and credit unions that charge overdraft, and because they don’t care.”

Klein goes so far as to accuse the Fed of flouting the law: “The Federal Reserve, who is supposed to regulate our payment system, has ignored the Expedited Funds Availability Act, which requires them to move money as fast as technology allows.”

That might be an expansive interpretation of the EFAA — “as fast as technology allows” does not appear in either the text of the law or its implementation.

But the Act does instruct the Fed to limit the amount of time banks hold deposited funds to "as short a time as possible.”

And the spirit of the law is clearly that payments should be modernized so that people get access to their money faster.

Klein makes a convincing case that the Fed has moved far slower on this than it could have — perhaps to the point of negligence.

Either way, the result is that US consumers have racked up billions of dollars in fees cashing their paychecks with check cashers.

Surprisingly, it’s not because people are unbanked. Klein estimates that 70% of people who go to check cashers have a bank account.

That shouldn’t happen in a functioning payments system. The only reason someone with a bank account pays a fee to cash a check is that their bank can’t get them their money fast enough.

To illustrate, Klein cites research showing that during COVID — when people were most likely to need immediate help — three million stimulus checks were cashed with check-cashing services, costing recipients an estimated $67 million in fees. 

For many Americans, that is the normal state of affairs. In 2025, they paid an estimated $14.5 billion to cash checks.

Klein believes that number should be zero.

Setting aside the example of Japan, he notes that it took England just 18 months to build a platform for the real-time payments system it instituted in 2008. 

Had the Fed done the same, Klein reasons it would have saved US consumers over $200 billion in fees by now. Instead, $200 billion has flowed from low-income households to check cashers.

Those fees are a regressive tax on the poor that no one (other than check cashers) thinks should exist.

Eliminating them is probably the least controversial way to make the economy a little more fair. “A real-time payments system is the most effective tool out there with broad support to address the core problem of income inequality,” Klein concludes.

And yet, they persist.

Could blockchains do something? This seems like a case for stablecoins, which are essentially onchain bank accounts, with instantaneous payments.

But Klein says blockchains are unnecessary for fast payments, citing Visa, Venmo, and national systems like Zengin that run on traditional rails. The problem isn’t the technology, he explains, it’s that the Fed has abdicated its legal mandate to make payments faster (and cheaper).  

Japan, however, thinks crypto might still have a role to play: a proposed overhaul of the Zengin System would accommodate blockchains, stablecoins, and tokenized assets.

It should happen soon, because the legacy system is showing its age: Zengin runs on mainframes that its vendor will maintain only until 2035. In 2023, the 50-year-old system suffered its first-ever outage.

The new system, a report says, would include “distributed ledger technology” (aka blockchains) that allow for the transfer of tokenized assets. Smart-contract functionality would accommodate atomic swaps, where money and assets are exchanged simultaneously (a genuine crypto innovation). It would send creation and redemption requests to stablecoins issuers.

It will also incorporate functionality powered by generative AI — which sounds terrifying in a system dedicated to moving money.

Then again, sending payments in real time must have sounded terrifying in 1973, too — which might explain why the Fed stuck with slower ones.

Hundreds of billions in check-cashing fees later, that’s still how we do it.

— Byron Gilliam