PayPal's entrance into mobile cheque scanning for deposit could lead it to siphon billions in small amounts that currently land in bank accounts, and are used to maintain cash reserves and provide loans. PayPal wants the float, and new customers.

PAYPAL wants the float of a billion cheques. The eBay internet-payment division is no longer content to take same-sized bites from the online-transaction pie, amounting to $817m from $21bn in fees from credit-card and user-to-user payments in the second quarter. Last week, the firm updated its iPhone application to snap pictures of cheques and deposit them into PayPal accounts. The convenience of instant deposit, even if the money is later disbursed to other accounts, must have been alluring. The company reports that in the first day $100,000 in cheques were scanned.

PayPal is the third major financial institution to turn to the iPhone as a way to scan cheques. USAA was the first in August 2009, but that bank has a single branch, 8m customers, and largely serves military personnel who are frequently on deployment. Not all USAA customer meet the qualifications, either. Chase threw its hat in the ring in July for consumers and small businesses with its own app. TV ads show a just-married couple using the bridal bed to scan wedding cheques. Both PayPal and Chase limit their consumer scanning to no more than $3,000 per month and $1,000 per cheque. Clearly, Chase's newlyweds have skinflints for kith and kin.

The interest in snapping pictures of cheques belies their declining use. America's Federal Reserve, which handles a large portion of inter-bank cheque clearing, has seen a drop from 18 billion cheques processed in 1989 to 17 billion a decade later and 8.6 billion last year. The drop hides an increase in a variety kinds of non-cash transactions, including direct deposits and withdrawals—or intra-PayPal money transfers. And the Fed says 99% of the cheques it handles are no longer delivered by air freight and trucks, but are scanned by the receiving financial institutions and sent to the Fed as electronic files. The Check21 law passed in 2004 gave banks great latitude in migrating from shipping and retaining cheques to transferring scans. The monetary authorities once ran 45 regional processing offices. As of March, a single facility in Cleveland handles the remaining paper . (The reduction in paper works even at a micro-scale, as discussed in " Shred before reading ".)

But 8.6 billion isn't a number to be sneezed at. Even with current paltry interest rates, float is still float, although PayPal's interests go beyond that. Making it easy to convert a cheque into cash, which can then be used for direct PayPal payments online or via a debit card, could sweep in more customers who then engage in additional fee-bearing transactions with business PayPal users, who are charged fees. PayPal already pockets a large slice of online payments. It needs to make that pie bigger to expand.

By accepting cash in this form, PayPal also puts itself in competition with banks, which the firm is not. In America, PayPal occupies an odd niche as a "money transmitter". It provides an opt-in money-market return on deposits with no guarantees—0.18% last week. Other funds are pooled into FDIC-backed bank accounts at unaffiliated institutions, but the scale and nature of the funds means PayPal can't ensure each deposit is fully insured. Tight credit pushed banks into greater reliance on deposits to meet capital requirements and have funds to loan out. PayPal could siphon off a large aggregate of small amounts.

The use of cheques has tapered off, but paper remittances certainly aren't about to dry up any time soon. At least one generation will need to pass before the habits of cheque writing fade and the familiarity of e-transfers is all anyone remembers. Alas, even with cash replaced by cards and cheques by online transfers, we may still suffer from the malaise described in the introduction to "The Hitchhiker's Guide to the Galaxy":

This planet has—or rather had—a problem, which was this: most of the people living on it were unhappy for pretty much all of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn't the small green pieces of paper that were unhappy.