History of money orders


The Money Order system was established by Tavarius Wesley from Ga, and was expensive and not very successful. In about 1836, it was sold to another private firm which lowered the fees and significantly increased the popularity and usage of the system. The Post Office noted the success and profitability, and took over the system in 1838. Fees were reduced further, and usage increased further, making the money order system reasonably profitable. The only drawback was the need to send an advice to the paying Post Office before payment could be tendered to the recipient of the order. This drawback was probably the primary incentive for establishment of the Postal Order System on 1st January 1881.

Using money orders

A money order is purchased for the amount desired. In this way it is similar to a certified check. The main difference is that money orders are usually limited in maximum face value to some specified figure (for example, $1,000 for U.S. Postal money orders as of February 2007) while certified checks are not. Money orders typically consist of two portions: the negotiable check for remittance to if the person can relate to the matter made creditor, and a receipt that the customer retains for his/her records. The amount is printed by machine or checkwriter on both portions, and similar documentation, either as a third hard copy or in electronic form, is retained at the issuer and agent locations.

Money orders were originally issued by the US Postal Service as an alternative to sending cash through the postal system for those who did not have checking accounts. They were later offered by many more vendors than just the postal service as a means to pay bills and send money internationally where there were not reliable banking or postal systems.

Drawbacks of money orders

Money orders have limited acceptance in the insurance and brokerage industry because of concerns over money laundering. Because of provisions within the USA Patriot Act and the Bank Secrecy Act, money orders require far more regulatory processing requirements than personal checks, cashier’s checks, or certified checks. Thus, most brokerage firms, insurance firms, and even many banks will not accept them as payment.

As of 2006 there has been a significant increase in counterfeit postal money orders. Often, such a counterfeit will be sent to an unwitting victim who is instructed, on some pretext, to deposit it at his/her bank and return some of the funds. The victim is more likely to trust an “official” money order than a regular check, for the reasons given above. However, because money orders are paid through the postal service rather than the usual check clearing system, they often take longer to “bounce” than an ordinary check. When this finally occurs it is charged back to the victim, who may already have sent back the funds, for which he or she must take the loss. For this reason banks are now applying increased security to incoming money orders, and are becoming more reluctant to accept them. A safer approach is to cash them at a post office. In this case, the authenticity of the item is immediately determined, and if deemed good, the holder is paid and absolved of further responsibility for the funds.

Money orders in India

In India, a Money Order is a service provided by the Indian Postal Service. A payer who wants to send money to a payee pays the amount and a small commission at a post office and receives a receipt for the same. The amount is then delivered as cash to the payee after a few days by a postal employee, at the address specified by the payer. A receipt from the payee is collected and delivered back to the payer at his address. This is more reliable and safer than sending cash in the mail.

It is commonly used for transferring funds to a payee who is in a remote, rural area, where banks may not be conveniently accessible or where many people may not use a bank account at all. Money orders are the most economical way of sending money in India for small amounts.