The Paper Check: Startlingly Resilient, But Still Doomed

The staying power of the check in the U.S. continues to amaze. According to the Federal Reserve’s triennial payment study, in 2009 Americans still wrote 27 billion checks, of which 7 billion were B2B payments and 5.2 billion were B2C payments. Fundamentally, we love the check—and we love customizing our checks with other things we love, like puppies, or flags, or sports teams!

Given the widespread presence of credit , debit, prepaid, and procurement cards, as well as the robust health of the ACH network, one can’t help but wonder why Americans continue to rely on a piece of paper to meet our financial obligations. With the economy sporting historically low interest rates—and the reality of a one-day clearing cycle for electronic checks—our penchant for checks can no longer be explained by capturing the value of float. Instead, the answer seems to lie in two diverse factors: culture and cost.

For mature American consumers, check usage is rooted in habit and reliability. We have been writing checks for decades and the check register in the checkbook has become our sole source of financial recordkeeping and management. For businesses, the check has deep historical roots. It has been the source of significant float value and is seamlessly built into the function of automated payable and receivable systems. In addition, both consumers and businesses benefit from the fact that virtually anyone will accept a check for payment.

From a cost perspective, severe bank competition has driven the user cost of the check close to zero, with most banks only charging for exception processing. Since nothing is freer than free, consumers and businesses have precious little incentive to change.

Nevertheless, change is occurring, though at painfully slow rates. Consumer check usage declined by 23% percent from 2006 to 2009, largely due to the evolution of the debit card. Changing demographics are also at play, with younger consumers rarely writing a check and students reporting that they no longer receive instruction in such basic economic options as writing a check.

On the business front, checks written by corporations at the point of sale fell by 45% from 2006 to 2009, yet B2B remittances by check actually increased by 11%! While some of the reluctance to change is rooted in the cost of system and procedural change, some may be less explainable. For example, I have had more than one conference attendee approach me after a speech and say that their bosses won’t move away from checks because they remain confident that float still exists!

Fortunately, there is evidence here and overseas that this will not go on forever. Costs and incentives must eventually change. As check volume falls, even electronic checks will become more expensive and that cost will ultimately be passed on to users. This will incent corporations to consider other options that promise timely payment, around the clock, in an easy and secure fashion, bypassing bank clearing fees.

Interestingly, this is exactly the business proposition offered by Traxpay’s B2B electronic payment system. The only question is which companies will reap the early benefits by making a strategic decision to visit the future of payments, rather than to linger in its past.

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