For decades there has been talk about eliminating the paper check as a payment type in America. Check usage is declining, especially among consumers, as debit card and online payment applications grow.
However, according to the Federal Reserve, there were over 33 billion checks written in 2006. Therefore, it seems logical to assume that checks will remain an important payment tool for many years to come.
A few of the primary reasons why check usage has been declining include issues such as risk, cost, funds availability, and convenience. Let’s take a look at each of these issues and how Remote Deposit Capture (RDC) technology is changing the payments landscape.
Checks & Risk
Over the years, many businesses and consumers have refused to take personal checks as an acceptable form of payment because of the risks of checks bouncing due to non-sufficient funds. Current technologies enable faster clearing times which therefore results in faster identification of returned checks, thereby reducing the risk associated with returned items.
Furthermore, Remote Deposit Capture can provide the ability to scan a check and compare that item against a database. It is now feasible to verify if a particular check’s data appears on a fraud database or contains a valid MICR line printed on the bottom of the check with real bank and account identifiers. While these types of technologies continue to improve, we will undoubtedly see an RDC solution which can provide an “Accept / Deny” response comparable to how credit cards are verified today. This type of capability will clearly reduce the risk of accepting checks.
Checks & Cost
Checks have always been a relatively inexpensive way to accept payments. As check electronification continues to accelerate, processing costs will continue to decline. Already, most small business accounts at banks provide free check deposit processing at least up to a certain volume threshold.
Also, from the business perspective, it is important to consider the costs of check processing relative to other payment types. A quick look at credit cards versus check payments shows an interesting conflict. While credit cards are easier for the buyer to use, they can be a much more expensive payment type for the merchant. The costs to process a $1,000 transaction would generally be around 2% or $20 via credit card versus less than $2 via check – even if you include intangible processing costs of time and labor. At least compared to credit cards, checks can be a less expensive way to accept payments.
Checks & Availability
Checks typically spend at least a day or two within a business before finally making it to the bank for deposit. This time, whether due to convenience, processing requirements or other reasons, delays the availability on these funds. Once at the bank, the paper checks used to have to be sent all the way to the paying bank. The larger the distance between the two banks, the greater the time it took to clear the items. By converting the check to digital form, Remote Deposit Capture now makes it possible for the check to be deposited and clear all on the same day. No longer does it have to take days for an item to literally clear.
Checks and Convenience
Electronic deposit technologies can make check processing much simpler, faster and more convenient for the end user. Almost every bank and corporation using Remote Deposit Capture cites “added convenience” as a major benefit. RDC can eliminate trips to the bank and can automatically capture financial data for upload into accounting software.
As these technologies continue to evolve, it will become easier to use and benefit from RDC. Imagine how convenient it would be to simply use your cell phone or iPod in the future to deposit a check, or to use the scanner you already have at your home or office. Banks and software providers are making it easier to deposit checks from work, home or wherever you happen to be.
All of these newfound benefits or reductions in the pain points commonly associated with checks will allow the ubiquitous paper check to live just a little longer than it otherwise would have.
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