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The End of Paper Checks? Clues from Across the Pond

People often ask me, “Hey Mike, when do you think checks will disappear as a form of payment?” This is a good question; not just because companies like mine are focused on helping other companies Leave the Check Behind, but because checks are costly; they consume natural resources; they are subject to fraud; and they are the most inefficient form of payment available. And it’s not just companies that print a lot of checks. A large number of consumer to consumer and consumer to business payments are still transacted by check. Many times, this question comes with a qualifier; generally something like:  “Will it take government intervention?”“Do the banks need to band together to end checks?” I think we can look to the UK for some clues.

The UK found checks “cheques” over there so abhorrent that at the end of 2009, the UK Payments Council, a banking industry body, declared that cheques would be phased out of the UK payment system by October 2018. See the article: Cheques to be phased out in 2018. It’s important, however, to pay attention to the second part of the statement which reads, “but only if adequate alternatives are developed.”  Well, guess what?  Last month, the UK Payments Council declared that cheques will continue to play a role in the UK payment system “as needed.” See the article: Cheques not to be scrapped after all, banks say.

So if the assembly of banks didn’t eradicate checks, will it take government? What will it take?  The answer, in my opinion, is innovation. The reason the UK initiative failed is because no adequate alternatives were developed. We need to think beyond ACH, Wire and Card payments in reducing paper check dependency. There needs to be true innovation.

Currently, there is a flurry of innovation in Consumer to Consumer, or what is more often referred to as Peer to Peer electronic accounts and payments. Consumers represent a huge market that depends primarily on an antiquated form of monetary settlement: the bank account and the check. The economies of scale that can be gained by solving problems for the consumer market are staggering. Facebook, Google, eBay and others have waded heavily into this space in order to drive consumer payment innovation. And I expect new payment vehicles to arise over the next 3-5 years out of these efforts which will translate into significant opportunities and efficiencies for businesses.

So let’s cheer on innovators as they continue to innovate. It’s the only way we’ll eventually leave the check behind. As always, I’m interested in your thoughts.

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Comments: (2)

Chris Errington
Chris Errington - None - London 01 September, 2011, 10:38Be the first to give this comment the thumbs up 0 likes

Mike, I too think the issue is more centred on consumers than corporates and that innovation is required.

OK, so corporates still use checks.  But they are also best placed to go fully electronic, if they were really minded to.  There are some weird exceptions but they tend to have a 'consumer' flavour (and result from the general absence of that alternative instrument to pay someone - cash).   Examples are (1) your employee has no bank account, so they need an instrument to go and cash (2) you need to make a small value payment there and then without going through a vendor set up routine.

It is for me consumers that need the check because it is a simple way of settling a liability without having to set up the payee electronically - basically; you sub contract all that hassle to the banks. 

Imagine a window cleaner doing 50 jobs a week and charging 50 x £25; that's 50 electronic receipts of £25.  But, if you only get 49 receipts just how do you find out who didn't pay? (I assume like the corporate world, a payment reference is unlikely)  So, generally, a check does the payment job and is also a remittance.  (1) you have some certainty you have been paid and (2) you know exactly who paid you.

Innovation should do the job - I can see mobile phones / devices getting there in the main.  A blocker will be consumer apathy - I just can't be bothered sometimes to trawl through all the detail, check and double check the information to make a payment.  Just stick a check in the post and move on.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 02 September, 2011, 20:31Be the first to give this comment the thumbs up 0 likes

@Mike K:

Like you, I've worked in a professional capacity to provide ePayment solutions. However, when it comes to my personal life, I haven't found a more convenient alternative to checks because of the high degree of friction involved in most current forms of ePayments. I've written about them on my personal blog on several occasions. Suffice to say that they revolve around inadequate field lengths for narrations, anxiety in entering the beneficiary account number, and so on. 

Props for hitting the nail on the head when you say "The reason the UK initiative failed is because no adequate alternatives were developed." I've voiced a similar view on Finextra and believe that there's no point in blaming the common man for choosing checks as the path of least resistance. I share your opinion that solution has to come from banks and payment solutions providers and not the government. 

Mike Kresse

Mike Kresse

SVP Money Movement & Retail Solutions

FIS

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02 Aug 2011

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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