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Check Processing & Payments Information

Checks Are Going Away … or Are They?

Posted by Brandes Elitch | Thu, Mar 12, 2020 @ 01:32 PM

jet flying at sunsetIf you work in the payments industry, you will regularly hear comments such as, “Checks and cash are going away, and pretty quickly too!” Sometimes we hear random comments such as, “Millennials are not using checks,” because they use smartphones and social media for mobile banking and payments. However, the 2019 Federal Reserve Payments Study shows otherwise. Let’s look at the facts.

Yes, there has been a decline in check usage over the last decade, but the value of check payments is still strong. According to the study, the value of check payments decreased four percent a year from 2015 to 2018. The current study shows a year-to-year drop from 18.1 billion items to 17.3 billion items — hardly a dramatic event. By the way, that is billions.

Article Summary

  • crop of $100 bill Ben Franklins faceMillennials are writing checks … and often.
  • Checks are involved with electronic bill pay.
  • Small businesses prefer checks, too.
  • Timing is everything … with checks, at least.
  • Checks help protect merchants.
  • Conclusion: writing and accepting checks is still popular.

A 2019 Federal Reserve Study, “Findings from the Diary of Consumer Payment Choices,” found that in 2018, consumers used cash for 26% of their payments. We should also note that demand for the dollar grew 7% in 2018. This is because the U.S. dollar is used by 61% of all known central banks for their foreign exchange reserves and is the de facto global currency. Comments such as “cash is going away” are utter nonsense.

Millennials are writing checks … and often.

A recent study by Accel-Qualtrics shows that three times more millennials use checks than mobile payment platforms and 42% still use checks. Also of interest: more millennials use cash more than debit cards. Millennial check usage is widespread: 87% of millennials have written a check in the last three months.

Checks are easy to use and convenient. A study by HarlandClarke shows that checks are part of family life. As they say, “From the lawn service, to summer camp, to writing checks for wedding and birthday gifts (somehow sending a “Birthday Venmo” just isn’t as special), checks still float much of the small business ecosystem of day-to-day family life.”

There is something else going on here that you probably didn’t notice yet: millennials are players in the gig economy. About 18% of the self-employed workforce is millennial.

Checks are the easiest way to pay, besides cash, and checks are much more secure and safe than handling cash. A school or medical office is always going to prefer a check over handling large amounts of cash, and finally, the vast majority of business-to-business (B2B) payments are check based.

millennials pano icons

Checks are involved with electronic bill pay.

What about electronic bill pay offered by your bank? Well, to use electronic bill pay, you have to have the bank account number of the recipient – the transit routing number of their bank and their account number. Many times, the sender will not have this information, in which case the bill pay vendor will have to print and mail a paper check to the recipient!

One of our business partners has a subsidiary that is one of the largest bill pay companies in the U.S. They print millions of checks each month and mail them to the payee because of this. Sometimes people think that when they use their bank’s electronic bill pay, the recipient gets the funds the next day, but in this situation, it could take another week for them to receive the check in the mail.

Here is a quote from payment industry expert David Walker: “Checks are different, in that any one of us who has a checking account can initiate those payments to anyone else.”

Small businesses prefer checks, too.

A study by Intuit showed that there are something like 27 million small businesses (“micro-merchants”) in the US bridal shop owner and brideand 55% of them do not accept credit card payments, but they will accept checks.

Businesses use checks because of their inherently rich paper trail. Of course, your depository bank keeps a record of all the checks you deposit, and you can retrieve a copy and you will see the deposits on your monthly statement. If someone claims that they never got your check, you can have the bank pull a copy of the cleared check to prove that they got it.

Timing is everything … with checks, at least.

Another advantage of using a check is timing. You can control when you write and mail a check, unlike a prearranged electronic ACH debit. This is important for the majority of the American public, which is living paycheck to paycheck and cannot afford one or more overdraft fees, which typically are around $35 each!

A 2019 study by CareerBuilder quoted in Forbes concludes that fully 78% of American workers live paycheck to paycheck, including 10% of people making over $100k a year! Yes, this is pretty astonishing.

It shows clearly why people want to control when they make a payment and not have unanticipated debits to their bank account occur based on an agreement they signed five years ago. One of the reasons that companies like to sign up consumers for recurring ACH billing is that they know that many people will not read their bank statement every month, so they will not cancel the billing!

Checks help protect merchants.

refund futuristicOne of the most amazing developments in the payments ecosystem is the astonishing increase in the number of chargebacks and returns for web transactions. A study by Appriss Retail, “Consumer Returns in the Retail Industry,” published in November 2018, found that total merchandise returns for that year were $369 billion in lost sales for U.S. retailers. They point out that “This is close to the market cap value of Facebook!” One of the reasons for this is that card brand rules and NACHA rules favor the consumer over the merchant. Many consumers will do a chargeback because they are too lazy to do a return!

Of course, when the consumer pays with a check, they cannot go into their bank and say, “I want to return this item, so please credit my checking account for the amount of the check.” With checks there is finality of payment and very limited defenses, other than forgery — another reason why merchants prefer to take checks for high dollar payments.

Conclusion: writing and accepting checks is still popular.

Reviewing the facts, it is apparent that check usage is still widespread, particularly for high-dollar purchases. Of course, the main reason why CrossCheck merchants ask for a check is because they do not want to pay 3% of the sale for credit card interchange, most of which goes to the bank that issued the credit card the consumer wants to use. Nor do they want to pay 1% to take a debit card, when CrossCheck can normally guarantee the item and do the banking for less than that!

CrossCheck is the “anti-interchange solution” for America’s merchants in our core markets: car dealers, auto aftermarket, building supply, furniture, vets, funeral homes, etc. We stand in at the point of sale and guarantee a high-dollar purchase. We make the sale happen.

Download our free guide about Check Guarantee to learn how it can help your company increase sales and mitigate risk while saving time and money.

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Topics: Check Guarantee

Written by Brandes Elitch

Brandes Elitch is Director of Partner Acquisition for CrossCheck Inc. A certified cash manager and accredited ACH professional, he garnered a Master of Business Administration from New York University and a Juris Doctor from Santa Clara University.