Final Call For Checks

Posted by Mark Brousseau

An interesting article from Compass Bank on remote deposit capture:

The Check isn’t in the Mail—it's on Life Support

In a speech to a trade group in Las Vegas last fall, Federal Reserve Board vice chairman Donald L. Kohn noted that a check-less society has been predicted for decades. “The decline in check use has already caused the Reserve Banks to reduce by half the number of offices at which they process paper checks,” he stated.

To some observers, the idea of a checkless society echoes predictions of a cashless society that have been circulating since the advent of the first electronic payment forms. In fact, while there are clearly identifiable changes taking place in how payments are transacted, it’s unlikely that anyone alive today will live to see a time when either cash or checks become extinct.

The amount of U.S. paper currency in circulation actually has risen dramatically over the past 30 years, up to $731 billion in 2006 from $81 billion in 1975, and it’s unlikely cash will ever disappear. The use of paper checks, on the other hand, clearly is on the wane, declining by 12% from 1996 to 2004, according to research published in the Review of Network Economics in June 2006. Check usage for transactions between $20 and $80 fell more than 20% during the same period. That trend is likely to accelerate, and even where checks continue to be used, the way they are processed is evolving with the spread of new technologies such as remote deposit capture (RDC).

The advantages of RDC
“RDC is particularly significant for businesses because it opens up the way they collect their receivables on several levels,” says Joan Baraba, executive vice president at Compass Bank. “A host of industry surveys make it clear that RDC is on a rapid growth track throughout the banking industry,” she adds.

RDC offers a number of benefits to business customers, most notably improved cash flow resulting from later posting deadlines and efficiencies from eliminating the need for branch deposits. It may expedite bad-check detection in some cases, improving a business’s ability to collect on funds, and it offers the potential of significant transportation and time cost-savings.

Remote deposit capture uses imaging equipment to take paper checks and convert them into electronic images, which are transmitted to the company’s bank for processing. The convenience and time- and cost-savings from eliminating the need to physically transport paper checks to the bank coupled with the positive impact on cash flow are so compelling that market researcher Celent Communications predicts the number of business locations using RDC will grow from about 100,000 at the end of 2006 to about 1.4 million in 2012.

While RDC offers significant benefits to many types of businesses, Baraba warns it is important to keep in mind that there is no one-size-fits-all solution when it comes to payment systems—and that is a key reason why a truly cashless or check-less society is unlikely to develop any time soon.

“There are so many variables to consider when it comes to payment systems, starting with the type of payment involved,” she explains. Four general categories of payment types are business-to-business, business-to-consumer, consumer-to-business and consumer-to-consumer. Each comes with different value statements in terms of the volume, dollar value and amount of information involved.

“Regulation and fraud prevention are other issues that must be considered,” she adds. Much existing fraud-prevention technology is embedded in the paper of a check and does not survive the imaging process, for example.

“The bottom line is that RDC is just one of many different tools available to process payments,” Baraba says. “Businesses need to sit down with their financial partners and put together payment solutions that best meet their needs. In many cases, those solutions will involve multiple components.”