The decline of the paper check in recent decades has dramatically shifted the spotlight to the effort of digitizing B2B payments.
With vows of greater security, efficiency and speed, the growth of electronic commercial payments has evolved into another way to measure the state of an organization’s digitization efforts.
Indeed, younger, digital-first startups with ePayment-only models might be assumed to be more technologically savvy and modern than more established organizations struggling to nix checks their customers have been using to make payments for decades.
The reality is not so simple. According to CheckAlt Chief Strategy Officer David Peterson, the B2B payments digitization push has, perhaps erroneously, pressed ahead by leaving checks out of the conversation entirely. Yet what that effort is missing, he told PYMNTS, is that addressing the pain of paper checks remains a vital component to modernizing B2B transactions.
Recognizing the value that this payment vehicle continues to offer many businesses is an important first step in understanding the best strategies to support payments digitization efforts, said Peterson.
The Value Of The Check
The numbers don’t lie. Paper check volume has been on a steady decline for decades. In response, and operating on the assumption that paper checks will inevitably disappear altogether, the payments industry narrative has zeroed in on the opportunity for digitization.
“In doing so, [corporates] left the check,” Peterson said. “Some of them pushed all-in on electronic and ignored the check.”
A deeper look into the numbers behind the decline of the paper check reveals, however, that while the number of checks went from 55.6 billion in 1998 to about 14.9 billion in 2020, the average value of check transactions actually increased from $526 to $2,600 during that same time period.
For corporate accounts receivable (AR) departments and their financial service providers, handling these high-value payments in a way that ensures successful capture and posting of payment is critical. Yet in the race to digitize B2B payments, efforts to boost efficiency of check transactions have fallen by the wayside, too.
There are benefits to the paper check that are often overlooked as well, Peterson said.
“The check has one thing that no other electronic payment type has, and that’s a check number,” he said, pointing to the important role that number plays in tracking transactions in accounts payable (AP), AR and enterprise resource planning (ERP) systems to combat fraud and maintain clear oversight of these payments. “No electronic payment yet has really captured the same ability for the business to have that kind of accountability.”
Understanding this trend has led to what Peterson described as a check processing “renaissance,” and a big opportunity for financial service providers.
Checks’ Role In B2B Payments Modernization
With so many organizations still sending and receiving high-value paper checks, yet reducing their investment in making check transactions efficient, businesses are finding themselves in a position in which they lack the internal resources to post, process and reconcile these payments.
This is a major opportunity for banks and credit unions (CUs) to work with FinTech partners like CheckAlt, white label solutions, and put a modern spin on checks that can make organizations’ decision to outsource check-related workflows a strategic one.
Peterson pointed to the value of financial service providers enabling remote deposit capture or sophisticated lockbox services to support automation and digitization of check payments, enable transaction data capture, combat fraud and accelerate settlement. CheckAlt can make these product and service rollouts possible through application programming interface (API) integration of its technology in financial institutions’ back offices.
Yet the question remains: With checks on their way out, why is it important to invest in such solutions? According to Peterson, addressing check friction — rather than ignoring it on the assumption that checks will eventually disappear — is actually an integral part of driving overall modernization of B2B payments.
When a B2B organization approaches its financial services partner in search of ways to migrate customers off checks, the conversation will focus on marketing efforts, collaborative strategies and electronic payment technology adoption to achieve this. What this strategy is missing is a financial service provider that will support those check workflows in the meantime.
“We’re not solely interested in you because you have some checks that we can convert to electronic,” Peterson said. “We think your checks are important enough for us to treat them with care and a concierge service.”
It’s impossible to tell exactly when the paper check will disappear, but what is clear is that its evaporation from the market will occur at a slower and slower pace as volumes decrease. The fact that even the coronavirus crisis couldn’t eradicate checks — instead causing some firms to have accountants enter the office to collect and process the payments — is proof of their resiliency.
But with history as a trusty guide, it may be fair to say the average value of check transactions could continue to rise as well. So, while financial service providers have an important role in guiding their businesses and their clients’ customers toward electronic payment methods, entirely ignoring checks and check-related services means leaving an opportunity to optimize AR and cash flows on the table.
“For the next couple of decades, the check will still continue to decline, and it will become more and more important for organizations, or financial institutions providing services to organizations, to systemically capture those and get them posted,” Peterson said. “Because the dollar value average of those is just going to continue to go up and up.”
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