When I first saw the results from the 2016 AFP Electronic Payments Survey I was really surprised to find out that that the former decline in check use for B2B transactions had leveled off at around the 50 percent mark.
Has check processing really come to a point where it is not as cumbersome as one may think? Is the cost of handling checks acceptable? Is the fraud associated with check payments not troublesome, even though it is the payment method most subjected to fraud?
It is true that the processing of checks has seen some improvements over time. Just think about things like lockbox services that have really lifted some of the burden on corporates. Certainly, when images of checks became accepted through Check 21, it showed that this payment method could evolve even further. But is it still not an antiquated way to make payments?
The truth is, that question can be difficult to answer. I often hear that that corporates would like to get away from using checks as their payment method, but that is easier said than done. Making changes in the payments infrastructure in an organization often takes a lot of effort and can be quite expensive as well.
Furthermore, many large companies use very antiquated systems to handle large payments. “These systems are so old, they’re basically dinosaurs,” a treasurer for a major insurance provider recently told me. “They can’t make any kinds of changes to these machines because they don’t conform to anything but their own system.”
So in order for those companies to make any kind of change to their payments processes, they have to make big changes—and that means a lot of time and money. So for many of those treasury departments, it can be nearly impossible to build a business case. If you’ve invested decades in these systems, it will take serious costs savings to even justify thinking about making a change. Converting all B2B payments to electronic is a major undertaking for a large corporation; they can’t just take baby steps because they have so many payments that go through each system.
IMPLICATIONS FOR REAL TIME
Does this raise some concerns for implementation of a new payments system like the Real-Time Payments (RTP)? The short answer is that it could. It all depends on the level of change that a corporate is required to do.
Electronic checks, or images of checks, are nothing new. But what about Electronically Created Items (ECIs)? These are electronic images that have all the attributes of electronic checks but are created electronically and not derived from paper checks. Could this concept prove to be a stepping stone to move a larger part of traditional check payments into an electronic format? If there are no major system changes required for the corporate, then maybe this could be a way to finally depart from the paper payment method.
So to recap:
- Check payments are still prevalent in B2B payments, despite being the payment method most susceptible to fraud. Reasons for this include advancements like lockbox services and check imaging, as well as antiquated systems.
- Making changes to payment processes often means making big changes. For treasury departments, that can mean needing to build a very difficult business case, even for an enticing new system like RTP.
- ECIs, which have the same attributes as electronic checks but are not derived from paper, could potentially be the catalyst that will move more businesses away from traditional check payments.
Hear experts discuss how check processing can be made more efficient and the possibilities of electronically created checks at the April 26 complimentary webinar, Payments Operations: Potentials for Modernizing the Check Process.