It was the sociologist and TED talk star Simon Sinek who said recently: “One of the best paradoxes of leadership is a leader's need to be both stubborn and open-minded.” He wasn’t talking about using paper checks for business payments, but he could have been. Although they are more expensive than digital payment methods and decidedly less efficient, paper checks still make up a significant portion of business payments in the US, less so in the UK and other parts of the world.
Most estimates put check usage at about 30-50% of total business payments. We’ve gathered some resources that unpack check usage and, in some cases, show the preponderance of check fraud and theft. From this series of reports from banks and other financial organizations, it’s easy to see that checks shouldn’t be as popular as they are, and it seems like each of them should come with a warning about their continued usage.
We’ve separated these reports by geography. They are a precursor to Bottomline’s upcoming 2023 Business Payments Barometer, which will also have a section on payment methods, including checks.
This report focuses on middle-market companies ($50m to $1 billion in revenue) and finds that 50% of their respondents use checks as part of their business payment mix. The upper end of that mix is encouraging: Real-time payments accounted for 62%, and automated payments came in at 53%. And about that warning label? Check this quote from Citizen’s Head of Treasury Solutions, Michael Cummins: “As companies transition to digital payments they must maintain vigilance with fraud protection, detection and mitigation since fraudsters will always pursue new vulnerabilities. It’s important to note, however, that checks continue to be the payment method most impacted by fraud activity.”
Talk about progress. The volume of checks processed by the Fed for commercial payments has dropped precipitously from a high of 19 million in 1992 to its current level of 3.3 million. The pandemic has also taken a good bite from check usage; it stood at 4.4 million in 2019. However, the average value of each check has gone up while the volume has gone down. In 2019 the average commercial check stood at $1,895 and has gone up to $2,652. Also on the uptick are the number of checks returned due to insufficient funds or other reasons after years of decline. For example, at the height of the financial crisis in 2008, 106 million checks were returned. That dropped all the way down to 20 million by 2020, up to its current level of 21 million. The average value of each returned check has also spiked from $2,125 in 2019 to the current $3,439. Now here’s the warning: The Fed reports that in 2022, depository institutions across the country filed 459,891 suspicious activity reports (SARs) for check fraud, which has more than doubled from the 249,812 filings in 2021.
This report from the Association of Financial Professionals (underwritten by J.P. Morgan) shows that checks remain the payment method most vulnerable to fraud. “Sixty-three percent of respondents report that their organizations faced fraud activity via checks,” the report states. “Three-fourths of organizations currently using checks do not plan to discontinue issuing checks.” The report also has a good handle on the trajectory of companies still using checks. It found that 33% of organizations used checks for B2B payments in 2022, while in 2004 over 80% of companies used checks for the same. It’s conclusion: “Because many organizations are unable to eliminate the use of checks completely, fraudsters continue to be able to use checks to target organizations, although perhaps to a lesser extent.”
You would be hard pressed to find any report that covers the whys and wherefores of cheque usage for both consumers and businesses. Aimed at gauging the preferences and behaviors of the post-pandemic consumer and business, the main finding of this report showed that 44% of current consumer account holders and 78% of businesses write at least one cheque per year. “However,” the report states, “the frequency of usage is rapidly declining with three in five consumers and businesses now writing fewer cheques than they did three years ago.” Why? Two thirds of consumers and half of businesses write fewer cheques because other payment methods are easier. On the business side of the report, cheques are most used by businesses to pay suppliers, make occasional “one-off” payments and to pay taxes. Sixty-six percent of businesses write fewer cheque payments than they did three years ago, with 45% expecting cheques to make up a smaller proportion of their payments over the next three years.
Like the Pay.UK report, UK Finance also found a steep decline in the overall usage of cheques, with digital payments taking their place for both businesses and consumers. From a high of 1.6 billion cheques written by consumers and businesses in 2016 to its 2021 level of 150 million cheques are being replaced by cards and remote banking transfers. One of the most notable elements of the UK Finance report is its look into the future. By 2031, the organization projects that cash payments will drop to just 6% of total payment volumes, with cheques all but disappearing at .02% of the total.
It’s usually associated with North America, but AFP is a global organization, and this report captures some of the data and dynamics behind global check usage. Its member survey found the average organization globally makes 22 percent of its payments to major suppliers via checks, which this report says is largely a US phenomenon and used only in most countries as a “last resort.” In fact, the most consistent international usage of checks comes as a recurring payment or collection. “Organizations outside of North America are more likely to receive payments from major customers via domestic wire transfers and legacy international wire transfers (SWIFT) (22%). Thirteen percent of (recurring) payments received are via checks, and 5% are made via ACH credits,” the report states.
The Bottomline: Like every other method in the business payment mix, checks serve a purpose for many companies. But unlike other methods in the payments mix they’re vulnerable to fraud and theft and take away from your team’s efficiency. The report listed here should show you that checks are not a sustainable payment method, and every effort should be made to eliminate them and step up to electronic payment methods instead.
Related topicsAp Automation
With 25+ years of experience, Richard Ransom has been involved in some of the most impactful innovations the payments industry has experienced. His specialties include ACH, real-time Payments, Open Banking, SWIFT, and emerging business payment methods and schemes.