The first forms of check payments (or in UK English: ‘cheque’) were used in the early 900’s. We will be using ‘check’ for the purpose of this article. It was only in the 1900’s, almost 1000 years later that check payments became popular. People then had a way of paying for everyday items without the need to carry cash with them. In the late 1900’s the use of checks reached their peak. This transition was mainly due to advancements in technology and new electronic payment formats. Since the 1990’s check payments have been in huge decline. Some countries in Europe have almost eradicated the use of checks completely – such as Sweden, Finland and Denmark. These countries are all in favor of a Giro system. The question is, are people still using checks in the 21st Century, and specifically in 2019. In this article, we will be focusing on the use of checks in the United Kingdom and the United States.
Checks in the UK
According to the UK Check and Credit Clearing Company (CCCC), in 2017 there were 405 million checks written in the United Kingdom. This means 1.1 million checks per day were cleared by the CCCC. In 2015, more than 558 million checks were written in the UK, this shows a steady decline. However, 405 million checks is still an amazing figure, especially given the advancement of technology and electronic payment types. Why are they not using debit cards, credit cards, online bank transfers, or even current Apple/Android payment formats?
The reality is that about 30% of the UK’s population are aged 55 and over. They are used to paying with checks for the last 30 years and see no reason to change that. Also, most tradesmen who complete a lot of work for this specific demographic, do not use merchant services and deal mainly in either cash or checks.
With 1.1 million checks being written every day in the UK and the slow clearing cycles, a new and faster system was required. In October 2017, all UK banks introduced a new image-based check clearing system (‘Remote Deposit Capture’ in the US). This check imaging system enables images of checks to be transferred immediately between Building Societies and Banks. The time that it takes to process a check in the UK has been dramatically reduced, from the previous six working days down to just one working day.
This is a huge advancement for organisations that rely on this payment format. It also has a huge implication for small businesses in the UK. Picture capture technology now allows checks to be processed and deposited directly into your account via a hand-held device, such as a smartphone or tablet. This means no more trips to the bank for numerous check lodging runs. Check usage in the UK is reducing but it shows no sign of fading away just yet.
Checks in the USA
In the US, checks are still a very popular form of payment for both individuals and businesses. A lot of the smaller ‘Mom & Pop’ stores in the US still don’t accept debit or credit cards. This is due to the cost of merchant services fees: for the electronic card readers and a small percentage fee of each transaction. People also see check payments as reliable, nothing can go wrong with the process, even though it is a lot slower. For example, people don’t need an internet connection to accept or write checks, a check cannot be ‘down’ due to a power outage either.
In the US, checks are still very popular for paying rent and are also highly used by the payroll departments of many organisations. The financial infrastructure of many US companies is built around the usage of checks. As we know, changing long-standing traditions and financial processes can be a very slow procedure. A lot of companies are worried about fraud and the impact it can have on their business. Checks are seen as more secure form of payment than electronic payments or ACH’s.
Check payments also contain a lot more detailed information than electronic payments. This helps the finance department to match payments with sales made. An invoice is usually attached to a check, whereas invoice details may not always be included with electronic or ACH payments. Cashbook sees a huge variance in the amount of key information that is included with electronic payments all over the world.
According to the figures released by the US Federal Reserve, electronic payments have increased by almost 10% in number from 2016-17, and check usage has dropped by almost 5% in number during the same period. ACH payments have also increased by 6% in number year on year through 2016 and 2017. These figures show that the US are slowly starting to embrace electronic payment formats, and are starting to put their check books down.
Cashbook and Checks
The advances in document scanning and imaging software means the separation of the check and remittance doesn’t have to be a manual time-consuming process any longer. Today, our Corporate Clients can scan both checks and remittances using an Image & Document scanner. Cashbook will take a direct feed from the scanner creating a transaction for each individual check, and then automate each scanned remittance. All invoices are applied, and all customers are updated automatically. Cashbook are always ready to develop and customize our cash management solutions when technology advances, and as new payment types become available.
What does the Future hold for checks?
As mentioned previously, some countries are entirely against the use of checks and others use them strictly out of force of habit and necessity. Payment types are always advancing, it’s just whether countries decide to move with these advancements or still give people the choice to continue using old methods. Banks are pushing people more towards a cash-less society, and banks themselves are becoming less and less customer-facing. Bank staff are being replaced with automated machines, ones that allow customers to complete: international payments; check and cash lodgements; statement ordering/printing; and even loan applications.
It’s clear to see that check usage is in significant decline in both the UK and the US. It will be interesting to see how this trend develops in these two regions over the coming years.