The Decline of Checks: How Digital Payment Innovation is Turning Checks into a Dead Technology

Checks are one of the oldest methods of payment in the modern era, and although their use among consumers has declined significantly, businesses are another story. While they are less common in other parts of the world, North Americans often use checks for businesses expenses regularly. This is particularly true when payments must be made cross-border.

The Problem with Checks

Checks present a variety of issues, and those issues are not always as obvious as people think. Certainly, checks can seem like a valuable alternative when other payment methods are too complex or require the payment to be sent to another country. As we’ve mentioned, this is particularly true when we look at Canadian businesses operating across the border in the United States, but the problem is not exclusive to Canada-US payments.

Although countries may share a close relationship, banking networks often remain largely separate and utilize different payment networks. These networks often do not speak to each other, meaning a business cannot send an electronic payment cross-border in many cases.

Checks rely on the mail service, and this is a major factor in how slow check deposits can be. Again, if we use Canada and the US as an example, sending through regular mail (USPS or Canada Post) can lead to significant delays because they, like their payments, operate on two different networks. This was especially problematic in the early stages of the COVID-19 pandemic when mail service became unreliable and slow. Even if businesses use a courier, such as FedEx or UPS, you will still encounter delays and face another issue: checks are an expensive method of payment.

There are several other issues associated with utilizing checks as a primary payment method:

• It is 6.5 times more expensive to pay via check vs electronic payments.
• It is more difficult and takes more time to be notified that a check is fraudulent, making it unlikely you can recoup any loss. Checks represent one of the most prevalent forms of financial fraud. 
• Additional costs can be incurred if personal data is compromised through check fraud – a stolen check from a mailbox could give a criminal valuable information about you and how to steal from you.
• Checks take longer to process, from issuing the check to mailing it, to receiving and depositing.
• The time staff spends processing checks is time they are not spending doing more productive tasks for the business’ continuity.
• Crossing the border with checks increases all the risks and provides no reward or benefit to the issuer.

The most inefficient aspect of checks is usually the delay between sending a check and having the funds in the bank account. The hidden cost of checks is truly, the loss of time - a check must be prepared either manually or through an accounting software. It then must be mailed or delivered to the recipient. Finally, the check must be reconciled in the accounting software. There is also the issue of bank balances. Generally, you can determine your bank balance by looking at the bank account in your accounting software, which is adjusted for checks that have not yet been cashed. However, for those business owners who review their actual bank balances infrequently, this could be problematic. If a check takes a few days or even several months to cash, your bank balance will appear higher than it really is.

Depending on the amount, some foreign checks are also held by local banks for as long as a month. If there is an issue, the clock restarts again. Inefficiency could damage your bottom line and your relationship with external stakeholders.

Finally, we must not forget that the world is moving to paperless. Environmental concerns, coupled with the advent of more advanced payment technology, have made checks the equivalent of a VCR – obsolete and outdated. The future is digital, so continual reliance on checks as a primary payment method may mean you’re left behind the curve while simultaneously increasing your carbon footprint.

The Solution

Many businesses have communicated that they would be open to move away from checks if they had confidence that an electronic alternative would be sufficient for their needs, while maintaining security and increasing efficiency. Many find that electronic payment options do not always provide enough remittance information for efficient transaction reconciliation.

There are a lot of benefits to electronic payments including that they can be functional cross-border if you have the proper tools in place from the right payments provider. Virtual accounts are a common solution offered by many FinTechs and other third parties, not to mention they are often the best choice in this regard.

Most electronic payments are instantaneous, meaning there is almost no wait-time between sending and receipt. They also are more efficient for those processing the transactions, freeing up their time significantly. They incur less fees, and the consequences for a returned payment are less severe.

For smaller transactions, Interac e-transfers have also become a fast and easy way to make payments, but they do not account for conversions into local currencies (which can balloon a payments cost), and are not suitable for larger payments as they typically have caps or daily limits. 

Even though they are becoming a legacy payment option, banks and FinTechs continue to develop solutions to combat the high levels of fraud surrounding checks. The most widely used system is called Positive Pay, a system offered by most major banks helping businesses avoid forgeries and fraud through more stringent verifications. This does not, however, account for the added time and cost of processing payments via checks, nor does it account for local area currencies or conversions.

The best way to move away from checks is to ask for help from a payments expert. If your bank doesn’t provide the assistance you need, consider a third-party payments provider or FinTech which may have more creative, tech-based options to fit your environment and needs.