Paper checks are dying.
But not as fast as you might think.
While many individuals are demanding instant payment systems, most companies still operate by paying bills by check every month. The overall rates of check usage dropped significantly from 2000 through 2015, but in the last few years the percentage of check usage has plateaued. There has not been enough disruptive innovation in this particular space to force companies into the next evolution of digital payments.
Stuart joined us for this episode of Payments Innovation to discuss billpay industry trends, the evolution of checks as a form of payment, and what younger generations are demanding from new payment methods.
Billpay Industry Trends
Back in 2005, people expected a pseudo multi-channel experience from their billpay service. These services were often very siloed and only large billers could afford complicated features and functions like web portals.
Over the years, individuals have begun to expect more from billpay even from smaller billers. Simple web forms or phoning billers to to make a payment is no longer acceptable. People expect “text to pay” options, better reporting, and paperless billing.
Now there is new and emerging technology making payment processes even more frictionless: AI, chatbots, and even options to pay via social platforms like FaceBook Messenger are becoming popular.
These advanced features and functions that were once limited to larger billers are now more readily available to smaller billers. Many medium to large companies already have competent solutions in place, but smaller companies have room to grow in this area, but compliance is becoming harder to keep up with.
This is where Stuart’s team can help smaller billers: by providing them with the tools they need to keep up with the capabilities of larger organizations.
The Evolution of Checks
Killing off paper checks has been a slow process. Innovation in the past few years has come in form of card payments (such Apple pay), not in the bill pay or check-paying space.
As mentioned before, the decline of paper checks coincides with digital payments as many payments move from physical or bill pay solutions to digital payments. But in the business world, many companies still pay (and receive payment) by check. Nothing disruptive enough has come into the game to force most businesses to be able to pay and receive payments digitally.
In many cases, paper checks haven’t died because they are still used for documentation purposes like insurance claims. Another reason for checks lingering in the public sphere is that businesses can use them as part of a float management strategy. Checks don’t get cashed right away, so companies continue to gain interest on money in their accounts. But with interest rates low, this approach is becoming less impactful.
Many businesses are progressing toward paperless billing, but there is still a ways to go until that platform is ubiquitously accepted.
Digital payments can document payments just as well (if not better) than checks. It also makes economic sense to pay digitally. By not having to use postal services, businesses can save huge amounts of money.
On average, it saves a company $2 per month per client if they are paying paperlessly. That can translate to a huge amount of saving every month depending on the size of the company. It’s just a matter of time before digital payments become accepted enough to eliminate checks forever.
Expectations from Younger Generations
Younger generations in general do not feel comfortable with mailing physical checks. They are much more familiar with paying for purchases electronically and keeping records in emails rather than balancing a checkbook. As a result, there is more pressure for billers and financial institutions to go all digital with their solutions.
The economics of using checks no longer make sense anymore; printing and mailing checks is expensive. It’s equally as important to not that people don’t want to use checks anymore.
Younger generations prefer the electronic method for payments. The desire for instant payments is there; this generation wants things right here and right now in an on-demand world.
It’s up to billers and financial institutions to provide consumers with what they’re looking for!
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