The Surprising Staying Power of Checks

Candles lit the world for thousands of years — until gas lamps began to replace them in the mid-1800s, followed by electric light bulbs in the early 1900s. Yet, instead of disappearing, candles reinvented themselves to become a lifestyle product. Seven in ten American households use candles, and an estimated 1B pounds of wax are used for candle making in the US every year. Similarly, while not reinventing themselves, checks have shown remarkable staying power as the payments landscape has evolved with the rise of digital payments. Despite the obvious benefits of digital payments — including improved cash flow, increased speed, efficiency gains, reliability, and security — US small- and medium-sized businesses (SMBs) still rely heavily on checks. While the use of checks in B2B payments is down, 73% of businesses continue to use this payment method. What’s more, although the number of check transactions has declined over the years, the average value of commercial checks has increased steadily.

Source: Federal ReserveAccording to a PYMNTS Intelligence report, the use of digital payments is concentrated in digitally mature sectors, such as gaming and the gig economy. SMBs in these sectors are 45% more likely to use instant payments as their primary ad hoc payment method than firms in less digitally advanced sectors. Moreover, according to the same report, usage appears to correlate with automation — adoption rates are higher among businesses with more automated accounts receivable (AR) systems. Since over four in ten microbusinesses still use manual AR processing, this limits their ability to benefit fully from instant payment capabilities. Why Checks Are So StickyBusinesses that still use checks point to the following reasons for continuing with this payment method:

Strategies to Fine-Tune the Balance Between Checks and Digital PaymentsCommunity financial institutions (CFIs) should consider nudging their SMB customers towards greater use of digital payments while improving their check processing for those customers who still want to use checks. Here is how they could do this:

As digital payments continue to improve and businesses increasingly embrace digital transformation, CFIs should encourage their SMB customers to adopt them. Helping them understand the benefits of digital payments, ensuring they are easy to adopt and meet the SMB’s needs, will help nudge them forward. At the same time, CFIs recognize that there is an enduring demand for checks. Modernizing internal check processing will boost security, cut costs, and enhance the customer experience.