Credit unions: Will 2017 be the year to eliminate checks?

20% of U.S. households still take pen to paper to pay their bills.

Check usage still remains a favorite way to pay by many credit union members, and not necessarily just older members. While online bill pay has been taken up by 4 out of 5 households that still leaves 20% of the population writing checks to pay bills. And we’ve all been behind the person in the grocery store line waiting for the final item to be scanned before pulling out the check book, register and a pen.

As recently as 2014, half of the 16.3 billion individual bill payments paid by Americans were paid by check, totaling $4.3 trillion. A large portion of these were B2B payments, but that still represents a large volume of checks written by credit union members. And this is costing the credit unions money. The first cost element is based on missing out on the interchange associated with using a credit or debit card to pay bills, both online and in store. The second element is the cost to process the physical check, comprised of the fee from the credit union’s processor, plus the ACH cost per payment. As an example of the tradeoff, rather than make 22 cents in interchange on a debit payment, the credit union is paying 25 cents for the member to write a check, despite the fact that in either case, the members pays the same amount. Granted, no payments between financial institutions are settled based on paper checks anymore. Check 21, which took effect 2004, allowed paper checks to be replaced with a digital version which eliminated the need to handle and transport paper documents and also eliminated the return of the canceled check. It also paved the way for remote deposit capture, scanning a check on your mobile to make a deposit. Many other countries have abolished paper checks completely. Finland was one of the first to do so in 1993 while other countries followed throughout the 2000’s. It is safe to say that the U.S.  lags behind in this particular area of fintech.


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