US Check Volumes Will Decline to 17.9 Billion Transactions by 2009, but Will Remain Major Payment Type Due to Business Use

25 July 2008

Paper checks are in decline, but they remain an important part of the US payments landscape, primarily because of the continued challenges in making and receiving electronic business-to-business (B2B) payments. New research from TowerGroup finds that while the rapid adoption of electronic payments is driven by the desire of payers (both businesses and consumers) for faster, easier, and more efficient ways to make purchases and pay bills, B2B payments remain the last bastion of checks – making up nearly 60 percent of US check dollar value. These persistent challenges in making and receiving electronic payments are a main reason why average US check values are increasing faster than any other payment type, even as the numbers of checks themselves decline.

TowerGroup expects check volumes to decline to 17.9 billion transactions by the end of 2009 as consumers, businesses, and government entities increasingly make and accept electronic payments. However, TowerGroup believes that checks will remain an important and increasingly high-value part of the US payments landscape until all potential payees are willing and able to receive electronic payments – and until checks become too expensive for banks to process on a regular basis, as shrinking volumes drive up per-unit processing costs. TowerGroup’s new research is based on its own the findings as well as those from the 2007 Federal Reserve Payments Study.

The author of the new research is Andrew Schmidt, research director and newest member of the TowerGroup Global Payments research practice. “As check volumes continue to decline due to consumer and business demand to simplify payments processes, financial services institutions must work to make it easier for companies to process and receive electronic payments,” said Schmidt. “Until electronic payments become more readily accepted by all businesses, checks will remain the most frequently used noncash payment type in the US.”

Highlights of the research include:
• Checks have lost their long-held dominance of the payments market, shrinking from a 46 percent share of total US payment volume in 2003 to 31 percent in 2006.

• The continued growth in the use of online bill payment solutions and the increased acceptance of debit at the point of sale are the main factors driving down check volume. Online bill payment increased at a compound annual growth rate of 29.6 percent from 2005 to 2007, and TowerGroup believes it will continue to grow through 2012 – albeit at the lower compound rate of 18.7 percent.

• TowerGroup expects that the combination of payment migration to debit and the use of Automated Clearing House (ACH) for smaller-dollar items – alongside the ongoing use of checks for larger purchases – will drive the average check value ever higher over time.
Schmidt joined the Global Payments practice after nearly four years with the TowerGroup Specialized Advisory Group, where he was manager focusing on the payments industry. As a research director, Schmidt will cover image-based clearing and settlement, payments convergence, back-office conversion, and anti-money laundering. Prior to joining TowerGroup, Schmidt held management positions at Ernst & Young, LLP, and @stake, Inc., where he provided information security consulting services to the financial services and software industries. Schmidt gained over a decade of direct experience in financial services when he worked at Fleet and BankBoston, holding positions in operations, loan recovery, and commercial lending.

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