By Patti Murphy
In the world of payments, checks are a bit like Rodney Dangerfield. For those unfamiliar with this 20th Century American comedian, Dangerfield was perhaps best known for his signature line: "I don't get no respect!"
Checks suffer from a similar lack of respect. At 18.3 billion, checks paid accounted for 15 percent of all noncash payments in 2012, according to the 2013 Federal Reserve Payments Study. In total, there were 122.8 billion noncash payments (excluding wire transfers) worth $79 trillion in 2012, the Fed reported. One third of that total value (just over $26 trillion) was transacted using checks.
Credit, debit and prepaid cards were used for 66 percent of total noncash transactions, yet cards represented just 5 percent of the total value of noncash payments. And checks written weren't just bill payments. "A substantial portion of checks were, like cards, also being written at the point of sale," the Fed stated.
That's why I find it ironic that the Fed, in its planning for the future of payments, has practically discounted checks. Senior staffers from the Federal Reserve Banks have been appearing at industry events nationwide to describe and discuss its "roadmap" for improving the U.S. payment system.
Brian Egan, Senior Vice President at the Fed of Atlanta, spoke of the roadmap at the RDC Summit 2014. The Fed's roadmap is more about making electronic payment systems faster and better than it is about investing in the check system.
"One challenge we have with the check is that it's the most costly, end-to-end," Egan said. Not surprisingly, champions of the check system seized on Egan's comments to push for electronically created checks (sometimes called EPOs, for electronic payment orders). The Fed, however, said it's not keen on making regulatory changes to support the legality of checks initiated as EPOs instead of paper.
Fortunately, the Fed doesn't have the final word, and solutions providers continue to make it faster, safer and more efficient to write checks and for banks and other businesses to accept checks.
Remote deposit capture (RDC) technologies deserve at least some of the credit for keeping checks alive. And at the RDC Summit, I learned about some of the latest advances and potential applications for this game-changing technology.
Cachet Financial Solutions Inc. talked about its partnership with Ingo Money Inc., which uses Cachet's mobile remote deposit solution (Select Mobile) to support its "Good Funds" network, used by prepaid debit card programs to support check cashing to prepaid cards. Now the two companies are collaborating on a Select Mobile enhancement that leverages Ingo's technologies (which include advanced risk decisioning and validation tools) to support banks and credit unions that want to offer customers a guaranteed instant funding option on check deposits.
It's a great opportunity for banks and credit unions to grow deposits and generate new revenues without adding risk, said Larry Blaney, Executive Vice President of Sales at Cachet. "Banks don't want to take the risks on checks," Blaney said. With Select Mobile and Ingo there are no risks, he added, plus banks and credit unions can create new fee income opportunities by offering depositors faster availability on checks for a fee. "We're making it easier for banks and credit unions to provide high-value services to their customers," Blaney added.
Drew Edwards, Ingo's founder and Chief Executive Officer, said, "The convergence of good funds deposit and money movement capabilities, mobile banking technologies and digital wallet platforms is transforming consumer banking and raising consumer expectations with respect to funds access."
Blaney spoke of additional opportunities for leveraging the combination of RDC and check guarantee, including at the POS. Current pricing models aren't that well suited for POS applications: the fees on third-party checks work out to be about equal to card interchange, Blaney noted. With time and experience, however, risk models will be refined, data bases expanded, and those costs should go down. He added that Cachet is readying a new merchant capture solution for its bank and credit union customers that incorporates mobile capture technologies.
Jim DeBello, CEO at Mitek, which pioneered mobile check capture, pointed to increased interest in commercial applications for remote capture. "We're at the tip of the iceberg," DeBello said of RDC.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at email@example.com.
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