By Patti Murphy
I'm a self-avowed champion of checks. So my interest was piqued by a new electronic checkbook app for iPhones. As many payment professionals know, banks and others in the payments space have been working to electronify checks for at least a generation.
Nearly 20 years ago, I organized a series of conferences focused on check electronification. At one conference an electronic check demonstration featured an on-screen "check" users filled out to initiate payment instructions in much the same way today's consumers initiate payments using personal and small business accounting software. On the back-end, the transactions were automated clearing house payments.
My expectation upon seeing the March 3, 2014, announcement about the iPhone app was that after all these years someone had come up with a way for check payments to be truly electronic â€“ from initiation through to final settlement. Paul Doyle, founder and Chief Executive Officer at VerifyValid, seems to have come close. And he's promoting his company's Mobile Checkbook app for iPhones as a low-cost alternative to accepting credit and debit cards. "Based on growing instances of card network breaches, we saw a definite need for an advanced payment solution that builds upon traditional check payments to better serve and protect businesses and their customers," Doyle stated when launching the app. "While consumers gain the freedom to pay for goods and services directly through the Mobile Checkbook app, our business customers experience greater convenience in accepting payments anytime, anywhere without incurring costly interchange fees associated with card transactions."
Based in Grand Rapids, Mich., VerifyValid grew from Doyle's work in data security and a client company that was struggling with check fraud. The solution he devised uses a patented technology based on a Trusted Time Stamp (an American National Standards Institute-approved standard) that can be used by anyone with a valid e-mail address.
A company creates a VerifyValid account using its business name and email address, and provides checking account and financial institution (FI) information. No changes in FIs or existing processes are required; the company continues using paper ledgers or accounting software, Doyle noted. Then with a few keystrokes a user creates a data file with payment and remittance details and uploads that to VerifyValid. If the payment recipient is a VerifyValid client, the recipient gets the option of remote deposit, which effectively eliminates paper and fraud from the check payment process.
The iPhone app is VerifyValid's first direct foray into retail payments. To entice consumers, and small businesses, the company is giving away free "starter checkbooks." I experienced the app in action when Doyle sent a $1.00 check to my email account. Actually, it was a link to a secure VerifyValid server, which allowed me to print a PDF containing a check and remittance statement.
It looked like a check â€“ payee line, bank routing and account numbers, even an automated signature â€“ and it worked like a check. Detaching the check from the statement and endorsing the back, I took out my mobile device and, using my bank's remote deposit service, deposited the check to my demand deposit account â€“ all while on a land line interviewing Doyle. The entire process took less than five minutes.
In an era when electronic alternatives exist for just about everything we do, checks â€“ one of the oldest forms of payment â€“ display remarkable resiliency. And why not? "The check is a universally recognizable form of payment in the U.S. Even my young children know what a check is," Doyle said.
Douglas A. King, a payments risk expert in the Retail Payments Risk Forum at the Federal Reserve Bank of Atlanta, made a similar point in a recent post to Portals and Rails, the Retail Risk Forum's blog. He described how he pays a college-age babysitter by check, which she prefers over cash or online payments because she likes to access funds through her debit card, and mobile deposit makes that fast and easy.
"The amazing thing that has struck me from these weekly transactions is the efficiency of this P2P payment transaction," King wrote. "If the babysitter makes the mobile deposit before 9 p.m. (ET), she has access to the funds the following day. If after 9 p.m., the funds are available to her in two days. On my end, the transaction appears in my banking activity the morning following the deposit. Talk about efficient â€“ fast and inexpensive (no fees paid by either of us)!"
According to the Federal Reserve, U.S. consumers wrote 19.4 billion checks in 2012, and over 99 percent of those cleared through the banking system as electronic check files. Of that 99 percent, 3.4 billion entered the system as remote deposits; 3.4 percent of those were checks deposited by consumers using mobile phones and tablets.
The Fed's latest data also offers insights about who writes and receives check payments. The only category of check writing that didn't diminish between 2009 and 2012 was person-to-person (P2P); 2.4 billion checks paid in 2009 and again in 2012 were payments between consumers, the Fed found. Consumers wrote 7.3 billion checks to pay bills in 2012; checks consumers wrote at the POS numbered 1.4 billion. The Fed also reported that businesses issued 3.1 billion checks to consumers and 5.9 billion checks to other businesses in 2012. The Fed collects detailed payment data every three years. The 2013 Federal Reserve Payments Study, released in December 2013, draws on data collected about noncash payments made in 2012. Between 2009 and 2012, consumer check payments to businesses fell 7.8 percent, the Fed reported. Business checks to consumers showed the steepest decline at 16 percent. The number of business-to-business checks written fell 9.2 percent over that three year period, according to the study.
So, despite declining usage, Americans still love checks â€“ and for many good reasons, including low cost. Doyle is hoping the cost factor will resonate with merchants frustrated by credit and debit card interchange. "The cost of a check is not a function of the value of the payment," Doyle said. "The check has a flat, fixed, nominal cost for its use."
In addition, the check is a pay-anyone instrument that fits well with existing business processes. That's why the check's longevity is pretty much assured.
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 firstname.lastname@example.org.
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