The End of Checks in the US?
In December, the UK Payments Council announced a 2018 target date for closing all cheque clearing operations in the UK. With some alarm, a few clients have asked Celent if the Council’s actions might signal similar forthcoming action in the US. And, if so, what are the implications? This post makes several observations. The UK Payments Council correctly notes that “cheque use is in long-term, terminal decline”. Having peaked in 1990, check volume has declined some 40% over the past five years. Thus, the Council’s decision amounts to taking a proactive stance toward hastening the decline in checque usage – a decline already in its 20th year. It aims to seek voluntary actions among financial institutions to provide modern (electronic) payment alternatives and to educate both consumers and businesses in the process. And, the Council’s decision isn’t definitive. 2018 is a simply target date, with thorough analysis ahead before anyone “pulls the plug”. So, what about the US? First, a little perspective. Check usage is in decline throughout all developed economies, with differences in the start and rate of decline. The figure below compares annual check dollar value (versus GDP) alongside the percent electronification of non-cash payments across multiple countries. Over the time period analyzed, the US and Canada had the highest relative check dollar volume. The US is well behind the UK – at least a decade – in overall usage and rates of decline. So, if the UK Payments Council initiative is to be replicated in the US, a target sunset date of 2028 might be a comparable starting point. Don’t hold your breath in other words! In addition to being a full decade behind the UK, the situation in the US is different along multiple dimensions. Here are a few: o The UK is a much smaller payment system with comparably few banks. It is fundamentally easier to get 12 UK clearing banks to agree than 8,000+ US banks and a roughly equivalent number of credit unions. o The UK already had a highly concentrated processing infrastructure in its’ Intelligent Payment Systems Limited (IPSL) entity. Not so in the US. While operational consolidation is well underway, there is a comparatively long way to go. Such consolidation is an inevitable economic result of the unit volume decline. o The UK had no Check 21 equivalent. It uses a rough equivalent of Electronic Check Presentment (ECP) called Interbank Data Exchange, or IBDE. The IBDE was set up by the 12 UK clearing banks in 1996 as a system to electronically exchange cheques and clearing balances, but the original items still travel physically from collecting to paying banks. Thus, the pain of declining check volume is likely greater in the UK since physical processing remains a requirement. Checks are dying a natural death in the US. Financial institutions would do well to invest in long-term care for checks through image infrastructure, widespread distributed capture and electronic statements. It’s too early to be shopping for headstones just yet. More information about the UK Payments Council can be found at: http://www.paymentscouncil.org.uk/