Evolutionary Decline of Check Volumes

NEEDHAM, Mass.–(EMWNews)–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. A graphic that depicts this shift can be seen

  and downloaded here: www.towergroup.com/research/content/page.jsp?pageId=3462):

• 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 a 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.

The TowerGroup research report titled “Check,

Please! Checks Still the Most Common Noncash Payment Type in the United

States” is available to qualified members of

the press for review. Those interested in purchasing a copy of any

TowerGroup report or subscribing to a TowerGroup research service may

call +1.781.292.5200 or email [email protected].

Sign up for the bi-weekly newsletter, TowerGroup News, to stay informed

on the latest research and events. To learn more, visit: http://ui.constantcontact.com/d.jsp?m=1101074606706&p=oi.

About TowerGroup: TowerGroup is the leading research and advisory

services firm focused exclusively on the financial services industry. A

respected source for trusted information and advice, TowerGroup brings

many of the world’s leading financial

institutions, technology companies, and professional services firms a

deeper understanding of the business and technology issues impacting

their organizations. Headquartered near Boston in Needham,

Massachusetts, and with offices in North America and Europe, TowerGroup

serves a global client base. Visit www.towergroup.com

for more information.

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