Don’t buy too much into rumors of their demise. At this rate, checks will thrive well into the 2030s.
That’s the view of Victoria Dougherty, VP, Deposit Solutions, at Fiserv. She recently discussed the future of checks — and the market opportunity that comes from consumers still being tied to them — in an interview for PYMNTS’ “Walk to the Elevator” series with Karen Webster.
The average daily volume of checks continues to decline, with commercial checks down 1.7 percent year over year in 2017, according to the Federal Reserve. But there exists a dichotomy with checks. Even as fewer are written, their value increases — up 4.3 percent year over year in 2017, according to the Fed.
Check transactions are filled with friction. They are costly to cash, deposited funds are not immediately available and sometimes they even bounce. People paid by check — for instance, a local landscaper who needs the money from one job to pay his workers as well as his own bills — often have to wait days to access those funds, putting said landscaper and his workers at constant financial risk.
Add to that the fact that 42 percent of U.S. consumers are unable to readily access $400 in the event of an unexpected emergency, and the friction associated with having checks as part of a person’s or a small business’ (SMB) financial situation becomes even more acute.
“There is a hole in the market right now,” Dougherty said in explaining the genesis of Fiserv’s Immediate Funds product, a service the company is making available to deploy at financial institutions. With Immediate Funds, consumers and SMBs can utilize their existing deposit channels at a participating financial institution to immediately access funds from a deposited check.
“It’s not a matter of whether these consumers or SMBs have bank accounts; most do,” Dougherty said. “Instead, it’s that they need a way to get immediate access to those deposited funds that they can then, in turn, deploy toward critical expenditures — like payroll for an SMB, or groceries and daycare for a consumer.”
The way that happens today, Dougherty said, is via a variety of costly check-cashing alternatives: check cashers, payday lenders, even pawn shops. The FDIC’s 2016 National Survey of Unbanked and Underbanked Households reports that 21 percent of consumers have used those services for that reason over the prior 12 months. With Immediate Funds, Dougherty told Webster, consumers and SMBs can leverage the traditional banking channels and get access to their funds at a lower cost.
Dougherty said the Immediate Funds process is also available via mobile check deposit, which can be a more desirable alternative for simple transactions at lower dollar amounts.
Financial institutions have full latitude to decide whether to charge customers for access to the Immediate Funds product.
“Some financial institutions will not charge, but the majority (charge) a nominal fee,” Dougherty said. The most valuable currency, she said, is the access it provides by bringing a service back into the institution that was being delivered elsewhere, and the resulting loyalty it builds and reinforces. In fact, she told Webster 69 percent of transactions completed today using the Immediate Funds solution are from repeat customers.
If a customer selects the Immediate Funds service and the check is later returned, Dougherty said that’s on Fiserv, since it is Fiserv’s systems that authorize the good funds on behalf of participating financial institutions. In the event that happens, Fiserv will reimburse the financial institution and won’t ask it to charge back the customer.
In some ways, Dougherty said, Immediate Funds might seem like a service that’s out of sync with the explosive growth of digital and mobile payments channels and rapid adoption by both consumers and businesses — until you look at the numbers.
“There are [still] billions of dollars of checks in the system every month,” she said, highlighting the need for this service now — and for the foreseeable future.
“This is a true winner for financial institutions,” Dougherty emphasized, and a real opportunity for early adopters to establish loyalty through a service that eliminates the friction caused by a centuries-old payment method that has seemingly survived the test of time.