A FinTech Reality Check: Paper Checks Need Attention

Amid the slew of announcements coming out of SAP Ariba Live, mobile capture software company Mitek revealed a new collaboration with the company that enables businesses on the Ariba Network to remotely deposit paper checks into their business accounts.

Their integration comes at a time when the world of FinTech is pleading for B2B payments to ditch paper (that includes checks) and get on board with, at the very least, cards and ACH.

The reality of the situation, says Mitek General Manager, Payments Solutions Michael Diamond. He told PYMNTS that the hard truth in B2B payments today is this: “The death of the paper check has been greatly exaggerated.”

In fact, he said, many FinTech innovators often push for solutions in B2B payments that might ignore the paper check altogether.

“What I’ve noticed in the industry is that people get a little too religious about how they think the world ought to work, as opposed to innovating around how the world does work,” he stated.

And the way the world of B2B payments works today is very often with paper checks. In what has become a highly cited statistic from the Association for Financial Professionals (AFP), there was actually 1 percent increase in the use of paper checks for B2B payments between 2013 and 2016. Diamond referenced other data that makes clear the slowing decline of checks’ prominence in the industry.

“Businesses love [checks],” he stated. “I’ve been in the tech business my whole career, and we in the tech business think that people should hate checks. In fact, businesses like to pay with them.”

That can be for a variety of reasons, he explained. For one, many SMEs have still not been onboarded to electronic payment rails like ACH. Not to mention, “the check’s in the mail” remains a popular pull for corporate payers that are looking to lengthen their working capital as much as possible.

With that in mind, and considering the billions of paper checks business send between each other every year, Diamond argued that FinTech innovators should perhaps pay more attention to the paper check and provide solutions to reduce friction associated with this payment rail rather than fighting an uphill battle to get businesses to change their payment behavior.

For Mitek, that means deploying mobile check capture and deposit capabilities; its integration with the Ariba Network means data from paper checks can flow right into a platform for accounts receivable (AR) and reconciliation purposes. Diamond also pointed to technologies Mitek developed, like the ability for a camera to hover over the image of a check using a mobile device’s video capabilities and grab an image of that check without the user having to press a button. That’s especially helpful for businesses that need to capture images of multiple checks at once – and, according to Diamond, mobile deposit can be just as fast as a desktop scanner built for this purpose.

“The scanner is kind of ancient thinking in terms of technology,” he said. “It’s a proprietary, one-purpose-only hardware sitting on your desk, when, at the same time, you have a mobile phone in your pocket that’s infinitely more powerful.”

These desktop scanners, provided by banks for the sole purpose of depositing checks, are a prime example of where innovation is needed. Sure, a scanner may be better than forcing a small business owner to make the trip to a physical bank branch to deposit checks, but the mobile device, Diamond said, is capable of reducing friction associated with checks even further. Even something as simple as character recognition technology that negates the need for a small business owner to manually enter in the amount of a check received before it gets deposited can streamline AR processes further, the executive noted.

But besides being clunky, paper checks have another issue: fraud. That same AFP survey found that paper checks remain the top source of payments fraud in B2B payments, with 71 percent of companies surveyed noting that they had experienced either attempted or actual check fraud in 2016.

Diamond isn’t totally convinced that paper check fraud is the biggest issue, though, and instead points to the frequency with which credit card credentials and data are compromised. In other words, every payment rail has its challenges.

The executive did acknowledge the sluggish disappearance of paper checks, though.

“I’m not saying checks will be around forever,” he said. “They are going to go away eventually.”

But around issues like reconciliation, manual data entry, fraud and beyond, innovators need to take a look at B2B payments as a space that continues to be dominated by the paper check. These points of friction can be addressed without forcing a business to give up this payment method, Diamond argued, and mobile solutions like remote deposit have the potential to effectively disrupt the check – not replace it.