The Evolution of Check Payments

Originally published by IBM Financial Services Cloud Forum.

Written by Prakash Pattni.

Check payments market in flux

Across the globe, enterprises are rapidly modernizing to meet the demands of today’s digital-first consumers and frictionless experiences. These same enterprises must also prioritize security and seamless integration. As digital payments becoming increasingly popular, financial institutions face the challenge of building for this new capability while simultaneously managing existing payment capabilities like checks, which although face decreasing worldwide usage, continue to be favored for certain types of transactions.

In the US, studies have shown that checks remain the popular payment option for larger transactions and across several merchant types, such as charities or contractors, and for paying rent (Van Dam, 2023). In the EU, on the other hand, check volume is declining but still deemed significant, with over 2.1 billion checks written in 2019, specifically in France, which was responsible for 1.6 billion checks processed that year (de Best, 2023).

Regulatory pressure on payments digitization

Many countries have embraced payments modernization and introduced initiatives to speed and regulate the landscape. The Australian government, for example, is embracing digital payment reforms to officially phase out checks by 2030 as part of a wider range of payment reforms for the digital era (Taylor, 2023).

In circumstances like this, financial institutions have added governmental pressure to safely and securely move towards modern payment methods without disruption to existing systems. Financial institutions still need to process checks quickly and securely during this transition, as it remains a legacy payment system for the time being. Because the majority of check processing exists on legacy infrastructure, new changes may create risks to the entire payments ecosystem. Financial institutions also need to manage the impact on processing costs, as economies of scale reduce as check volume decreases, and business need to address this potential increase in cost while pursuing investment in new technologies.

Declining check volume and rising check fraud

Although digital payments are quickly overtaking checks, according to the Financial Crimes Enforcement Network (FinCEN), reports of check fraud have more than doubled over the last three years. FinCEN reported 680,000 cases of possible check fraud in 2022, up from 350,000 in 2021, which was already a 23% increase over 2020 (Simons, 2023). Expert fraud strategists have predicted that total check fraud will hit $24 billion in losses this year, roughly twice what it was just five years ago (Goswami, 2023).

Check fraud is a relatively low-tech and easy crime to pull off, with a sizable pool of potential victims. As more individuals and scammers are jumping on check fraud opportunities, payments modernization can help address the gaps in check security and slow-rising crime.

The demand for broader payments modernization

As shown by the changing checks landscape, payments will continue to modernize quickly and evolve to meet changing customer demands. Financial institutions need to prioritize payments solutions that can quickly adapt to changing customer needs and minimize disruption to business and existing IT infrastructure.