Payments

The Last Flight of Paper Checks

Before 2003, an average of $6bn in paper checks was flown on airlines to their final destinations every day.  In an attempt to do away with this enormous inefficiency, the Check 21 act was signed into law, allowing banks to settle using electronic images instead of sending physical checks. Fraud went down, costs of processing dropped significantly, and physical check settlement between banks quickly fell to almost zero.

When digital payment alternatives arrived for businesses, many assumed a similar transformation would occur, hailing the new age of B2B payments. This was simply not the case.

The rise of ACH, Paypal, electronic bill pay services, p-cards, and other digital payment alternatives over the past decade has given businesses more options when it comes time to pay. Yet, around 50% of US businesses still use paper checks as their primary method of payment.

Such a widespread lack of adoption represents a tremendous inefficiency when you consider the average cost of writing a check. Bank of America estimates each check costs business anywhere from $4 to $20 from start to finish, including labor costs and processing. The WSJ estimates that this antiquated process is costing US businesses up to $54 Billion per year. New software and technology are streamlining every other aspect of a company’s operations, yet billions are being squandered by businesses using an inefficient, insecure method of payment that has not changed significantly since its creation two millennia ago in ancient Rome.

Despite the obvious cost savings in switching to digital payments, the adoption of digital alternatives is slowing down, especially for small businesses, of which only 10% are estimated to use electronic payment methods. Why are rates of adoption slowing down despite such clear benefits? It turns out ‘tradition’, or more accurately stubbornness is the most common reason a business continues to use paper checks. Many businesses and their executives are still living by the adage- If it ain’t broke, don’t fix it. Also, many small businesses do not see significant savings with new payment methods, especially if they cannot get other members of their supply chain to adopt as well.

There is still hope. It’s becoming increasingly clear that organizations that do adopt the next generation of payment methods have enormous potential to increase efficiencies across supply chains, especially when the benefits of these systems are realized and implemented on a large scale. The last paper-based bottlenecks will be smashed, and the flow of payments will reach a similar unrestricted flow like that of information on the internet. Transactions will occur peer-to-peer, in real-time on blockchain-based networks, costing a fraction of traditional methods. Payments will no longer come in the form of Paper checks flying across the country on airplanes, but rather move at 99.37% of the speed of light as bits across the Internet.

Lamar Wilson

Lamar Wilson is the CEO and co-founder of Fluent, the financial operating network built on blockchain technology for companies and their global supply chains.

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