Like many other countries, the payment choices in the US have grown significantly over the last few years. Whether it is the take-up of Venmo and Zelle at a consumer level, or the implementation of real-time payments through The Clearing House or FedNow, the range of B2B and B2C payment rails has multiplied. There are also commercial credit and purchasing cards. And with the increasing use of technology, there are digital wallets, payment gateways, virtual cards, invoice-based platforms and AP/AR automation. Even crypto payments are getting a look in.
Given the increasing use of these technologies, one may have expected that checks, for so long a hugely popular form of payment in the US, might be withering away.
Indeed, while the death of the US check (or cheque as it’s known in the UK) as a means of payment might be exaggerated, there is continuing evidence of its decline. But nevertheless, some 11.2 billion checks passed through the US payments system in 2021 (the latest year of available records), according to the US Federal Reserve.
That can feel like a large number, but to put this into perspective, there were 204.5 billion non-cash payments made in 2021 – so checks made up around 6% of these payments. Back in 2015, the Fed counted 18.1 billion checks, so over a period of six years, 7 billion checks fell out of the system. Undoubtedly, the COVID-19 pandemic accelerated the shift towards other means of non-cash payment, but nevertheless, for a number of reasons, there would appear to be a long tail of check usage that is likely to be with us for some time to come.
More recent figures from the Fed confirm the decline in check usage – in 2023 some 3.146 billion commercial checks were collected through the Federal Reserve, 47% lower than 10 years previous (2013 saw 5.988 billion collected).
It is a classic example of how innovation has made a popular, but inefficient, process easier, rather than replacing it with an alternative that may require changes to existing processes and systems
So why do checks remain a prevalent means of payment? And why does this matter to corporate treasurers whose organisations operate in the US?
The answer to the first question lies in the combination of tradition, security and innovation.
Checks provide a convenient method – especially for one-time payments. In fact, some suppliers like being paid by check as it is normally accompanied by detailed remittance information (which makes it easier to reconcile a payment) that all other payment types (ignoring the impact of ISO 20022) can’t offer. In addition, it forms a legally binding written contract (usually between three parties – the buyer, the seller and the bank) and unlike certain other payment types, checks offer consumer protection.
Check processes have been fine-tuned over decades of use by companies that adopt an ‘if it’s not broken, there’s nothing to fix’ approach. Banks and other financial institutions have invested heavily in solutions that mean that lockboxes have come a long way from when they were remote collection boxes. They can now offer capabilities such as scanning remittance information and converting the checks into ACH transfers.
It is a classic example of how innovation has made a popular, but inefficient, process easier, rather than replacing it with an alternative that may require changes to existing processes and systems.
As Chip Northrop, Barclays’ Head of Cash Management and Payments Sales in the Americas, says: “We’ve worked tirelessly to improve the efficiency and data transparency of check processing technology, making our clients’ operations simpler and easier in the process. However, a check is still a paper-based instrument, and moving to digital transactions delivers greater efficiency, and opportunity to improve working capital metrics while reducing fraud incidents.”
This kind of technology also addresses the security issues that can give cause for concern in the US. Traditionally, US consumers and businesses have been reluctant to pass on their bank details (account number, etc) for electronic payments for fear they could be compromised in some way. This may have acted as a brake on a wider move away from checks to other forms of payment that required bank details to be stored by a company.
Of course, physical checks are themselves prone to fraud – alteration, forgery, and check-washing are not uncommon. However, despite these fears, corporates are able to benefit from a reduction in fraud by using electronic payments – encryption, machine learning, real-time processing and enhanced data collection can all help identify potential fraud risks and improve fraud mitigation.
Any decisions over the use of checks will also consider ease of execution, cost savings and the importance of predictability of when a payment will be settled (which can sometimes be the cause of cash forecasting errors).
For treasurers running global businesses, payment innovations in the US offer the opportunity to increase the reach of their global payment strategies and deploy a more holistic approach to standardising cash management processes
To answer the second question, treasurers, especially those who work in multinational companies, will need to be aware of how the popularity of certain payment methods, such as checks, can vary at a national and regional level, and will need systems in place that are flexible enough to accommodate this. And the payments landscape has become just as complex in the US as other countries at a B2B level just as much as a B2C level.
For treasurers running global businesses, payment innovations in the US offer the opportunity to increase the reach of their global payment strategies and deploy a more holistic approach to standardising cash management processes.
However, psychological attachments to checks are coming down as more consumers and businesses become familiar with receiving and making payments electronically. There is a growing recognition among corporates of the opportunities on offer – improved cash forecasting, cost reduction through automated processes, earlier access to cleared funds and being able to leverage the global investment in ERPs. What’s on offer is the ability to set up a more robust globally standardised approach that does away with the need for a payments centre for North America, and another one for the rest of the world.
Other developments in the US payments landscape include:
However, as noted above, corporate treasurers need to be mindful of regional and national differences – see our earlier article on payments on Asia. A one-size-fits all strategy may not allow for these differences, so corporates need to ensure they have enough flexibility in their payments systems to adapt to local variations. And also recognise that while it is the consumer that is driving change, such change is also being embraced at a corporate level.
And yet, there is still the lingering feeling that the US prefers tradition over innovation – hopefully a closer inspection will show that this is not the case. The payments scene is changing, and it is changing rapidly. So now would be a good time to re-assess your payments strategy, speak with your advisers, gain a clearer understanding of payment developments, and seize the opportunities that are available.
Barclays Bank PLC is registered in England (Company No. 1026167) with its registered office at 1 Churchill Place, London E14 5HP. Barclays Bank PLC is authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority (Financial Services Register No.122702) and the Prudential Regulation Authority. Barclays is a trading name and trade mark of Barclays PLC and its subsidiaries. Find out about the Financial Services Register.