Checks Matter: Why Checks Are Still Essential in a Digital Payment Era

The notion that checks may become obsolete has been a topic of discussion in the banking and financial services industry as digital payments gain popularity. However, do these advancements truly eliminate the need for checks?

The Ongoing Importance of Checks

Despite the growth of electronic and alternate payment methods, checks remain essential for many businesses and consumers, and are here to stay for the foreseeable future.

• A GoBankingRates survey revealed 54% of Americans wrote a check in 2023. 
• A Qualtrics study examined millennials and highlighted the growing importance of checks in relation to self-employment and the gig economy. Many self-employed individuals rely on invoicing their customers directly, using checks as the most common payment method for transactions.
• The Association for Financial Professionals (AFP) conducted an Electronics Payment Survey, revealing that a significant portion of businesses—51%, continue to write paper checks for their B2B payments.

For businesses, every check written serves as a traceable record capturing essential details like the payee's name, the date, and the amount. This documentation creates a straightforward way to track their operational finances. A clear paper trail is invaluable for businesses when settling disputes and confirming transactions.

Outdated Processing Systems Are Hurting Financial Institutions

With checks still very much in the mix, banks and credit unions must remain vigilant, as fraudsters continue to exploit this payment method. Outdated item processing systems make banks and credit unions increasingly vulnerable to risk, potentially harming their reputation.

• Financial Impact of Check Fraud – Reports indicate that U.S. financial institutions incur $4.41in remediation costs (legal fees, investigations, recovery efforts, etc.) for every $1.00 lost to fraud. The 2024 Check Fraud Report highlighted an escalation in attempts nationwide, estimating losses of $21B in 2023. Conventional item processing solutions are not equipped to compete with the latest fraud scams, which put financial institutions at risk. 
• Costs of Inefficient Check Processing – Banks and credit unions often rely on multiple systems to manage checks and their related images, requiring file exchanges between systems and batch processing at close of the business day. This lack of centralized visibility or real-time processing can result in duplicate deposits and posting delays. Additionally, unnoticed errors from manual reviews can exacerbate these limitations, requiring the need to allocate more resources for corrections, and higher fraud losses.
• System Maintenance Costs – A study by IDC Financial Insights projects that global financial institutions are projected to spend over $57B on legacy payment technologies by 2028, up from $36B in 2022. Legacy payment solutions often come with the need for specialized teams, as well as the cost of managing each platform individually - including upgrades and support. Additionally, other aging solutions are being sunset or have discontinued support, leaving institutions on their own to navigate.

What Can Financial Institutions Do? Modernize and Consolidate Deposit Channels

Real-time payments and other faster payment rails often overshadow traditional channels like paper checks, highlighting the need for modern solutions that address market demands. So, what can institutions do to enhance item processing and strengthen deposit channels that many consider outdated, yet remains essential? The answer lies in modernizing and consolidating technology platforms.

Modernization has a significant impact on both user-facing and institutional infrastructures. It often brings a lower cost of ownership and reduced overhead compared to legacy solutions. Advanced deposit automation platforms that address multiple points of capture under the same solution provide banks and credit unions with a single vendor point of contact, and with less back-end development effort, maintenance, and support. 

With a centralized database and access to cross-channel data, decisions can be made faster as real-time access to information is available. Integrated fraud mitigation capabilities also keep fraud losses at bay, leveraging advanced AI and machine learning techniques to catch risky transactions before they reach the back office. These modern solutions often outperform their legacy counterparts in terms of efficiency, scalability, and security, making them a more viable option for banks and credit unions looking to optimize their operations and remain scalable for the future.

Payments Modernization Needs Unify

Solution modernization efforts can seem daunting, but with a solution like Alogent’s Unify, they become manageable and achievable. Unify is an award-winning single API deposits automation platform that simplifies item processing by bringing full- and self-service capture together under the same device-agnostic model. By treating every document and check the same, regardless of how it is captured, Unify’s centralized framework delivers a consistent user journey, increased productivity, and a lower cost of ownership.

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