Though there is still no consensus on how an all-digital check would function, or whether it's even needed, the idea is gaining steam in payments circles and has been endorsed by the Federal Reserve banks.
"With the tremendous amount of success that the industry's had over the last five years in implementing image exchange," the question remains, "what's left for the industry to use to make the process more efficient," said David Walker, the president and chief executive of the Electronic Check Clearing House Organization in Dallas.
The digital check concept is not new, but it has attracted a good deal of attention since the Federal Reserve Bank of Chicago published a policy discussion paper in November promoting "electronic payment orders," or EPOs.
"Due to the Check 21 revolution, digital images have replaced paper items in the clearing and settlement process," the report said. "We argue that a new kind of check, one never having any paper form whatsoever, could complete this transformation and enhance consumer welfare."
The idea could also have implications for the viability of the mobile payments concept, which is generating plenty of buzz. "Imagine a world where consumers could write and send completely digital checks or EPOs from their mobile phones," the report said.
A digital check fits within the long-range goal of groups like ECCHO, Nacha, The Clearing House Payments Co. LLC and others that are driving the concept of "native electronic transactions" — payments that don't begin with a paper check but retain the same remittance information.
"We have very much focused in the last year or so to say how can we effectively eliminate that step," said Janet Estep, the president and CEO of Nacha, the Herndon, Va., trade group that oversees the ACH system.
The focus for the future is on "never having to write" a check to begin with, Estep said, while still having the "information that can flow along with the payment. That's where the true value is delivered."
The Fed paper suggested that banks could benefit from all-digital checks because they could devote fewer resources to their check systems and could clear check payments faster. They could eliminate costs associated with delivering paper checks to the bank of first deposit and printing and processing paper checks.
"At that point, the entire check edifice devoted to processing paper would have been eliminated, and the huge investment that has been made to modernize and electronify the back end of the check processing system could be leveraged," the report said.
Certainly, not every payment-systems observer is as gung-ho as the Chicago Fed. Some are hard-pressed to clearly define how a digital check would differ from the existing imaging networks or systems that convert checks into automated clearing house transactions.
"I do wonder exactly which problem this is trying to solve," said Steve Ledford, a senior expert and leader in the global payments practice of the New York consulting firm McKinsey & Co.
"When you look at why people use checks, it's generally not because they like using checks. It's generally driven by business processes that they have in place that just happen to have checks built into them," he said.
"If you're actually moving to a completely online or completely digital way of originating the payment, it seems there are other existing methods that could work just as well," such as ACH and wires, Ledford added.
