iStream Financial Services Inc. says the economic slump seems to be driving more companies to demand checks from their customers for payment.
The Brookfield, Wis., company cites the rising value of the items it processes as evidence of this trend; iStream said values are rising because it is handling more business-to-business payments as checks, which are cheaper for its clients than cards.
"In many cases, with B-to-B, they're not going to accept you paying by credit card when you just took 2% [of interchange fees] out of a $30,000 payment," said Fred Joachim, iStream's president. "Not gonna happen, especially if I've known you for five, six, eight, 10, 20 years. … What's happened is, wherever you thought checks were dying — yeah, they're dying on retail," but not B-to-B.
The average check payment iStream processed last year rose 16% from the previous year, to $1,495, and the company says nearly 80% of its volume now comes from B-to-B payments.
"What's happening, especially in a known business, if you pay by check, the owner of the business is saving a minimum of 1% of the value of that item," Mr. Joachim said.
Analysts said it is plausible that businesses are shifting toward checks in tight economic times, but some questioned how much clout small and midsize companies — iStream's primary customer base — would have to influence large corporate clients, which have turned increasingly to cards, because of the financial and management control they provide.
Mr. Joachim acknowledged that the shift toward checks has not swept all businesses, such as those dealing with new clients on a regular basis and need the security that card payments provide.
Card payments still hold value for new relationships, as the risk in accepting a check from an unknown party is higher than from a longtime business partner, he said; once a relationship is established, businesses have been pushing their clients to drop cards for the less expensive check.
"Especially with the economy going the way it is now, people are looking for a least-cost payment with no risk, and as long as you know who it is," the check is "a good way to go," he said.
Mr. Joachim joined the fledgling iStream from Fifth Third Bancorp in 2004, the same year the Check Clearing for the 21st Century Act, which allowed banks to accept printed check images, took effect.
He had spent eight years at Fifth Third's Universal Payment Processing. Before that he had spent 10 years at First Data Corp., where he ran the company's San Mateo, Calif., processing center.
iStream launched its hosted image processing service in 2006.
Mr. Joachim said it has about 1,400 customers. Its distribution channels include about 60 banks, though it calls its strategy bank-agnostic.
Imaging has been another catalyst for the rising favor of checks among businesses, he said, resulting in an influx of clients for its processing system.
And those clients are spreading the word about iStream, he said. "What we didn't see coming was, the owner of the business was so taken by this … we started getting calls from the clients he bought from."
Nick Holland, a senior analyst at Aite Group LLC of Boston, said that businesses have long favored checks, and that the economic stress some face is making them cling to the format more strongly.
"Checks are without any of the kind of transaction fee; there's no cut for the card network." As businesses are becoming "more acutely aware of small areas" of expenses that add up, they are making every effort to "shave a little bit off wherever they can," Mr. Holland said. "Checks are tried and tested. They work. There's a certain amount of trust in them."
Aaron McPherson, a practice director at International Data Group Inc.'s Financial Insights, said his own observations have shown B-to-B check volume declining, though at a much slower rate than consumer volume.
Some of the industries iStream serves, such as day care, are known to be more check-reliant, and the added speed from remote deposit capture may have helped the payment method hold its appeal with them, Mr. McPherson said.
He agreed that the average check size has gone up. "The main area of attack is in debit card and bill pay, and those amounts tend to be lower," he said.
Andrew Schmidt, a research director at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said the business owners who take card payments are well aware that "checks are certainly cheaper than credit cards to process."
Electronic payments would also be cheaper than credit cards, but "the banks aren't there yet, and the companies aren't either," Mr. Schmidt said. "So what's the next best thing? It certainly would be checks."
Large companies, which are shifting to purchasing cards because they offer more automated processes and management, may counter the trend among small and midsize ones, he said. "I don't know if you'll see an overall rise" in check volume as a result, "but you could well see a decrease in the decline."
