To displace checks, electronic payments do not just have to overcome inertia. They also may have to overcome an economic disadvantage.
It may sound heretical at a time when bankers are hell-bent to get away from labor-intensive paper processing wherever possible, but veteran consultant and researcher Allen H. Lipis has never let controversy prevent him from calling such shots.
Mr. Lipis, chief executive officer of Global Concepts Inc. in Atlanta, said it is wrong to assume that electronic financial transactions are inherently cheaper than checks. He said he has benchmarking studies to prove it.
Global Concepts data put a bank's cost to process a check as low as 3 cents. By contrast, an automated clearing house transaction can cost as much as 8 cents.
Mr. Lipis, who presented his findings last week at a Bank Administration Institute payment systems symposium in Washington, conceded his check processing figures discount some expense factors, such as branch costs and fraud losses.
Still, he said, his numbers strongly suggest a questioning of electronic payments orthodoxy.
"The check has been king of all payment systems for more than three decades, and all we ever do is talk about killing it," Mr. Lipis said.
Check volume is estimated at 64 billion items annually and, despite many previous reports of its coming decline, is still growing.
Checks bring banks $39 billion of annual revenue, according to McKinsey & Co., New York. And they risk losing that income to nonbank competitors.
"It is a sad commentary that a major process for the bank is perceived as a necessary evil, and the only focus is on cost reduction," Mr. Lipis said. Electronic banking enterprises, he contended, are regarded as full- fledged businesses with revenue opportunities as well as costs.
Checks have, in fact, been regarded as a profit center in such areas as corporate cash management and deposit processing for retail merchants. But as automated payment volumes grow, so can competition, and revenues can be pinched.
David Kvederis, a former Wells Fargo banker who is trying to sell a point of sale check truncation service called Bankserv in cooperation with banks, has warned that they risk the loss, or scaling back, of valuable commercial relationships.
"Bankers have always said the last thing they have is the payments franchise," Mr. Kvederis told American Banker recently. "Well, guess what: Checks are the core of the payments franchise."
Elliott McEntee, president and chief executive officer of the National Automated Clearing House Association, agreed that the industry could do more with its check processing enterprises.
He also allowed that "for certain categories of transactions, it's a close call whether the ACH is cheaper" than checks.
But Mr. McEntee criticized Global Concepts' methodology, saying, "You can't just leave big chunks out" like branch costs.
Payment system businesses, broadly defined, were the subject of the Bank Administration Institute event. A study conducted by the institute with PSI Global showed payment services generated $203 billion in revenue last year. Banks accounted for $115 billion, and the BAI encouraged them to grab for a bigger share.
Neal Chambliss, group vice president and director of Tampa-based PSI, said banks have "a very narrow viewpoint of the payment system."
"What's at stake is the relationship value that is associated with the payment itself, and that is really what banks need to protect and defend."
John B. Lewis, senior associate at Chicago-based BAI, said nonbank competitors are making inroads.
American Express Co., for example, spends some $60 million a year to promote what has grown into the nation's largest corporate card program, he noted.
Allen Lipis' controversial observations caused considerable comment and resonated strongly among check processing veterans who have endured years of predictions of a checkless society.
Vincent D'Agostino, senior vice president of Chase Manhattan Corp., lamented that bank marketers have seemingly abandoned checks. Chase is the nation's third-largest check processor, handling about 16 million items daily.
"I think (Mr. Lipis) has a point," Mr. D'Agostino said. "Banks have moved quickly into the new and the glitzy home banking and electronic payment realm" at the expense of the tried and true check payment system.
"There are a lot of things that this industry can do to continue to add value to that brand and electronify it," the banker added. "We need to recognize what we have."
Mr. D'Agostino said new-product and service opportunities abound on the current check-collection foundation.
Some, such as electronic check presentment, which processes payment in advance of the paper, are rapidly gaining acceptance among the top check processors.
Others, such as Internet-based electronic checks and truncation at the point of sale, are getting attention from all sizes of banks. Neil Godfrey, president of E-Funds Corp., a check approval service for merchants, said his service converts about 125,000 checks each month into electronic debits. He said the service is growing about 35% a month.
Mr. Lipis, who was an early inductee in the Electronic Funds Transfer Association's EFT Hall of Fame, confessed that he once joined in the infatuation with electronics.
He asked for "forgiveness of the king, the benevolent king that has been so good to all of us."
"I have sinned in cursing the check, in believing it had evil ways," he said. Now "I want to pay homage to the king-long live the check."