Last year over 60 billion checks were written in the United States. The workflow on each check includes transporting, proofing, encoding, endorsing, imaging, sorting, paying or returning, stopping payment, filing, truncating or statementing, and mailing.
Some checks go through these procedures more than once. One does not have to be a genius to observe that the attendant operating expense is huge.
Creative attempts to reduce the volume of checks or expedite processing and clearing have had little impact on the workflow process. Even the Federal Reserve's funds availability rules, effective Jan. 3, 1994, merely shift volumes to private check-clearing operations.
Obviously, the industry cannot just stop issuing checks and force consumers to complete all transactions with cash or bank cards. But is it possible the baby does not have to be thrown out with the bath water? Is there an approach being overlooked?
Go to the Beginning
Perhaps the key to reengineering the check-handling process is not in taking the check-writing ability away from the public, or in improving check handling and clearing procedures, but rather in eliminating the paper before it enters the proof-of-deposit stream.
Today's technology can enhance point of sale devices to accommodate a check-based debit option. When a customer presents a check, the merchant swipes the check through the POS device. The device can either accept the MICR encoding on the bottom of the check or scan the entire check. Purchase amount and check data are then sent electronically to the financial institution of deposit and approved or declined. If approved, the check is cut paid and can be kept by the store or returned to the customer with a proof-of-transaction copy and the store's register receipt.
Standard issuance of checkbooks which produce duplicate copies of the written check allows for either scenario. Customers receive checkless statements. Returned items are eliminated. The burden of check-cashing responsibility is transferred to the payee.
Downstream check handling is totally eliminated by installing POS devices at other check-processing entry points, such as branches and utility companies' lockbox operations. Once again, the consumer retains a duplicate copy of the written check. Immediate debit posting eliminates float and kiting activities. Fraud is reduced.
Initial implementation costs can be shared through joint ventures like Star, Interlink, Plus, Cirrus, point of sale vendors, the Federal Reserve, and financial institutions. A change in market share is not anticipated. The goal is to eliminate all backroom check-processing and associated costs.
Savings for All Concerned
This action would result in a substantial decrease in operating expense for the Federal Reserve and all financial institutions. Systems, equipment, premises, and staff would be significantly reduced, and the overall savings would be almost incalcuable.
Technology is ready. Point-of-sale debit is a reality. The industry has the opportunity to revolutionize the check-handling process while maintaining the customer's check-writing ability.
The benefits of developing a POS check-based debit option now include increasing electronic payment acceptance and decreasing check-writing dependence.
The speed, simplicity, and convenience of POS card transactions will eventually outpace the customer's check-writing preference, having resulted in a gradual and acceptable transition. Can financial institutions afford not to give this option thoughtful consideration?