U.K. Pushes Digital Check Imaging Even as Checks Decline

The U.K. is ahead of the U.S. in nearly every aspect of payments, except for mobile or remote deposit capture—a technology designed for checks, which are in decline but still a preferred payment choice for a couple of industries.

Remote deposit capture is a decade-old technology in the States, but in the U.K., many banks still don’t offer the service.

“There was a dream in the U.K. years ago that checks would disappear so it wasn’t worth it to invest in technology for check payments,” said Giovanni Bandi, the U.K. business development director at NCR Corporation. “But there are still checks.”

Remote deposit capture allows businesses and consumers to take a photograph of the front and back of a paper check with their mobile device to deposit the funds into their bank account. In the U.S., the offering dates back to 2003 with the passage of Check 21 Act, a federal law that allows the recipient of a paper check to create a digital version of that check.

Similar legislation is in the works in the U.K., said Bandi. The legislation, which is still in its early stages, would require all banks in the U.K. to upgrade to accommodate check images  by the end of July 2016, regardless of the originating bank.

This shouldn’t be too challenging, since all banks in the U.K. outsource check processing, Bandi said. That leaves most of the work with the country’s two major check processors, Intelligent Processing Solutions Limited (iPSL) and HP. IPSL is a unit of Unisys, a Philadelphia-area company that has been processing checks in the U.K. since 1997.

Last year, Barclays began a limited pilot of mobile deposit capture as the U.K. government began its talks on the new check imaging legislation. By the end of 2014, Barclays had expanded the pilot to more than one million customers.

Most banks in the U.K. will be piloting mobile check deposit this year, Bandi said. “There’s a cost benefit that will come out of stopping the circulation of paper,” he said. Delivering a system for electronic checks makes the handling of the payment method easier and cheaper for both consumers and banks. Businesses will also have better access to cash flow since their checks will be processed quicker.

So why is the U.K., with its London capital being touted as the new fintech hub, behind on delivering remote deposit capture?

“Checks in the U.K. are a much smaller market,” said Paul Stoddart, managing director of strategy, marketing and business development at VocaLink.

In 2013, about 720 million to 730 million checks were written, Bandi said. In comparison, one year earlier, in 2012, the number of checks written in the U.S. was multiple times higher at 21 billion.

VocaLink’s Faster Payments System is one of the predominant reasons why the use of checks has tapered off faster in the U.K. In 2008, payments rails in the U.K. went through a colossal overhaul. Since its inception, the Faster Payments System has grown about 20% yearly, with about 60% of that growth coming from the migration of businesses and consumers from other payment methods. Most merchants in the U.K. do not accept checks and recurring bills are usually paid through direct debit or other electronic means.

But even so, checks are still an important part of the economy. And the decline of checks has been much slower than expected, Bandi said, adding checks are declining at less than 5% per year.

Checks are a vital payment method for charitable organizations and small business owners, such as plumbers or electricians. About 60% of check volume in the U.K. is being processed for those two verticals, Bandi said.

Banks in the U.K. aren’t just looking to implement remote deposit capture through their mobile banking app. They’d also like to upgrade their ATMs to scan checks as well. “The mobile app for consumers is the cheapest thing to implement,” Bandi said. For banks, upgrading the ATM network or purchasing scanners for their branches will take the most time and expense, he said.