Check Conversion in the US

Celent predicts that 5.3bn checks will be converted to ACH by 2005, up from 0.5bn in 2002. Meanwhile, conversion will drive limited benefits to banks. By 2005, less than 5% of check conversion at the point of sale will be converted to card networks via Visa POS and SafeCheck.

In a new report, "Check Conversion in the US" Celent analyzes the efforts by the payment industry to develop check conversion at the point of sale, at the lockbox, on the Internet and over the telephone. Having failed to make consumers stop writing checks, in the late 1990s the payment industry devised a mechanism to eradicate checks shortly after being written: check conversion. In this report, Celent reviews the state and prospect of the check conversion landscape, scrutinizes point-of-sale check conversion’s impact on the US$1.5bn check authorization market, and reviews banks’ efforts to leverage card networks to provide authorization and conversion services using Visa POS and SafeCheck.

"The payment industry has convinced itself that converting checks to electronic debits for processing would be easier and cheaper than massively converting consumers to electronic payment instruments" comments Gwenn Bézard, Celent Senior Analyst and author of the report. "After a few years of efforts, this plan remains to be proven." At the point of sale, check conversion is developing only very slowly. At the lockbox, conversion is set to grow very rapidly, but at the cost of relatively significant efforts for banks, lockbox outsourcers and billers. Meanwhile, if conversion is developing rapidly over the telephone and the Internet, it is often to the detriment of cards, which generate hefty revenues and margins for banks.

The report predicts that conversion will bring limited benefits to banks. At the point of sale, check conversion over card networks is unlikely to drive significant interchange fees. "Check conversion will not save banks from stumbling again and again over the lack of cost-based pricing of consumer payment instruments," says Bézard. As banks market emerging electronic payment services such as online bill payment in a separate effort from conversion, they will find it difficult to convince consumers to pay higher fees for electronic payment instruments. The lack of cost-based pricing of payment instruments will delay banks’ ability to create or increase fees on direct debit, online bill payment, and cards.