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The Evolution of Check Payments

By Prakash Pattni posted Tue January 23, 2024 09:56 AM


Check payments market in flux

Across the globe, enterprises are rapidly modernizing to meet the demands of today’s digital-first consumers and frictionless experiences. These same enterprises must also prioritize security and seamless integration. As digital payments becoming increasingly popular, financial institutions face the challenge of building for this new capability while simultaneously managing existing payment capabilities like checks, which although face decreasing worldwide usage, continue to be favored for certain types of transactions.

In the US, studies have shown that checks remain the popular payment option for larger transactions and across several merchant types, such as charities or contractors, and for paying rent (Van Dam, 2023). In the EU, on the other hand, check volume is declining but still deemed significant, with over 2.1 billion checks written in 2019, specifically in France, which was responsible for 1.6 billion checks processed that year (de Best, 2023).

Regulatory pressure on payments digitization

Many countries have embraced payments modernization and introduced initiatives to speed and regulate the landscape. The Australian government, for example, is embracing digital payment reforms to officially phase out checks by 2030 as part of a wider range of payment reforms for the digital era (Taylor, 2023).

In circumstances like this, financial institutions have added governmental pressure to safely and securely move towards modern payment methods without disruption to existing systems. Financial institutions still need to process checks quickly and securely during this transition, as it remains a legacy payment system for the time being. Because the majority of check processing exists on legacy infrastructure, new changes may create risks to the entire payments ecosystem. Financial institutions also need to manage the impact on processing costs, as economies of scale reduce as check volume decreases, and business need to address this potential increase in cost while pursuing investment in new technologies.

Declining check volume and rising check fraud

Although digital payments are quickly overtaking checks, according to the Financial Crimes Enforcement Network (FinCEN), reports of check fraud have more than doubled over the last three years. FinCEN reported 680,000 cases of possible check fraud in 2022, up from 350,000 in 2021, which was already a 23% increase over 2020 (Simons, 2023). Expert fraud strategists have predicted that total check fraud will hit $24 billion in losses this year, roughly twice what it was just five years ago (Goswami, 2023).

Check fraud is a relatively low-tech and easy crime to pull off, with a sizable pool of potential victims. As more individuals and scammers are jumping on check fraud opportunities, payments modernization can help address the gaps in check security and slow-rising crime.

The demand for broader payments modernization

As shown by the changing checks landscape, payments will continue to modernize quickly and evolve to meet changing customer demands. Financial institutions need to prioritize payments solutions that can quickly adapt to changing customer needs and minimize disruption to business and existing IT infrastructure.

IBM is working with financial institutions to harness the flexibility and security of the cloud to adjust to the changing check market and transform payments to meet customers' needs today and in the future.

·       The IBM Payments Center (IPC) Check Services on IBM Cloud for Financial Services provides a managed, highly secured platform built to scale up and down to accommodate changing check volumes. This solution enables banks to transact with an ecosystem of partners that have the security, resiliency and compliance capabilities in place to handle morphing check processing needs. IBM Cloud for Financial Services is designed to help clients mitigate risk and accelerate cloud adoption for even their most sensitive workloads. 

·       The IBM Financial Transaction Manager (FTM), which forms part of the backbone for the checks-as-a-service solution integrates, orchestrates, and monitors financial transactions, including checks. It delivers consistent processing across multiple payment types, enabling financial institutions to converge their payment operations onto a single platform. FTM includes prebuilt capabilities for immediate payments, SWIFT, ACH, SEPA, check processing, customer onboarding, transaction ingestion and more.

·       With the IBM Payments Center’s managed services, banks can accelerate their payments modernization initiatives, with access to industry expertise in checks processing and business process outsourcing with our Payments-as-a-Service platform. The IBM Payments Center Platform uses the latest technologies  to drive efficiency and value in payments services. Advisors in the IBM Cloud Expert Lab can also help you adopt and leverage IBM Cloud® technologies to modernize check processing services, with an emphasis on achieving business outcomes.

As financial institutions prioritize modernization solutions for payments, they need to minimize impact across their existing IT infrastructure. IBM Payments Center Check Services provide flexible, cloud-based components that can be integrated with the client’s existing operations and infrastructure. Our one-stop, managed solution is designed to provide cost-effective check processing capabilities and is optimized for enterprise core banking workloads with sensitive data.

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