The Paper Check is on its Last Leg as the Electronic Check Takes Over!
You can pretty much say that the paper check’s days were numbered since October 28th 2003. On that date, the Check 21 Act was passed and it came into effect a year later in 2004. Before that, paper checks were collected from different banks in trucks and taken to central processing centers. There they got sorted, and then put on planes and flown all over the US to their final destinations. That was the process at that time and about $6 billion worth of paper checks were flown daily all over the US. As a result of the FAA grounding many flights after the 9/11 terrorist attacks, that amount grew to $47 billion which in turn resulted in rushing of the Check 21 Act to be finalized. You can read more about the Check 21 Act on the Federal Reserve FAQ site.
The Check 21 Act allowed banks to take electronic images of checks and use them for clearing. They were all electronically transferred between banks and cleared. It is estimated that using electronic checks saves the banking system about $1.2 billion a year. Consumers and businesses get faster payment processing. The average consumer is completely unaware of this process as they still write paper checks and mail them in. Their banks image them and send them forward. But, the amount of paper checks has been slowly falling. Only 28 billion checks were written in 2009 and continues to drop by about 1.8 billion a year according to a report by the Philadelphia Fed. They believe that by 2026, no one will be writing paper checks anymore.
Related: Ditch Paper Checks and Move to eChecks to Save BIG on Transaction Costs.
Electronic Checks FTW (For The Win)
The Check 21 Act has been a tremendous success. Almost all payments are now settled by electronic images of paper checks with very minimal paper checks flying around. It has significantly reduced bank costs. Consumers now have the option of checking their paper check images from within their online bank accounts anytime, anywhere and forever too. They no longer need to keep stacks of checks that were returned to them by their banks. It is all a lot more secure too.
Related:Â Merchants Can Reduce Payment Processing Costs by Using eChecks (ACH)
Same Day ACH Payments Rolling Out in September 2016
Currently, ACH (Automated Clearing House) payments are settled on the next business day. A rule change from NACHA (The Electronic Payments Association) has enabled ACH Originators to send same day ACH transactions to accounts at any Receiving Depository Financial Institution (RDFI). It will build upon the existing, next day ACH Network platform and establish a new option for same-day clearing and settlement via ACH.
Credit Unions and smaller banks may face initial problems as they may not be equipped with the technical capacity for faster payment processing, but are expected to catch up as they see cost savings from accepting it 100%.
There are many scenarios where businesses and consumers could benefit from same day ACH processing. To find out more about same day ACH, read my earlier post Same Day ACH Rolling Out in Phases Starting 2016.
Contact Us for more information on eChecks and ACH Transactions. Or take us up on our FREE Merchant Account Analysis offer. We’ll analyze your merchant account rates and let you know how to Save! If you are ready, you may be able to Switch and Save!