It’s always interesting to examine trends taking shape at the intersection of financial services and technology, as this blog does so often. But there’s one issue that’s frequently gets overlooked and yet is still the giant elephant in the room: paper.
Yes, paper. We’re a couple of decades into the era of e-commerce, and for many of us even bills arriving via snail-mail seem like a rarity. We have a staggering array of online tools that enables us to do virtually everything financial, from anywhere at any time. What’s paper got to do with it?
The short answer is: a lot. This is particularly true of checks, as used by millions of consumers and even small and mid-sized businesses. But in many other areas too, it’s an area in which change has been surprisingly slow. On the flip side, doing away with paper will bring enormous benefits, from speedier transactions and greater savings to environmental preservation.
It’s been almost a decade since the Check 21 Act passed in late 2003, allowing financial institutions to create digital versions of original checks. Today, banks deal with each other almost entirely through electronic transfers—once the actual check has been submitted, it disappears from the process.
But tell that to the entities writing the checks in the first place. To be sure, the numbers are dropping, however slowly—there’s close to 2 billion fewer written each successive year. But at this rate, it will take until 2026 for paper checks to be eliminated altogether.
That’s the conclusion in a study published last year by the Federal Reserve Bank of Philadelphia. According to the same report, the benefits are undeniable: getting rid of paper saves the banking industry $1.2 billion a year, while consumers and businesses keep $2 billion in benefits through faster payment processing.
Of course, few trends in technology stay at the same rate—there are frequent spikes and pullbacks, and unexpected accelerations that blow away all estimates. No one expected tablet adoption to grow at such a staggering pace, but it has. It took almost 10 years for smartphones to reach 40 million users (which admittedly meant replacing older models), while that number was crossed only two years after the emergence of the Apple iPad.
Just this week, Juniper Research estimated that tablet buying will lead to 200 million users of “transactional tablet banking services” by 2017. By that time, one in four tablet users will be paying their bills via those devices. There are other signs too—let’s not forget that Amazon used to accept checks, but discontinued the practice in 2008.
There’s now a broad variety of services designed in part to wean users off the habit of writing checks. For example, most banks now offer the ability to capture a check image via smartphone and make an instant deposit. And any number of other providers, from thriving vendors like Square to newer entrants like Zipmark—which styles itself as the digital checkbook—make it easy to avail of the new capabilities.
The changes will have tremendous ramifications: Intuit, which now has close to 30 million customers for its payments services and processes $38 billion a year in payments, estimates that it could increase its payments business by $4 billion by getting QuickBooks software customers, mostly small businesses, to use the payments service.
At this point, the use of paper seems almost a throwback to an earlier time, but the numbers clearly belie the perception. Getting rid of it from the world of finance would likely do a world of good. And given the justified concerns over rainforests and a rapidly declining ecosystem, it would actually do the world good too.