Academic journal article ABA Banking Journal
Corporate Cash Management-The Tipping Point Will Get You
You've heard it a thousand times: checks are going out of style. Yawn. But bankers are likely to find as many problems as blessings when they have to manage their corporate customers' cash in a payments world in which electronics is king. For the foreseeable future, banks will have to support multiple systems for handling paper and cash payments. As the volume of checks goes down, the unit cost of handling them goes up. How, then, can bankers transform their present two-stovepipe systems into an integrated new one that Leverages the inherent advantages of electronic payments?
As bankers mull over their choices, they'd better watch out for the "tipping point," warns Susan Feinberg of TowerGroup. That term, borrowed from the bioscience of epidemiology, is a hot buzzword in marketing these days. It means that the demand for a new something may grow slowly at first, but then at some point suddenly burst uncontrollably into a ... well, an "epidemic." Think color TV and cellphones.
"While we are not prepared to sign a death certificate for the corporate check at any time in the next decade, it is clear that the heyday of the check is long past," Feinberg says.
People and businesses like to write checks. Or at least they used to. The number they wrote kept on climbing for decades until the volume hit its peak in the mid-1990's. In 2003, the volume of electronic payments, mostly by cards and Automated Clearing House transactions, overtook checks. Between 2000 and 2003, the volume of checks feLt by 4.3% while the volume of ACH payments rose by 13.4%, according to the Federal Reserve.
How can banks restructure their corporate cash management services to Leverage the unstoppable trend to electronic payments? First: how do banks and corporations perceive the problem as of now? As Feinberg reports in the TowerGroup study, corporations aren't clamoring for change--yet. She cites a survey of 355 companies by the Association of Financial Professionals (AFP) and Visa USA's cash management survey (405 companies). Half of the respondents in both surveys said it was either "somewhat likely" that they would convert a majority of their B2B payments to electronics within three years (AFP) or that they "planned to decrease reliance on checks" (Visa). …