B2B + Electronic Payments = Trust

Electronic payments have never been more popular or more trusted. American consumers have become accustomed to making automatic monthly payments for their streaming services, sending money to their friends through apps, and even buying clothes from strangers in other countries on the internet.

Paper checks reigned as the original and most dominant non-cash payment instrument for almost 100 years, until credit cards were popularized in the 1950s. Now, advances in electronic payment technology and security have rendered paper checks almost irrelevant. While electronic payments have become the default in C2B (customer to business) payments, 42 percent of B2B (business to business) transactions are still conducted using paper checks. Why are so many businesses hanging on to old-fashioned paper checks in the face of less expensive, more efficient, and safer options?

In their responses to the Association for Finance Professionals’ 2015 Payments Cost Benchmarking Survey, over two-thirds of finance professionals said that they would transition from paper checks to electronic payments if doing so came with a cost-benefit. Alas, there is a clear cost-benefit to moving away from paper checks: Bank of America estimates that every paper check that a business processes costs the business somewhere between $4 and $20. MineralTree Inc. estimates that paper checks together cost American businesses between $26 billion and $54 billion in 2010.

These figures might sound absurdly high to a business that is used to making payments with paper checks. But consider all of the hidden costs that go into making a B2B transaction with a paper check.

In order to make a B2B payment with a paper check, the sending business must first spend money on printers, ink cartridges, envelopes, and postage. Their employees must print the checks, stuff and address envelopes, and mail them. The receiving business’ employees then must take the time to open envelopes, deposit them at the bank, and then follow up on unpaid invoices or bounced checks. Given the volume of checks that some businesses process, these costs can together have a very real effect on a business’ bottom line.

And then there are the potential costs of check fraud. Think about all of those people who come into contact with a check on its way from one business to another: the sending business’ employees, postal workers, the receiving business’ employees, and bank employees. It is all too easy for a paper check to end up in untrustworthy hands. With just a glance at the check at the check in their hands, anyone could see the business’ name, account number, and routing number; all the information that a fraudster needs to access a business’ checking account and use their funds as they please.

Determining the exact number of cases of check fraud in a given year is extremely difficult, as check fraud can take so many different forms. There is forgery (signing a check without authorization), theft (stealing checks), paper hanging (writing checks on closed accounts), and counterfeiting (illegally printing checks with information from the victim’s account). And let’s not forget forget washing (chemically removing information from a check) or paper kiting (writing a check for nonexistent funds, then writing another check with nonexistent funds from a different account to cover the first check).

The exact number of cases of check fraud (and the exact amount of money lost due to check fraud) will remain incalculable, but the National Consumers League believes check fraud to be the number one most common type of scam in America. And with recent advances in mobile banking technology, check fraud is unfortunately still becoming more and more commonplace.

While the previously mentioned forms of check fraud all require obtaining a physical check, mobile banking apps have now enabled fraudsters to commit crimes without a physical check in sight. Now, all a fraudster needs is a picture of a check. From there, they can electronically edit the payee name and amount. Then, they can deposit this doctored check directly into their own account through their banking app.

Furthermore, if a fraudster does acquire a physical copy of someone else’s check, mobile deposits make it even easier to get away with doctoring physical checks. While banking apps do have security measures in place to try to detect edited checks, apps will never be as effective at detecting fraud as human bank tellers. A teller would easily notice when the original payee’s name has been erased with white-out. An app would probably not catch the edit.

It is important to note that forms of mobile check deposit fraud do not just affect those who use mobile banking apps. Rather, everyone who writes checks is at risk. And as mobile deposits grow more common, the problem will only get worse. Mobile deposits are convenient, but they combine brand new technology with old-fashioned paper checks, a piece of technology developed in the 19th century. The safety features that are meant to safeguard paper checks against fraud were not created with the digital era in mind.

All in all, paper checks are not a match with our modern world. Businesses may find paper checks to be comfortable and familiar, but they are rife with hidden costs and security risks. On the other hand, advances in electronic payment technology have enabled all transactions to take place quickly and securely. It is time for all businesses to wake up and embrace electronic payment.