Check Payments: A Dying but Meaningful Market

January 19th, 2017

chequesBefore the 21st century, collecting bad checks was one of the largest sources of new business for debt collection agencies. Clients included large retail operations, like Walmart and Sears, grocery stores, merchants, and local storefronts. It was not unusual for a small or midsize collection agency to specialize in collecting bad checks within the state its agency was located; even most of the largest agencies in the country also collected bad checks. Large check verification operations, like Telecheck, emerged to help merchants determine from which consumers to accept check payments and which to reject. Debt buyers also focused on this asset class, purchasing bad checks straight from credit grantors and brokers for pennies on the dollar. Innovations in fintech are continually changing consumers’ transaction modes through the use of advanced technologies like mobile payment systems.

Checks are becoming increasing rarer as a means of noncash payments, as shown in the Check Payments Trends graph below. According to the Federal Reserve’s ongoing Payment Research Study, check payments were by far the most common type of noncash payment, amounting to over 40 billion checks used in 2000 (compared to about 15 billion credit cards used and less than 10 billion debit cards used).1 Check payment popularity has since dropped considerably, to just over 17 billion used in 2015, representing a nearly six percent annual decline. Likewise, the number of ARM companies collecting bad checks has also dropped significantly. However, despite check payments becoming scarcer, they aren’t necessarily going extinct.

number of checks

Similar to the above graph’s depiction of the number of check payments’ declining trend, the Total Checks’ Value graph below also displays a decreasing trend over the 16-year period. That said, the total check’s value trend declined much more conservatively than the number of check payments, and even grew in the years preceding the Great Recession. Before the Recession, total value was estimated to grow minimally each year, and since the end of the Recession, it’s slowly leveled out. During the three-year period from 2007-2009, however, total value dropped by an estimated 8.75 percent annually. This probably reflects that consumers had less spending money and were more averse to large purchases. Overall, total value dropped about 33 percent over the observed period, compared to a nearly 60 percent decline in the sheer number of check payments. This relationship leads to an interesting revelation about the economy and consumers’ spending propensities.

Total Checks

After examining the previous two graphs, we see the true, underlying trend regarding check payments: the average check value is actually growing! This assertion is shown in the Average Check Amount Growth graph below, depicting that aside from the Great Recession years, the average check value has risen. It grew from just under $1,000 in 2000 to nearly $1,600 per check in 2015 – representing compounded annual growth of over three percent over the observed period. This greatly outpaces inflation growth, which grew at an annual rate of about two percent since 2000, meaning consumers’ purchases funded by checks are even more expensive than the dollar value initially suggests.

average check

After considering the takeaways from the three previous graphs, we can infer that consumers are reserving checks only for worthwhile, expensive payments and using other means of payment (e.g., cash and debit or credit cards) to fund smaller, every day purchases. Consumers’ choices to exclusively utilize checks for funding larger, specific transactions suggest that they are less likely to be a “bad check”. This suggests that there’ll be fewer ARM-related opportunities for debt collectors and buyers to work with bad checks. However, if just .01 percent of the outstanding $25 trillion of check payments circulating in the economy go bad, then there’s still about $2.5 billion remaining for collection and management. Nonetheless, ARM industry participants should be cognizant of this drastically declining trend and begin – if they haven’t already – focusing more on credit-related debts.


[1] https://www.federalreserve.gov/newsevents/press/other/2016-payments-study-20161222.pdf

One Response

  1. Joel Galante says:

    For several years in the early 2000’s, I worked in business development for one of the largest check buyers / collectors in the U.S.

    This was always a profitable venture for us, and I continue to seek-out any remaining check collection opportunities in the ARM marketplace.

    Ah, the good old days!

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