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A Look Back: How The Check Process Has Changed

Look Back On Checks blog image

Credit cards. Online banking. Mobile check deposit. Instantaneous account transfers. Automated bill pay. Venmo. Square. PayPal. Today’s banking landscape relies on technology more than ever before.

Nationwide Travelers
Less than 15 years ago, checks were being transported via planes, trains and cars. It’s hard to believe given how quickly technology has changed our daily habits, but back then, more than 70 airplanes, flying over 200 flight patterns, were delivering funds to local banks every night. Before your landlord was able to deposit your rent check directly into their account using their camera phone, he had to physically bring that check to his local bank. The local bank then encountered a deficit from paying your landlord. And, in order to receive those funds back, the bank had to send the original check to the clearing bank. Once received, the Federal Reserve sent funds back.

Rinse and repeat, over and over again.

Time for Change
In the aftermath of September 11th, flights were grounded, halting payments to local institutions. As a result, thousands of checks, about 200,000 pounds worth, were sitting on floors, waiting to be delivered. Check clearing was delayed for multiple days and the float topped out at $47 billion dollars. What does that mean? $47 billion dollars was appearing in the accounts of both the Federal Reserve and the institutions who were to receive checks. That’s $47 billion dollars of inflation within the banking system.

Fast forward to 2004. The Check Clearing for the 21st Century Act, better known as The Check 21 Act, became a federal law. Developed to create a faster and more efficient process, banks can now capture a picture of the front and back of the check and transmit that information electronically to receive their funds. That means no more checks travelling nationwide! What has this led to? 99.8 percent of checks are processed by digital imaging, saving close to one billion dollars each year in costs associated with physically transporting the original paper checks. Just as technology and automation helped bring efficiency to the banking world back in 2004, today’s payment processes continue to benefit from advancements in technology, like automated accounts payable (AP).

To learn more about alternatives to check payments, view our recent webinar “The Advantages That Electronic Payments Bring To Your Business.”

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