The Cost of Paper Checks
Last week I read this PYMNTS article about the increased volume of ACH payments for B2B transactions. The article explains why businesses use ACH and the benefits of it compared to alternatives like paper checks:
“ACH payments also use fewer resources, with no need for paper, ink, labor or fuel to cut, transport and deposit checks…”
We all know paper checks still make up a shockingly large percentage of B2B payments — somewhere between 25-50% — and that they aren’t going anywhere soon because businesses are comfortable with them and banks get paid for them. But, this is wasteful spend and waste like this opens the door for innovation and faster, cheaper payment methods.
Despite constant reminders of waste and lackluster technology adoption within payments, I was particularly amused by this article’s comparison of ACH payments and paper checks — effectively: ACH is awesome and increasing in volume because they don’t require the materials and manual labor that paper checks do.
It’s frankly incredible that we’re still debating the merits of paper checks. This got me thinking more about checks and waste in the payment system, and in a conversation about this with a friend and fintech investor, she posed a question: “How much money do you think is spent on paper checks for B2B payments in the US per year?”
What a fun exercise to further my amusement! So I did the math:
There are roughly $25T1 in B2B payments per year in the U.S and roughly 25%2, or $6.25T worth, of these are paid via paper checks (conservative estimate). The average size of paper check payment is ~$2,6003, meaning there are ~2.4B paper checks for B2B payments each year.
To calculate the cost of 2.4B paper checks, I focused on materials and service fees, excluding employee/labor costs of processing paper checks. According to Bill.com’s estimate, the average paper check costs $1.56 (paper, stamps, ink, and bank processing fees)4.
So, 2.4B checks at $1.56 per unit = ~$3.76B spent per year on materials and service fees!!!
This is an astounding, confounding, and frankly amusing stat. Of course this is a bit of hyperbole, but the theme of the exercise is what matters: the way things have been done forever hasn’t changed all that much and continues to present meaningful opportunities for fintech solutions to improve the way we interact with money.
We are still in the first inning of financial technology. Payments are a foundational component of every business yet nearly $4B is still spent every year to use paper checks. We’ve got a long way to go. This alone should make every fintech investor excited!
And to be clear this is not a knock on PYMNTS.com — I’m probably their most loyal reader. Seriously, though, I spend more time on this site than on Twitter. Us fintech investors know how to have a good time.
Thanks to Caroline Broder for the inspiration for this post and to Dan Eidell and Matthew Miller for edits.
https://www.mastercard.us/content/dam/mccom/en-us/business-payments/documents/b2b_payments_mir_v_05-31-18.pdf
https://www.pymnts.com/news/b2b-payments/2022/25-percent-b2b-payments-are-made-by-check/
https://www.pymnts.com/news/b2b-payments/2021/deep-dive-why-paper-checks-still-factor-into-b2b-firms-payment-optimization-plans/
https://www.bill.com/sites/default/files/how%20much%20does%20it%20really%20cost%20to%20pay%20with%20paper%20checks.pdf