The Check Is Dead. Long Live The Check.

Credit unions are seeing a generational shift in how money flows in and out of the institution, but it’s a process more than a pitfall.

Top-Level Takeaways

  • Debit card transactions have largely supplanted paper check use.
  • Credit unions adjust while continuing to serve both channels.

Paper checks, like the branch tellers who take them, have long been considered on the endangered species list. In reality, however, checks still garner a lot of use.

A significant portion of our membership and the companies they do business with still use checks, says Chet Kimmell, president and CEO of Neighborhood Credit Union ($630.1M, Dallas, TX). Checks aren’t dead. But, they are on life support.

And despite the fact checks are an outmoded method of transferring funds, Kimmel expects this to be the case for years to come.

Checks Are Checking Out

There’s little doubt that paper check use has diminished sharply. The Federal Reserve once processed checks at 45 centers around the country. That dropped to one in 2010, six years after Check 21 became law and allowed for substitute checks and electronic processing.

According to a payments study the Fed released this summer:

  • In 2015, households wrote 7.1 checks per month, on average. That’s 36.9% of the 19.3 checks per month they wrote in 2000.
  • In 2015, checks accounted for 13.4% of non-cash payments and 15.4% of the value of non-cash payments. In 2000, that was 57.8% and 66.7%, respectively.
  • In 2015, households made 78.6 non-cash payments per month, on average. That’s approximately 94.7% more than the 40.3 in 2000.

Also see: Second phase of ACH same-day push adds debit to the mix.

The drop in paper checks has been part of a digital revolution that coalesced with emerging generations ? and boomers ? who embraced new ways to pay and be paid.


Neighborhood Credit Union
Data as of 06.30.17

HQ: Dallas, TX
ASSETS: $630.1M
MEMBERS: 48,676
12-MO LOAN GROWTH: 14.0%
ROA: 0.98%

There is, however, an observable difference about the people who prefer pen and ledger.

The Generation Gap

Paper checks still represent a muscle memory for legacy generations, says Josh McAfee, vice president of marketing at MAX Credit Union ($1.3B, Montgomery, AL). Many check-writers take pride in their record-keeping diligence and view their payment choice as emblematic of a simpler, more modest era in spending.

It’s reasonable to assume that muscle memory occurs in primarily older members.

Millennials are more apt to choose an electronic payment, says Shari Jones, vice president of check services at State Employees’ Credit Union ($36.9B, Raleigh, NC). The previous generations might opt for paper check payment.


State Employees Credit Union
Data as of 06.30.17

HQ: Raleigh, NC
ASSETS: $36.9B
MEMBERS: 2,251,069
ROA: 0.75%

Although there is a noticeable generation gap, evolving technology is helping older generations step into new payment methods.

Checks are primarily being used by older members, Kimmell says. But a significant portion of our membership uses remote deposit capture to turn a paper check into an electronic transaction.

The younger members at McAfee’s Alabama credit union cite security and convenience as factors in their preference for digital channels. But whereas paper checks are immune, for the most part, to data breaches, they also require tracking transactions on paper.


MAX Credit Union
Data as of 06.30.17

HQ: Montgomery, AL
MEMBERS: 106,766
ROA: 0.69%

Check settlement requires more-active management of one’s account balance, McAfee says. For many of our younger consumers, paper checks present a potential financial fail-point.

National Trends Highlight Local Choices

SECU and its more than 2 million members were part of the Fed study, and Jones says the credit union’s numbers are on par with the national experience. That means members at SECU have also demonstrated a sharp shift to debit.

From 2008 to 2016, ACH volume at the nation’s second-largest credit union grew by 67.5%, and debit card volume jumped 145%. During those same eight years, checking accounts grew by 165% at SECU, meaning checking accounts are growing but check use isn’t. ContentMiddleAd

Checks Vs. Debit At MAX Credit Union: Diverging Use Cases

When McAfee examined transaction data for the 106,000 members at his Alabama credit union, he made an insightful discovery: Members use checks for higher-cost items and debit for daily expenses.

What else did he find?

According to debit and credit transactions from January 2014 through July 2017:

  • Paper check use fell 20.9% in three and a half years, from 11.71% of total transactions to 9.26% in mid-2017.
  • Debit transactions’ share rose from 88.29% to 90.74% at the same time.
  • Checks cleared rose 1.74% during those 43 months to 57.75%.
  • Debit account spending declined 2.28% to 42.25% of total spend.
  • The average monthly paper check spending rose 13.51% during that period, from $1.590.90 to $1,203.12.
  • Average debit transaction spending per month fell 3.10% from $875.92 to $848.81.

This reinforces the idea that checks have become dedicated vouchers for large-ticket purchases while the plastic serves the mundane need, McAfee says. This is insightful for us because checks are fulfilling a role in high-commitment purchases, whereas debit purchases drive steady non-interest income.

The checking account is the primary relationship account, whether paper checks are written or not, says the SECU check services executive. Our members are simply opting for the more convenient payment channels, such as debit cards, ACH, and bill pay.

Kimmell sees that, too. Debit card use at Neighborhood has risen from an average of 11 transactions per month a decade ago to more than 20 today, the Dallas credit union CEO says.

But he also notes there has been a slight increase in the number of checks deposited at Neighborhood’s 11 branches. Right now, Kimmell says, Neighborhood’s 48,676 members are writing approximately 35,000 checks per month and bringing in 30,000 for deposit.

As Neighborhood shows, the adoption of newer delivery channels doesn’t mean checks don’t continue to draw on a credit union’s back-office resources.

We still have to train our employees, monitor fraudulent activities, and pay outside parties to help process transactions, Kimmell says. We spend less time on paper checks than in the past, but it’s still a significant process.

Jones says paper volume at SECU began declining as millennials grew up, and the North Carolina credit union began replacing antiquated check processing equipment with Check 21-compliant server/client solutions, such as branch item capture and virtual sorters. That freed up SECU to reassign staff to other areas in the back office.

If and when paper checks go away completely is unknown, of course, and not up to any single entity.

We can’t say we’ll be done with checks by a certain date, Kimmell says. That’s a regulatory and industrywide decision to be made at some point. In the meantime, we’ll focus on being as efficient as possible with this process.

February 15, 2018

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