We’re excited that Bookly has given us the opportunity to share some perspectives on the payments landscape, and to introduce Digital Checks to you all. We are working with Bookly to integrate our Digital Checks directly into Bookly’s platform to make it even easier for you to send and receive payments.
Getting paid is critically important, of course: “If you think nobody cares whether you're alive, try missing a couple of payments.” And finding the right payment methods for your business has a considerable impact on customer satisfaction, incremental revenues, operating cost, and the productivity of your staff.
For example, one of the most costly payment methods are paper checks. A March 2014 article in the Wall Street Journal cited a Bank of America estimate that a single business check can cost anywhere from $4 to $20 once the time and costs of writing, mailing, collecting and reconciling the check are taken into account.
Other estimates put the cost at $10 to $30. Paper checks cost American businesses between $26 billion and $54 billion in 2010. An enormous waste of resources!
And the selection of payment methods often needs to be tailored to the specific use cases within your business and to the diverse preferences of your customers and clients. For example, credit cards might work well for in-store purchases, but not so well for bill and rent payments.
And your customers probably come from many walks of life, including the highly sought after digital-only Millennials. One size rarely fits all!
The first paper check was introduced over 250 years ago (!), credit cards around 65 years ago, and nothing much changed until very recently with the introduction of the first generation of electronic payment methods such as PayPal in the late 90s.
Today we are witnessing a massive society-wide push to ‘go digital’, encouraged and sometimes enforced by government institutions and supported by a broad range of commercial and industrial associations across practically all industries.
And spearheading, no demanding, this digital push is the Millennial generation — those born between 1981 and 2005. This is the largest generation in history with around 80 million members, bigger than the Baby Boomers, and also the first completely digital generation, living almost entirely on their smartphones.
Millennials will soon have around 50% of all U.S. income, and most of them avoid traditional payment methods and in-person banking. They are eager for new payment methods. More than a fifth of all Millennials have never written a physical check to pay a bill. 63% of adult Millennials don't even have a credit card (!) - they consider them “old school” and “not secure”, and find plastic cards “annoying”.
In survey after survey, Millennials state a strong preference for simplicity and convenience, especially when it comes to transactional activities such as paying for goods or services or completing paperwork. Millennials really don’t like ‘friction’. Convenience is king.
Furthermore, Millennials are not nearly as concerned about security as older generations are. For example, they are used to sharing their Facebook or Google or Instagram log-in credentials across multiple websites, they store banking credentials on their smartphones, and give third parties access to their financial information in return for a more convenient user experience.
Neither paper checks nor credit cards nor first generation electronic payment methods such as PayPal meet Millennials’ needs, but this generation is key for your future growth.
So, for example, if you run a service business such as a fitness studio or manage properties and collect rent or offer an online rebates and rewards platform you need to make sure you have a sufficiently complementary menu of payment options, including one that caters to these Millennials.
We’ve never had this much payments innovation, including the notorious Bitcoin. But with innovation comes complexity and a willingness to replace established ways of doing things for longer-term gain.
In this blog post we’ll try to help you with this complexity and also introduce hyper-modern Digital Checks as a possible solution for your needs. Digital Checks solve the decades-old problem of cumbersome and costly paper checks, of course, but also offer a compelling simpler and most modern alternative to older electronic payment methods such as PayPal.
Delivered instantly and auto-deposited, Digital Checks offer a seamless end-to-end digital experience for sending and receiving payments between bank accounts. The user experience is truly modern and simple. In fact, we don’t know how to make it any simpler!
Let’s take a look at some of the factors that we should keep in mind when evaluating and selecting payment methods:
This is an important factor, especially for volume businesses. Expensive payment methods include credit cards and PayPal with their high transaction fee percentages. Paper checks are also very expensive as the above data from the Wall Street Journal shows.
The simpler the payment method, the more likely it is that your customers and vendors adopt a payment method and complete transactions. And the more efficient your payments handling operations are likely to be. And, not to belabor the point, Millennials demand simplicity.
User expectations have evolved considerably these last ten years with the emergence of Web 2.0 - the next generation of Internet platforms - and the introduction of smartphones and apps that run on them. This is a cross-generational shift, not just Millennials. Old-school payment methods and electronic payment methods invented in the late 90s such as PayPal haven’t kept up with evolving expectations.
Ease of Integration
As a merchant you want to make sure a payment method is easy to integrate with. You don’t want to waste scarce resources on complicated integration work. So make sure the payment method uses best practices for its API technology. Digital Checks use the latest in RESTful API technology, for example, so it’s super simple to add them to your website. Of course, the easiest and fastest way to pay your vendors is to simply start using our Digital Checks through your accounting platform such as Bookly.
Access To Funds
This covers both processing speed and the method by which you can access your money. Paper checks are clearly the slowest - mailing takes a couple of days and then depositing takes a few days, assuming you deposit the check when you receive it. Recipients often delay depositing. So it can easily take 7 to 10 business days for the funds to arrive in your bank account. And first generation electronic payment methods such as PayPal claim instant funds deposit, but that’s just in terms of ‘PayPal currency’ - if you want the dollars in your bank account you have to request that transfer as a separate step and this takes 5 to 7 days.
Flexibility for Different Use Cases
In some cases one or two traditional payment methods is all that’s needed and there’s little reason to innovate, but in many cases a business will have distinct use cases and a more diverse customer base that are best served with tailored payment methods. Some payment methods are more flexible in the sense that they can accommodate a broader range of use cases.
The below table rates the four representative payment methods on each of the above factors. Doing a more extensive analysis is beyond the scope of this article, so the main purpose of the below comparison is to give you a way of thinking about payment methods that you can apply yourself more broadly to other payment methods and your specific situation.
We chose to include paper checks because they represent a centuries old method - still widely used because of ingrained habits and established processes, but a terribly costly, cumbersome, and rigid way to transact.
Credit cards are a good representation for ‘cards’ more generally - credit cards, debit cards, gift cards, prepaid cards. Costly and outdated, but still widely used.
PayPal is the poster child for the first generation of electronic payment methods (late 90s) and Digital Checks represent the most modern form of payment methods. Let’s take a closer look at Digital Checks.
Brief Overview of Digital Checks
Digital Checks deliver a seamless modern end-to-end digital experience for both sending and receiving payments. They are delivered instantly by email and are automatically deposited - bank account to bank account - within 3 business days.
To send a Digital Check all you need is the recipient's email and name. Once you’ve sent a check’ from within your merchant portal or through direct API integration or through the add-ons within accounting packages such as QuickBooks and Accounting Seed, your customer or vendor will receive an email with the Digital Check and an estimated deposit date as shown in this health insurance example:
If this is the recipient's first Digital Check then the email will ask them to verify their identity online. This process takes about 60 seconds if they chose 'instant verification' using their bank credentials and 24 hours if they chose 'manual verification' where we send two micro-deposits to the recipient's bank account.
Please note that this verification step is only for the first Digital Check. ALL future Digital Checks are automatically deposited!
And to keep it as simple as possible, recipients don't even need to sign up for a Checkbook account to receive your payment or to send payments. They only need to complete the one-time verification step.
The first-time recipient also has the option to print the Digital Check and then use their bank's smartphone app to deposit it. However, in this case the recipient won't have future Digital Checks automatically deposited into their bank account.
Keep in mind that Digital Checks are different from traditional eChecks. For example, Digital Checks have a much simpler and faster on-boarding process and a modern user experience for both sender and receiver. In addition, eChecks can’t be printed to deposit with your smartphone app.
Our pricing is real simple: we charge $1 per transaction irrespective of transaction value, and it’s always the originator of the payment or the invoice who pays this fee. And, to be clear, there are no other fees. We will leave you with this:
“Why did Bank Of America want to return all the government bailout money ASAP? Because they were upset at all the hidden fees!” (Checkbook doesn’t have any hidden fees!)
It is important to use the payment methods best suited for your specific use cases and we strongly suggest you offer your customers and clients a choice. And take the Millennials seriously. One size does not fit all!
Clearly, the use of payment methods doesn’t change overnight. And for many folks even traditional methods such as paper checks will do just fine (at least in some situations). Adoption of the latest digital payment methods such as Digital Checks will differ by industry, geography, demography, and specific use cases, but there is little doubt that the future will be seamlessly digital end-to-end and the user experience will be as simple and frictionless as possible.
By way of background, we are in the process of a digital checks integration for the Bookly platform to make it even easier for you to send and receive Digital Checks directly from within your Bookly account. Stay tuned!
James Gowers is Head of Business Development & Sales at Checkbook. The company was founded in 2013 by payments industry experts, including the former Chief Network & Security Architect at Visa. Investors include DFJ, Tim Draper, and other blue-chip venture capitalists. The company is located in Silicon Valley, CA.