Expect Checks to Stick Around
Checks won't be bounced out of the forms business anytime soon.
Talk to anyone in the forms industry about the fate of the check business and two main issues will undoubtedly dominate the conversation: online banking and Check 21. Ever since the dawn of online transactions, the demand for personal check orders has been declining. And, ever since the passage of last fall's Check 21 regulations, there has been some conflict as to whether a manufacturer's security features pass muster. Despite these looming issues, there is a silver lining.
"The real story about checks is that the paper document is going to be around for a long time because there is always a threat of identity theft and fraud with online business," said Karen Gregg, vice president of sales and marketing for Independent Ink, Gardena, Calif. "People still want an audit trail. Checks are secure and simple, and a lot of people and businesses like that."
Dick Gray, president of Laguna Hills, California-based Xtension Technologies agreed. "All of the reports that I've seen indicate that business check printing will continue at a slight increase through 2012," he said. "While some businesses are doing online banking, many have had problems with it because no one has been able to secure the process."
Checks, on the other hand, do provide security. The trick to success, however, is to better understand Check 21, and to stand up to banking institutions requiring that checks meet specifications not actually mandated by the newly passed law, added Gray.
Know the Law
According to Gray, banks spend approximately $45 million a year to process checks, which is why they lobbied for Check 21. The new act allows banks to transmit electronic copies of checks and destroy the originals instead of shipping them. While the legislation went into effect last fall, many banks will need approximately five years to fully implement the new system.
Gray advised distributors to know what the boundaries of Check 21 are, and to be prepared to question an end-user's bank about what they want or expect. "The new law is like a jigsaw puzzle that is being interpreted differently by different institutions. For instance, some banks are saying checks can only be printed with certain pastel colors, or they are prohibiting void pantographs and logos, but these are not required by Check 21," he said. "Distributors have to know when to challenge the banks."
Just like Xtension Technologies, Brooklyn Park, Minnesota-based Northstar, a division of Ennis, boasts check documents that are entirely within Check 21 compliance, and it is taking a proactive stance on the issue.
"We look at the new legislation as a positive thing," said Mike O'Neil, vice president of national accounts. "We've been in compliance for more than five years. We've had to upgrade software and hardware to generate different reports to indicate features, such as font size, on our checks. But, other than that, we haven't had to change anything."
Northstar is one of the nation's leading providers of negotiable and non-negotiable secure documents, internal bank forms and secure distribution services.
Features 101
So, what types of compliance features should distributors consider selling to their customers to protect them against the estimated $14 billion lost to check fraud per year? Gray said there are numerous measures available from security papers, to overt and covert features such as microprinting and watermarks. "Microprinting is the technique used in the signature line or check border that consists of a very small font. When magnified, words are revealed in the border or signature line, but when copied, those areas become solid lines," said Gray. "Watermarks, on the other hand, simply cannot be copied or scanned."
Another method includes void pantographs. Bill Reid, director of marketing for Printegra, Peachtree City, Ga., said pantographs are one of his company's largest sellers. "We offer features such as fluorescent fibers that will react to bleach, as well as true watermarks built into the paper at the mill," said Reid. "We also have the ability to provide bleed-through numbering."
At Northstar, thermochromic printing and checks with various security holograms are in high demand. Thermochromic printing involves printing checks with heat-sensitive ink that changes colors when copied, and returns to normal when cooled.
"Most people want something that is visible, so we provide features such as the hologram," said O'Neil. "Holograms do an excellent job of beating desktop copiers that try to recreate the check."
Gray added that some of the most effective check background features include fluorescent inks, endorsement back printing, padlock icons printed on the face of the check, the MP symbol indicating where microprinting is present, and bleed-through numbering on pre-printed checks that make a mirror image on the backside of the check paper.
Other security measures to promote to customers include variable imaging, MICR and modulus numbering, bar coding, security designs, secure distribution, and secure facilities and operations.
What Sells
Once armed with knowledge about various features, what types of checks can distributors sell, and where can they sell them? Gregg said Independent Ink's compact and pocket checks are favorites among small businesses, such as contracting companies that carry payroll checks around in their trucks from site to site, and local regional banks.
"Banks seem to be the No. 1 purchaser of our checks," she said. "I've found that distributors are most successful when they target the smaller regional banks where they can develop a strong relationship with the buyer."
Bill Reid said that unit checks, pressure-seal checks and laser cut-sheet checks are popular. "In fact, some distributors sell various software-compatible checks for programs such as Quicken and Peachtree. That's what we call a horizontal package. Small to mid-size companies use them, and they are very good sellers."
In addition, Reid reported that vertical markets such as financial, hospitality, medical and manufacturing are very strong for Printegra. "Basically, we set up specific templates for whatever software is being used by the end-user," he said. "The distributor just reports to us what the end-user's format, design and ink colors are."
At Northstar, the focus is on the financial industry, as well as state and federal governments. "Our plant is the largest producer of money orders in the United States, which is another option for distributors to think about," said Jim Staricha, national sales manager. "Distributors just need to keep in mind that checks are used all over the United States. There are millions of them. The last report I saw said that there were more orders for checks than wire transfers, indicating that there will be plenty of business for checks for years to come."
Staricha cited the Federal Reserve Payment Study of 2004, reporting that of all payment transactions in the U.S., checks comprise 45 percent of them, while credit cards came in at 23 percent, and offline, online debit transactions at 20 percent. "Checks remain the payment of choice," he said.
Gray agreed, noting that the preference for check transactions exists among businesses more than the individual banker. As for the markets Xtension Technologies sells into, they include entertainment, insurance, medical, manufacturing, trade associations and financial. "We really don't have one market that dominates over another," said Gray. "Distributors can find success anywhere people are printing and writing out checks."
In terms of cost, all interviewed said the increase in price to include security features is dramatically less than the loss incurred due to fraud should a customer opt out of good security. "The whole issue is about who will be responsible for funds lost should fraud happen to occur," said O'Neil. "With that being said, end-users in the business world prefer to transact with checks as opposed to online banking, and they will opt for high-end security measures to ensure that they don't loose out on millions of dollars. The trade-off is well worth it.
By Sharon R. Cole
- Places:
- Laguna Hills, California