Celent expects paper cheque processing to nearly disappear in the US by the end of the decade. Image exchange of transit checks will grow from more than 14 percent in 2005 to 61 percent by 2007, it predicts. By 2010, more than 93 percent of transit items will be image-exchanged.
In a new report, The Future of Check Processing in the US, Celent examines the transformation affecting the American cheque processing industry. The report scrutinizes the path of adoption of image processing, the fate of check conversion to ACH (often seen as a rival alternative to image exchange), and the prospects of technology vendors, third-party processors, clearing houses, and image exchanges.
Among the findings, Celent expects the total volume of cheques presented to amount to 38 billion this year and to gradually slide down to 24 billion by 2010. Celent says the decline in cheques processed will accelerate over the next two years as cheque conversion takes a bite out of volume, but conversion and truncation will not share the check processing roost forever.
By 2006, Celent expects that cheque clearing fees will either level with ACH clearing fees or come close enough to justify switching gears from ARC to check image exchange. ARC volumes are expected to peak by 2007 at 3.5 billion and then fall to 2.6 billion by 2008. By 2010, ARC will be a marginal item in the ACH network. “Given the sheer volume of cheques and the number of financial institutions involved in the switch to image exchange, the transition period is expected to last at least six years,” comments Alenka Grealish, co-author of the report and manager of the banking group at Celent.
On the competition front, Celent anticipates further consolidation among software, hardware, and processing outsourcing providers. Dwindling cheque volumes around the world, and in recent years the US, have already adversely impacted the revenues of cheque processing technology vendors. Having plummeted from US$2.3 billion in 2001 to US$1.6 billion in 2004, total industry revenues should continue to decline to US$1.2 billion by 2007. “Consolidation will benefit a small group of software vendors and top-tier third-party outsourcing providers,” says Gwenn Bezard, senior analyst and report coauthor. “Top performers will likely grow their revenues by 5-10 percent annually in the next few years.”