Pity Deluxe Corp. The St. Paul (Minn.) company last year announced the first layoffs in its 78-year history, said it would close 16 of its 60-plus check-printing plants, and took a $49 million charge to finance the changes. A spokesman says the company is diversifying into new businesses such as greeting cards and business-form manufacturing. But even so, Wall Street analysts expect future net income to do little more than rebound to 1992 levels through 1995.
Unfortunately for Deluxe and other check printers, though, a fundamental change in consumer behavior is limiting the prospects for future growth in their core businesses. Consumers are increasingly leaving their checkbooks in their desks and conducting their business with plastic cards. Check and cash usage is growing more slowly than consumer spending--and at a mere fraction of the growth rate for credit, debit, and other plastic cards such as prepaid cards.
Consumers still use checks and cash for most transactions--67% of all payments outside the home, according to First Manhattan Consulting Group Inc. But with plastic accepted in more places and offering side benefits such as frequent-flier miles and savings on new cars, card use is booming and could account for nearly half of all transactions by the year 2000. Both banks and consumers have incentives to go plastic: Techno-banking gives consumers greater flexibility and pares banks' costs vs. checks, sometimes by more than 50%.
New banking equipment is hitting the market at a rapid rate. Banking via television could soon be widely available. Philadelphia-based Meridian Bank
is teaming up with Reston, Va.'s Eon Inc. to offer interactive television that could soon include a few basic banking services. Time Warner Cable is preparing to launch a pilot interactive-TV system this spring in Orlando that could eventually give consumers access to their banks--although initially, the system probably will offer only entertainment services.
POCKET PC. Some bankers also talk about "electronic checkbooks," plastic cards holding microchips that can handle all manner of transactions and then read that information into a personal computer or interactive TV. "Ultimately, a consumer would have a single card that supports all the kinds of purchasing they do today," says Ronald Braco, senior vice-president for electronic banking at Chemical Bank. "You would have the equivalent of a PC in your pocket." Alex W. "Pete" Hart, the outgoing president and chief executive officer of MasterCard International Inc., says he expects to see smart cards in wide use within the decade. Banc One Corp., in fact, already offers a microchip card that lets consumers earn points they can use to save money on selected products.
Even without these advances, plastic is pushing checks and cash toward the sidelines. Some of the most visible changes involve debit cards, which allow customers to make purchases with funds deducted directly from their checking accounts. Merchants in particular now have more reasons than ever to prefer debit cards over checks or even credit cards. Debit-card fees and costs for merchants are often lower than those associated with credit cards. And merchants also don't have to worry about bouncing checks: Many debit-card transactions can be instantly checked against a customer's account balance.
Consumers also have good reasons to use a debit card. Merchants sometimes charge fees when consumers use debit cards, but even with those fees, debit cards are more attractive than they ever were. For one thing, it's faster than writing a check and having to show several forms of ID. And low interest rates have wiped out the appeal of checking-account float: With many checking accounts paying interest of 2% or less, there's little reason for consumers to hold out for the three days of float they get when they write checks.
HOT DOGS. Banks also like debit cards. They are already benefiting from the lower processing costs that debit cards entail. Processing costs for automated transactions are a fraction of those for checks, according to Gemini Consulting: A check costs 68 , on average, to process, but an ATM transaction costs just 27 , on average, and a debit-card transaction in a store costs just 14 .
The usefulness of credit cards is also expanding, especially in transactions that were once the exclusive domain of cash. In the past, only merchants selling big-ticket items would take credit cards. Now, it's possible to use a Visa card to buy a hot dog at a football game or a picture frame at a crafts fair. More and more grocery stores take credit cards. And lots of small vendors have radio-authorization card-processing machines that let them get clearance for a transaction even if they don't have a telephone at the checkout counter. Says Jennifer Brandenburg, a senior business analyst at supermarket chain Lucky Stores Inc.: "As a retailer, you almost need [to accept credit and debit cards] to be competitive."
The most profound revolution in plastic usage is likely to be engineered by prepaid cards. They are just beginning to catch on, but credit-card-industry executives have big plans for them. The Washington subway system has operated on prepaid fare cards for years, and New York City's subway is starting to adopt them. Banks all over the country are experimenting with the cards: At Chase Manhattan Bank's Metrotech Center in Brooklyn, staffers use prepaid cards to buy lunch in the cafeteria and in vending machines. Cashiers won't take cash. Chemical Bank has a similar system in place for some of its New York City employee cafeterias.
Even high-tech bill paying is evolving. Home banking via computer, of course, has been around for some time. But much more accessible automated-check payment can now be done by telephone. Telephones with attached screens, some retailing for under $100, enable customers to send money electronically from their personal accounts to their local utility and telephone company. ATM CardPay Corp. in Wilmington, Del., has developed a system designed to let consumers pay their bills and even receive electronic messages through ATMs.
Some home-banking programs may be offered nationwide. MasterCard is offering a home-banking service known as MasterBanking and is busily enlisting banks. Similarly, Visa International has cut a deal with Intuit Inc., the Menlo Park (Calif.)-based maker of Quicken financial-management software, that will let consumers use Intuit software to see their bank statements electronically, pay bills, and integrate their bank-statement information into their overall financial-planning records. Interactive-TV banking programs could eventually be national as well.
Consumers could still take longer than bankers expect to get comfortable with techno-banking. Cash offers anonymity no plastic card can match. And if electronic banking really takes over, it raises new security and privacy concerns for consumers. "Right now, there are no restrictions on how credit-card companies can use the information they get," says Gerri Detweiler, executive director of Bankcard Holders of America. And the more business that consumers can conduct on plastic cards, the more they are at risk if thieves are able to use those cards.
Of course, checks will still be common in the coming century. However, if current trends continue, a growing number of late bill-payers will need to find a better excuse than "the check is in the mail."Kelley Holland in New York, with Greg Burns in Chicago