Market Analysis – 14111805 – Checks or check books

Market Analysis Brief: Checks & Check Books (14111805)

1. Executive Summary

The global market for checks and check books is in a state of structural decline, driven by the widespread adoption of digital payment methods. The market is projected to contract at a CAGR of -6.8% over the next five years. While demand persists in specific B2B and government sectors, the primary strategic threat is technology obsolescence. The key opportunity lies not in sourcing the physical product, but in leveraging incumbent supplier relationships to accelerate our own transition to more efficient, secure digital payment ecosystems.

2. Market Size & Growth

The global market for printed checks is mature and contracting. The Total Addressable Market (TAM) is sustained by residual B2B, government, and consumer use in developed economies, but is being rapidly eroded by digital alternatives. The United States remains the largest single market, followed by France and Canada, where check usage has historically been more embedded in the financial system.

Largest Geographic Markets: 1. United States 2. France 3. Canada

3. Key Drivers & Constraints

1. Constraint: Digital Payment Adoption. The primary market constraint is the accelerating shift to electronic payments (ACH, wire, virtual cards, P2P apps) for both B2B and P2C transactions, which offer greater speed, security, and lower processing costs.
2. Constraint: Security & Fraud. Physical checks are highly susceptible to fraud, including forgery, theft, and chemical alteration. The cost and complexity of mitigating these risks further encourages a move to digital.
3. Driver: B2B & Institutional Inertia. A significant portion of B2B payments, especially in industries like construction, real estate, and insurance, still relies on checks for payment due to legacy accounting systems and the perceived value of a physical paper trail.
4. Driver: Demographic Preferences. A declining, but still present, segment of the consumer population prefers checks for bill payment and personal transactions, creating a long-tail demand curve.
5. Cost Input: Paper & Logistics. The cost of specialty paper, security features, and secure logistics are key inputs. Volatility in pulp and freight markets directly impacts supplier margins and, eventually, contract pricing.
6. Regulation: Digital Facilitation. Legislation like the Check 21 Act in the U.S. has standardized the creation and acceptance of digital check images (substitute checks), ironically reducing the need for the physical instrument to travel through the clearing system and hastening its decline.

4. Competitive Landscape

Barriers to entry are high, requiring significant capital for specialized MICR printing equipment, secure facilities (SOC 2 compliance), and established integration with thousands of financial institutions.

⮕ Tier 1 Leaders * Deluxe Corporation: Market leader in North America with deep, long-standing relationships with financial institutions and a strong direct-to-consumer and small business channel. * Vericast (f.k.a. Harland Clarke): A major competitor to Deluxe, offering check printing as part of a broader portfolio of marketing and payment solutions to financial institutions. * Cenveo: A broad-based print and envelope company that maintains a significant presence in the secure documents and check printing space.

⮕ Emerging/Niche Players * Checks Unlimited: Direct-to-consumer online retailer focused on price competition for personal checks. * The TALL Group of Companies (UK): Specialist UK-based provider of secure print and payment solutions for the banking and corporate sectors in the UK and internationally. * Integrated AP Providers (e.g., Bill.com): Fintech platforms that offer check printing/mailing as one of several payment output options within a fully digital accounts payable workflow.

5. Pricing Mechanics

The price of a check book is a build-up of multiple cost layers. The foundation is the cost of specialized, security-grade paper stock. Added to this are costs for security features like watermarks, microprinting, holograms, and chemically reactive stains. The application of Magnetic Ink Character Recognition (MICR) ink for the routing and account numbers is a critical, non-negotiable cost component. Finally, printing, binding, personalization, secure packaging, and tracked shipping contribute to the final unit price.

Pricing is typically quoted on a per-check or per-book basis, with significant volume discounts. The most volatile cost elements are raw materials and logistics, which suppliers may seek to pass through in contract renewals.

• Paper Pulp: Prices for bleached softwood kraft pulp have seen fluctuations of +15% to -20% over 12-month periods, driven by global supply/demand. [Source - Natural Resources Canada, Ongoing]
• Logistics & Freight: LTL and parcel shipping rates have increased by an average of 5-7% annually due to fuel costs, labor shortages, and capacity constraints.
• Specialty Chemicals/Inks: Inputs for security inks and watermarks can experience sharp, short-term volatility based on single-source supplier issues, though they represent a smaller portion of the total cost.

6. Recent Trends & Innovation

• Supplier Diversification into Fintech (2021-Present): Major check printers like Deluxe have aggressively acquired fintech companies to pivot their business model from print manufacturing to offering a suite of digital treasury management and B2B payment solutions.
• Pandemic-Driven Digitalization (Mar 2020 - 2022): The COVID-19 pandemic and the shift to remote work dramatically accelerated the corporate move away from manual, paper-based AP processes, causing a step-function decline in check volumes. [Source - Federal Reserve Payments Study, Dec 2022]
• Enhanced Security Features (Ongoing): In response to rising check fraud, suppliers are innovating with more advanced, layered security features like thermochromic (heat-activated) ink, "void" pantographs, and unique holographic foils to stay ahead of counterfeiters.

7. Supplier Landscape

8. Regional Focus: North Carolina (USA)

North Carolina's demand outlook for checks mirrors the national declining trend. However, as a major financial services hub (Charlotte), the state retains a significant baseline of B2B and institutional payment activity that will slow the absolute decline relative to other regions. Major suppliers like Deluxe and Vericast have significant operational footprints in the Southeast, ensuring robust local and regional production capacity and competitive logistics costs. The state's favorable corporate tax environment and strong labor market make it an efficient location for suppliers' fulfillment and service operations.

9. Risk Outlook

10. Actionable Sourcing Recommendations

1. Consolidate & Pivot. Consolidate all remaining check spend with a single Tier 1 supplier (e.g., Deluxe, Vericast) under a 2-3 year agreement. Use the declining market as leverage to secure a 5-8% price reduction and, more importantly, to pilot their integrated digital payables platform. This de-risks the transition away from paper.

2. Launch a "Retire the Check" Initiative. Partner with AP and Treasury to establish a formal policy prioritizing electronic payments for all new vendors. Launch a campaign to convert the top 50% of existing vendors (by check volume) to ACH within 12 months. Target a 20% reduction in annual check spend and associated processing costs.