Businesses are still paying bills with checks — often enough to drive a 6.9% year-over-year increase in revenue in the checks segment at Deluxe, the company reported Thursday (May 5) during its quarterly earnings call.
The growth was driven by the company winning new business, by price increases that offset inflationary pressures and by sales of business checks growing and holding up well compared to personal checks, Deluxe executives said.
“Our very profitable, cash-generating check business also had another strong quarter, growing 6.9% year-over-year, which is significantly better than long-term industry trends,” president and CEO Barry McCarthy said during the call.
Expecting Low Single-Digit Declines in Revenue
At the same time, the checks segments’ adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell down 1% year over year. Executives said this was driven by the addition of lower-margin and inflationary pressures.
While the competitive wins, business check performance and pricing offset secular declines in the first quarter, the company expects low-single-digit revenue declines in the checks segment for the remainder of the year.
“I should note that while we are very pleased with these results, we do not expect to see this level of outperformance to continue for the remainder of the year,” Scott Bomar, senior vice president and chief financial officer, said during the call.
Outlining the Reasons Businesses Use Checks
There are several reasons businesses still use checks, Deluxe said in a blog post on its website. Among the benefits of checks are float, convenience, documentation and remittance processing.
In addition, checks fit into businesses’ accounting systems.
“It’s really hard to get small businesses to change what they’re doing, and checks fit,” Deluxe Senior Vice Predident Tracey Engelhardt said in the blog post. “They work, and if it’s not broken, they’re not going to change it.”
Some businesses also prefer to receive checks because that enables them to avoid credit card fees.
Expecting Payments to Equal Checks Soon
For Deluxe, checks also serve a strategic purpose by providing leads for the company’s other segments — payments, cloud and promotional solutions, McCarthy said during the call.
For example, the company sold merchant services to existing checks customers like credit unions and banks due in part to the company’s sales team’s long-standing relationships with those organizations, which enabled cross-selling other offerings.
One of those segments — payments — is now catching up to the company’s older, traditional product line.
“We’re on track for payments to equal checks as our largest business by revenue heading into 2023 — another key milestone for us,” McCarthy said.
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