2018 – The Check Is Alive!

by William L. Saffici

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Despite discussions going back 50+ years of a “checkless society”; reports of declining check volume; and increased use of electronic forms of payment, the check is still alive!

Let’s look at some history. In 1955, the Federal Reserve processed 14 billion checks annually and 10 years later reported that the number grew to 22 billion checks annually. This significant increase in volume created discussions about a need for a “checkless society” to reduce the financial burden on the industry created by these growing volumes.

As I was beginning my career in 1966, George Mitchell, a member of the board of Governors of the Federal Reserve, began warning bankers of the increasing cost of processing paper checks and suggested that electronic payments could reduce handling and float costs and achieve near instantaneous transfer of monies.[1]  This spurred an investigation into the possibility of a checkless society, with several banks conducting “pilot projects” in the late 60s and early 70s to determine whether this would be technically and socially feasible.[2]  Let’s look at the following graphs[3] reflecting checks cleared between 1970 and 1997. Shown in each graph are the actual volumes and a set of predictions applicable to each period. The declining check volumes predicted in the second graph anticipate an acceptance and acceleration of movement to electronic payments.

We now know that such predictions did not immediately materialize but did set in motion the early developments of ACH and then the subsequent improvements in the check system.

Although much work was already in progress to address a paper burdened check payments environment, the tragedy of 9/11 became the catalyst in moving the industry towards innovation and automation. What we know best from this effort is the introduction of Check 21. While this act was only the legalization of a negotiable item to be printed from an image that was scanned from the original check, it fostered the movement towards image exchange.

As this transition began, the ECCHO organization, Federal Reserve, Viewpointe, The Clearing House and major institutions developed a way to track and reflect the volume change of transit items. The graph[4] below reflects the period of January 2005 through November 2012 showing the industry starting with all substitute check volume that continued to grow when image-based transactions were introduced, and then declined and disappeared as the industry evolved to nearly 100% image-based.

While change was occurring on the check clearing front, we also recognized that check volumes were declining. It was believed that volumes would continue to decline at an equal or greater rate than what we saw beginning in 2004. However, a 2016 study by the Association for Financial Professionals shows that the period between 2013 and 2016 saw a slight increase. Looking deeper into this, data shows that the volume of consumer written checks had significantly declined but the volume of checks written by businesses had not declined as significantly, eventually reaching the point where the business to business volumes have shown this slight increase.

Furthermore, a study conducted by Aite Group in June and July of 2017, identifies that small businesses still make 44% of their payments by check.

With 2018 upon us, your organization must not ignore the impact of check volumes as it relates to check processing costs; technology changes: and process changes to ensure maximum efficiency of existing and new product offerings to enhance customer experience. I hope this brief overview of check volume trends has been of value to you and demonstrates how the check is gaining a new life. Future articles will relate back to this topic.

William L. Saffici founded Saffici Payment Consulting in January 2009 and can be reached via email at bill@safficiconsulting.com or by phone at 610-494-3630.

[1] George Mitchell, "Governor Mitchell Considers Tomorrow's Banking," Banking (Dec 1966): 33 – 34

[2] The Book of Payments: Historical and Contemporary Views on the Cashless Society by Bernardo Batiz-Lazo et al.

[3] The Future of Banking by Benton E. Gup

[4] Provided by ECCHO