By Patti Murphy
The Takoma Group
A new report out of London shows check usage is declining rapidly in the United Kingdom. The report, prepared by APACS, the U.K. payments association, reveals that check writing in that country fell 8% during 2006. Over the past 10 years, APACS reports, check writing by individuals in the U.K. has been cut in half.
The Federal Reserve is slated to release results from its latest payments research later this fall. I'm betting that data will show check usage declining by about the same percentage. That may not seem like much, perhaps, until you consider that the vast majority of checks written in America today are cleared electronically.
They aren't electronic payments, but by using electronic clearing channels, it's now possible to clear a check in a day. It's not electronic funds transfer, but it's darn close. And it pretty much guarantees that checks will be changing hands in the United States for many more years to come.
Direct comparisons of check usage in the United States and the U.K. don't hold much certitude. After all, Brits wrote only 1 billion checks in 2006. Optimistic estimates place U.S. check writing at about 30 billion last year.
According to the Fed's number crunchers, America's love affair with the check peaked about a decade ago.
We know anecdotally that fewer checks are being written today in the United States. How many of your kids write checks? How many fewer checks do you write today compared with just a few years ago? And we know more Americans are using electronic methods of payment more than ever.
Data collected in 2005 by Dove Consulting Inc., a division of Hitachi Consulting, indicated Americans were using cards more often than cash or checks for in-store purchases by a margin of 12% (56% using cards; 44% with cash or checks).
Just four years earlier, cash and checks were more popular, accounting for 51% of in-store purchases (49% of purchases in 2001 were made using credit, debit or other payment cards), Dove said.
The U.K. seems to have had better luck weaning folks off of checks. According to the APACS survey, only 54% of adults wrote checks last year; just 47% received check payments in 2006. Checks written to retailers fell 48% between 1996 and 2006, APACS said.
"On average we now write 1.6 [checks] a month and receive just one every two months, with half of adults no longer receiving any," APACS reported in The Way We Pay 2007.
Americans write an average eight to 10 checks a month, based on currently available data. Yet paper processing workloads have fallen drastically, because for the Fed and banks, imaging is emerging as the de facto standard for processing checks.
It's not unusual for a paper check to be physically handled a dozen times or more during a multiday clearing process.
With imaging, checks are truncated as soon as possible after entering the collection stream, then get cleared and settled using electronic networks that mimic the land and air-based check collection process. The result is that checks can clear now as fast as some electronic payments.
"Image exchange continues to account for a larger share of check processing because it enables institutions to reduce costs and streamline operations," said Susan Long, Senior Vice President at The Clearing House, which operates the SVPCO Image Payments Network.
And it's not just a big-bank phenomenon. The Independent Community Bankers Association of America, a Washington-based trade association, reports that most small banks (86%) either have replaced paper check presentment with electronic clearing or are planning to do so within the next two years.
More than a third of the banks surveyed by ICBA this year (36%) are capturing check images at branch locations for centralized processing. An additional 39% expect to be imaging checks for branch-level truncation.
Fewer banks (21%) have rolled out remote deposit products to their business customers (another 45% expect to within the next two years).
In 2005, the last time ICBA queried its members about payments activities, only 4% had business customers transmitting check files instead of trundling paper checks to their local bank offices for deposit.
SVPCO is said to extend to more than 10,000 endpoints, which makes it accessible to nearly all banks (either directly or through compatible networks like the Fed's).
In August, SVPCO saw a 250% increase in image check exchanges, compared to August 2006. All told, the network said it handled 263.8 million checks worth $454.5 billion last month.
Extrapolating, it seems fair to predict that by year-end 2007, SVPCO's final tally will top 3 billion checks. To put this into perspective, that's about the same number of consumer checks that were converted to electronic payments last year and processed through the automated clearinghouse (ACH) using a process known as ACH check conversion.
(In fairness to the ACH, a new check conversion format, known as back office conversion and implemented this spring, makes it easier for merchants and other businesses to embrace ACH check conversion. So, overall conversion numbers should be much higher this year.)
Checks aren't going away; not in the United States or the U.K. "Although volumes will continue to fall, we forecast that there will still be around 840 million checks used in the U.K. in 2016," said Sandra Quinn, Director of Communications at APACS. "If you placed these checks end-to-end, they would stretch around the world two and half times."
At current rates, it will take much longer for check numbers in the United States to drop below a billion a year. But make no mistake about it: Check imaging is changing the nature of payments. Just ask the Fed, which has closed nearly two dozen check processing offices over the past few years.
Eventually (maybe even before 2016), the Fed expects to be processing checks through one centralized locale. At its peak, the Fed's check workload was handled through a network of about four dozen regional processing shops.
Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com.
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