By Patti Murphy
The Federal Reserve Board recently released the latest in its triennial reports on payments, and not surprisingly, the data indicates that card payments continue to grow at a healthy clip – but not necessarily at the expense of checks. In fact, although U.S. consumers may be writing fewer checks, they're writing checks for larger amounts than ever before.
According to the 2013 Federal Reserve Payments Study, Americans made an estimated 122.8 billion noncash payments in 2012 (excluding wire transfers) worth a combined value of $79 trillion. Included in those numbers were 21 billion checks. Some (2.7 billion consumer checks, down from 3.3 billion in 2009) were converted to automated clearing house (ACH) payments; but the lion's share were cleared as checks. In all, banks paid 18.2 billion checks totaling more than $60 trillion in 2012, according to the Fed's data. The total represents a combined annualized growth rate of -8.8 percent in the number of checks paid between 2009 and 2012, the Fed said. Yet the average value of checks paid increased during the same period from $1,291 to $1,420. The steepest declines were identified in the number of business-to-consumer (B2C) checks written: from 5.2 billion in 2009 to 3.1 billion in 2012. Business-to-business (B2B) checks totaled 5.9 billion, down from 7.9 billion in 2009, the Fed said.
Consumers still write the preponderance of checks: 9.6 billion consumer-to-business checks (C2B) and 2.4 billion consumer-to-consumer (C2C) checks were written, according to the Fed. The fewest number of checks written in 2012 (an estimated 900 million) were C2B checks at merchant checkouts.
For the first time since it began collecting data on noncash payments (in 2000), the Fed has included in its latest study estimates of unauthorized payment transactions (third-party fraud). In 2012 there were 31.1 million unauthorized payment transactions (excluding wire transfers and cash) valued at $6.1 billion, with the dominant share involving credit cards.
In 2012, fraud involving general-purpose credit and signature-debit cards outstripped all other categories of fraud: 3.60 basis points by number and 8.27 basis points by value, according to the Fed's data. (A basis point is 1/100 of 1 percent, or 0.1 percent.) Card-not-present transactions were three times as likely to be fraudulent as card-present payments, although the Fed said it found little discernible difference in corresponding values.
Meanwhile check fraud, once a major scourge, has dropped significantly. The fraud rate for checks in 2012 was 0.45 of a basis point by volume and 0.39 of a basis point by value. PIN debit fraud, by number, was the same as with checks. By value, however, the fraud rate for PIN debit was much higher, 1.71 basis points.
The Fed said it would publish a more detailed report of its survey findings in early 2014, and if the Fed's past studies are an indication, the check numbers will be tweaked. I would expect the final check numbers to be higher, which would be more in line with industry data.
Image technology has radically changed the value proposition for writing and accepting checks. Evidencing this, about 97 percent of all checks clear through the banking system as electronic images, by the Fed's count, and an increasing number (3.4 billion in 2012) are getting deposited as images instead of as paper using banks' remote deposit capture (RDC) services. There are three networks that banks typically use to exchange check images.
These are operated by The Clearing House, the Fed and Viewpointe. The Electronic Check Clearing House Organization, a private-sector group that manages the image exchange rules process, collects data from these three networks, and from a group of banks that often skip the exchanges and send image check files directly to paying banks.
According to ECCHO data, banks exchanged nearly 16.4 billion image check files in 2012. Add to that on-us checks – ECCHO puts that number at just under 4.3 billion, based on past trends – and a picture emerges of a much larger number of checks being cleared between banks than the Fed's study would indicate. David Walker, Executive Director of ECCHO, said the discrepancy could be even greater assuming that industry consolidation creates more "on us" check volume.
Could there be a problem with the data source? The Fed explained that it studied a random sample of checks processed by 11 banks that use the Viewpointe image archive, but didn't say which banks.
Walker said ECCHO stands by its numbers, adding that he has reviewed them with contributing sources and found no double counting. He opined that the Fed's sample may have been too small. Or it could be the point in time when the sample was taken. Viewing ECCHO's monthly electronic exchange data, it's apparent that during some months (July, for example) fewer checks enter the collection stream than during others.
"We do periodic data collection from banks, and pulling data one time almost always requires multiple attempts to get it right. Our ongoing data collection process is more reliable," Walker said.
The Fed's Payments Study offers preliminary findings from three separate data collection efforts undertaken in 2012. One collected information on noncash transactions handled by a large sample of banks and credit unions. Another queried card networks and issuers. The third was a check study based on a random sample of checks. Here are some of the key metrics reported, all for 2012:
There were a total of 73.8 billion card transactions.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at email@example.com.
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