Pricing a Portfolio

What is the average national selling price of a portfolio today? Is it 30 times the monthly residual, 24 times, etc.? Thanks!

Jerry Gilstrap Jerry:

Please see "Getting the Best Price when Selling your Portfolio." This was published in The Green Sheet, issue 02:02:01 (Feb. 11, 2002): www.greensheet.com/PriorIssues-/020201-/3.htm Additionally, you can use our Fast Finder search engine to search our entire library of The Green Sheet and GSQs by keyword or phrase.

Good Selling!^SM
The Green Sheet Staff

The Bank Check Conundrum

I have a professional interest in the bank check system. In preparing a recent paper, I came upon a conundrum: where to find the overall annual costs of processing payments with bank checks. I have found some rather dubious references to specific costs but nothing very reliable and nothing at all on overall costs.

Surely, public policy would be well served by information on all of the principal cost factors assessable to the use of checks, and it seems to me that your organization is likely to be the best source.

To be quite specific: Do you know how I could arrive at a fairly reliable estimate of the following costs, separately and in toto:

1. Mailing, and handling from issuance to settlement.
2. Fraud in issuance and endorsement.
3. Errors in issuance and endorsement.
4. Cost of reversals and returns, including collection.
5. Lost checks.

It's possible the Fed has done a study that has this info but, if so, it has eluded me so far. Thanks for any information you can provide.

F.A. Allan

F.A.,

The conundrum you describe is shared far and wide. The short answer to your question is that there is no repository of information on the various costs incurred processing check payments, individually or in total.

A few organizations, such as the Federal Reserve and the Bank Administration Institute (BAI), have endeavored to analyze some costs. But most of this data either is limited in application or outdated.

For example, BAI published in 1995 results of its 24th annual check processing survey, which appears to provide the most recent set of banking industry benchmarks on costs incurred by paying banks (the banks on which checks are written).

This data indicates, for example, a median cost of 3.2 cents for processing so-called "on-us" checks (where both the check writer and the payee bank at the same financial institution). Checks presented for payment through clearinghouse arrangements had a median processing cost of 3.9 cents, and those presented by far-flung institutions (e.g., a check written on a California bank that is deposited in a New York bank and must be trundled across the country for presentment, in California) had a median processing cost of 6.4 cents.

All of these costs, however, apply only to checks that are not encoded before presentment. Encoding (in which check values are printed - by the depositor or its financial institution - using special ink that is easily read by high-speed check sorting equipment) could reduce those costs (in 1995) by as much as 30%. These bank-processing costs also ignore the costs incurred by the writers of checks and payees (be they corporations or individuals). Several organizations have endeavored to calculate these costs, but typically those that have done so have had their own agendas, such as proving the business case for direct deposit of payroll checks.

One set of figures that seems to bear some legitimacy was calculated by Global Concepts Inc., an Atlanta-based payments consultancy, and the Food Marketing Institute, a trade association representing grocers, and published in 1999 by the Check Payment Systems Association, an association representing check printers.

Those calculations placed the total costs of using and accepting checks at 17 cents per check for payers and 45 cents per check for payees. But the payees in this case were, presumably, grocers, and their cost structures would be different from other types of retailers or an individual's.

As for the specific cost estimates you mention, these are even more elusive. There is no one central clearinghouse of information on check clearing and processing data. While the Federal Reserve alone probably accounts for 30% of the inter-bank clearing volume in the U.S., the remaining volume is distributed among literally thousands of banks, private processing companies and clearinghouses.

Data concerning fraudulent checks is even trickier to pin down. Check fraud is not typically treated as a federal offense, although federal law enforcement agencies are often called upon to assist in large-scale investigations. Check fraud, instead, is generally considered a crime subject to the vagaries of local jurisdictions, and no national entity collects data from these locals.

In a major urban jurisdiction where law enforcement has its hands full pursuing major drug traffickers and the like, the benchmark for pursuing check fraud may be $10,000, while in a smaller jurisdiction, a fraudulent check worth $1,000 might be significant enough to trigger a major investigation.

Complicating the situation is the fact that many banks and companies decline to report check-fraud losses, for fear of the public relations backlash. Instead, they simply eat the losses.

Various figures on the cost of check fraud have been bandied about in recent years. Most either have limited application (e.g., commercial banks) or are simply wild guesses.

It would be safe, we suspect, to say that check fraud is a multibillion-dollar problem, but no one really has sufficient data to nail down the cost beyond that.

Good Selling!^SM The Green Sheet Staff