heck truncation, ACH check conversion, micro payments, prepaid cards, miniature debit cards that dangle from key chains, "contactless" payments, POS terminals that connect to processors via the Internet and mobile telephones that double as card terminals.

This is certainly not our parents' payments system.

Indeed, after logging huge increases during much of the latter half of the 20th century, check usage in the United States is declining significantly, by as much as 10% according to some estimates, and actually could be eclipsed by electronic payments in 2004.

Now, my mother might not understand all this, but friends and colleagues certainly do.

A fellow journalist who is the father of two (with one kid in high school and the other in college) said to me recently, "I'm not sure my kids would even know how to write a check. All of their experiences with non-cash payments to date have involved cards."

This is what Cathy Minehan, President and Chief Executive Officer at the Federal Reserve Bank of Boston, said about the situation:

"Paper checks as a retail payment mechanism are going the way of the dodo," she told a group of analysts at a PiperJaffray retail-banking symposium earlier this year.

"Moreover," she said, referencing the newly enacted Check Clearing for the 21st Century (Check 21) Act, "even when checks are written, recent changes in law should make it possible, over time, to take the paper out of the clearing and settlement process completely, thereby increasing speed of settlement and overall efficiency."

If you thought this issue wasn't important to the Federal Reserve, think again.

Under legislation enacted nearly a quarter century ago, the Fed is required to recoup all of its payment processing costs through fees for services provided.

Additionally the legislation, known as the Monetary Control Act of 1980, says the Fed should price services in a manner that produces a profit comparable to what private sector firms earn providing similar services.

Unfortunately, the Fed has been missing its targets as check volumes fall, even though it has been raising prices, shuttering processing facilities and encouraging electronic payment and clearing alternatives.

Last year it fell short of its profit target by $155 million, marking the third successive shortfall in as many years.

The Fed has bumped up 2005 check services prices by nearly 8%, but even Fed insiders concede the price hikes may not be sufficient to forestall another profit shortfall.

Checks are a high-cost proposition for the Fed, consuming 25% of staff resources, 300 heavy-duty check sorters, 1 million square feet of office space, and necessitating contracts to support more than 200 different air and 400 different truck routes.

According to calculations Minehan shared with analysts, if every check processed by the 12 Reserve Banks during April 2004 had instead been an automated clearing house (ACH) payment, the Reserve Banks would have saved $60 million, which translates roughly to a 60% cost savings.

NACHA - The Electronic Payments Association, was no doubt elated to see such a comparison. Among other things, this helps make an economic case for ACH check conversion and even check truncation.

ACH check conversion, which got its start as a point-of-sale application, has been a powerful driver in the migration from paper to retail electronic payment processes.

One relatively new check conversion format, known as (consumer) accounts receivable check conversion (ARC), has been a key accelerant, increasing at triple-digit rates, year over year.

Dove Consulting estimates that 2 billion checks written by consumers next year will be converted to ACH transactions.

NACHA's numbers suggest it could reach that benchmark this year. In third quarter well over half a billion consumer checks were converted to ACH payments.

Giving Credit Due

Now, I'm not afraid to admit that in the past I've been disappointed with the ACH. After all, at its inception the ACH was touted as something of an electronic check, or as its founders would say, a "check replacement."

But for 20 years, it didn't move very many payments. Hitting the 1 billion transaction mark seemed to take an eternity, at least when viewed against the backdrop of the predicted "checkless society."

Patti Murphy is Contributing Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com .