Government often takes a knock for lagging behind the private sector, but in one important area-the way it makes its payments-the government is clearly out in front.

For those who have trouble balancing their checkbooks each month, the prospect of managing the world's largest checkbook may be mind-boggling. Yet during the last fiscal year the Treasury Department issued more than 360 million checks -a volume of paper that would cover 1,300 football fields or circle the Earth one and a half times at the equator.

The surprising fact is that checks account for only 27% of the $300 billion disbursed. In contrast, last year Treasury made more than 490 million payments, worth about $820 billion, through electronic funds transfer (EFT). The government has been particularly successful in converting payroll disbursements to electronic form. Currently 94% of Treasury-disbursed payroll payments are made electronically.

In contrast, American business has been slow to move to electronic payments. Studies indicate that only about 60% of corporate payroll payments are disbursed by EFT. Corporate dividend payments and payments to retirees and annuitants are even more paper intensive. It has been estimated that only 20% of some 425 million dividend payments each year are made electronically, while about 30% of similar number of pension and annuity payments are made by EFT.

There are clearly enormous advantages to electronic payment. While it costs the government about 43 cents to prepare and deliver a check, the same payment can be made by EFT for only 2 cents. Studies have estimated that the total cost of a check payment-that is, the costs to the payer, the payee, and the banking system-is $2.97 per transaction, while the cost of making a payment through the automated clearing house system is $1.34.

Based on these estimates, if as little as 10% of all current paper-based payments made by American businesses each year could be converted to EFT, the economy could realize annual savings up to $15 billion.

Electronic payments also offer significant benefits for consumers. They are safer, more reliable, and, for most people, more convenient than paper payments. EFT also significantly reduces the burden of dealing with lost and stolen checks, as well as forgeries and alterations, and eliminates the hazards and costs involved in converting checks to cash.

Not everyone will want to give up checks. Some people will find checks more convenient; some will continue to want the reassurance of having physical evidence of payment. And many recipients may not have a bank account, the sine qua non of EFT.

The Treasury estimates that some 10 million Americans who are regular recipients of federal payments do not have a bank account.

Last year Congress required that all federal payments, excluding only tax refunds, be made electronically starting Jan. 1, 1999. Treasury also has a mandate from Congress to ensure that individuals required to receive their federal payments by EFT have, for that purpose, access to an account at a financial institution "at a reasonable cost."

To comply with this mandate, Treasury is in the process of designing a low-cost "electronic transfer account" that will be offered to recipients through depository institutions selected through competitive bidding.

The account could become a model for a wide range of financial institutions to offer cheap and convenient basic electronic banking services. With the enormous untapped potential for increased EFT use by businesses, not to mention state and local governments, the need for such services will certainly increase.

Treasury recognizes that some recipients will find it difficult to make the transition. For this reason, the Department intends to be liberal in granting waivers from the mandatory requirements of the new law. It is also clear, however, that consumer habits are changing and that consumer use of electronic payments technology is increasing dramatically. For example, the deployment and use of automated teller machines have doubled since 1990 and are about nine times greater than in 1980.

Today there are about 165,000 ATMs in use handling about 1.1 billion transactions annually. Moreover, by 2000 there may be as many as 10 million households using personal computers for home banking-a tenfold increase over 1996-and six million households may be using the Internet for financial transactions.

These developments reflect not only an increasing level of comfort with new technology, but a recognition of the increased convenience and efficiency that technology offers. These changes in attitude, considered against the enormous untapped potential for even greater use of EFT by payers other than the federal government, strongly suggest that there are real opportunities for significant cost savings in the payments system.

Businesses should be pursuing the benefits of EFT not only for salary, retirement, and dividend payments, but also for remittances to vendors and other businesses.

Corporate America clearly has much to gain in following the government's lead.

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