Check volumes not only are much lower than bankers had previously believed, but last year they declined by 2% from 2000, a new study has found.
The study, conducted by a research and consulting firm that had helped the Federal Reserve Board last year in its landmark study of payment volumes, measured on-us paper check volumes for two months at 61 of the country's largest financial institutions. Extrapolating from those results, 41.65 billion paper checks were written last year, versus the 42.5 billion figure the Fed had deduced for 2000.
"I'm not going to go out on a limb and say that the industry as a whole has declined by that amount," said David C. Stewart, a principal at the research firm, Global Concepts Inc. of Atlanta. "I don't want to draw a hailstorm, but when you've sampled close to half the check volume in a market," it is reasonable to draw the conclusion that it is representative of the whole market. "Our respondents account for nearly 20 billion items per year, so it's safe to say that the market has declined."
Global Concepts, which released the first set of numbers from its study last week, polled not just large banks, but also some thrifts and two large credit unions. Two-thirds of the 61 institutions polled said that their average daily check processing volumes had declined.
Deposits at the institutions surveyed rose by 6% during the same period, Global Concepts said.
Taken together, the findings provide fresh evidence that paper checks are losing ground to electronic payments of various kinds, a shift that the Federal Reserve and others have advocated but has been difficult to document.
When it released its 2001 check study in November, the Fed concluded that the number of checks sent through the U.S. financial system in 2000 was closer to 49 billion than the 65 billion to 70 billion that had been taken as conventional wisdom. However, the agency also said that it could not draw any conclusions about whether the volume had been rising or falling.
Last month the Fed lowered that figure to 42.5 billion and said for the first time that the volume was declining. Citing a 1995 study that placed volume at 49.5 million, the agency further concluded that check volume had peaked sometime in the mid-1990s.
Mr. Stewart, who led the Global Concepts study, said that its new findings are the first year-over-year comparison of U.S. check transactions for the institutions surveyed. However, he cautioned that the new figures are not directly comparable to last year's findings for the entire industry.
Last year's Fed study was designed to be a statistically defensible look at the overall U.S. payment system, he said, while the Global Concepts study reflected only the experience of the participating institutions. That group included Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Wachovia Corp., FleetBoston Financial Corp., Washington Mutual Inc., Navy Federal Credit Union, and the North Carolina State Employees Credit Union.
Still, because the large institutions in this study account for about half the industry's check volume, "it's a pretty good sample of the market," Mr. Stewart said.
Because Global Concepts already had the data from the previous year, it was able to do direct year-to-year comparisons, he said. Citing privacy considerations, the firm did not provide data on individual banks, nor did it release actual payment volume data, only a statistical summary.
"Two percent is pretty significant" for a single-year decline, Mr. Stewart said. It provides "strong evidence of the fact that check writing and check payment volume is actually declining."
Another question involves the impact of the economic cycle. According to the National Bureau of Economic Research, the U.S. economy entered a recession in March 2001.
"The timing of this just happens to coincide with an economic downturn and a supposed recovery," Mr. Stewart acknowledged. If economic growth accelerates, the volume of checks could rise next year, though he said he was skeptical that would happen.
A spokesman for the Federal Reserve said he could not comment on the latest study. Another consultant in the field said he was cautious about accepting the new findings.
"Checks as a percentage of total transactions are definitely decreasing," said Edward Neumann, the managing director at Farragut Group LLC of Arlington, Va. "There's no question about that."
However, he disagreed that the actual check volume was already in decline. "We believe check growth will be flat over the next couple of years and then will begin decreasing."
The Global Concepts study, which the firm intends to become an annual report documenting industry changes and trends, also measured automated clearing house transactions, wire transfers, and credit card, debit card, and automated teller machine processing among the participating institutions. Other consultants analyzed noncheck transactions for the Fed report last year.
Mr. Stewart said that other portions of the Global Concepts study will become available as the firm reviews and validates the data, and comparisons will begin next year.
