Paper checks are with us for the foreseeable future, but the fact is, nobody really knows how many checks are written.
Most current numbers are estimates, but soon we may have some real numbers - the firmest since 1979 - thanks to a project that the Federal Reserve has undertaken. Last week the Federal Reserve Banks announced that they were going to spend the next several months trying to take an inventory of how many checks are written in the United States, how many other noncash payments are made (debit and credit card payments and automated clearing house payments, for example), and who is writing checks to whom. And, in what amounts to warp speed for a study of this type, the Fed hopes to have the statistics and conclusions ready this fall.
Over the last several years there have been several trends that suggest check-writing may actually be waning - at least slightly - or perhaps just growing more slowly. A critical mass of bank customers now carry debit cards, which are easier to use and more widely accepted than paper checks. Federal and state governments now deliver many social service benefits electronically instead of sending checks in the mail. Direct deposit, online banking, and Internet bill payments have all taken root to various degrees, giving people fewer reasons to receive or write checks.
Estimates of checks written annually run to about 65 billion to 70 billion. And while the results of the Federal Reserve study may not necessarily tell us whether check-writing has gone up or down of late, they will serve as a baseline for future surveys and help bankers compare their perceptions to reality.
It would be most interesting if the Fed's survey concluded that check volumes were actually lower than the most recent estimates - perhaps an unlikely result, but one that would finally seem to fulfill more than 20 years of predictions about the demise of the paper check. Then again, it would not be at all surprising to find that check-writing is stronger than ever, given that the economy is good, that there are more people buying more things, and that sending a paper check in the mail is still in most cases the easiest way to pay a bill to a company or another person.
Not all bankers may be eager to see paper checks wither away. While the credit card associations call cash and checks their biggest foes, bankers can count on a steady income from selling checks, overdraft fees, per-check fees, and lockbox services. Debit cards do not have that to offer, though it certainly is cheaper to process debit card transactions than to process and image checks.
Allen H. Lipis, chief executive officer of Global Concepts Inc. of Atlanta, the payments consulting firm that the Fed has hired to conduct the check component of the survey, said he and his colleagues will send questionnaires to banks in April and May asking them for the total value and volume of checks paid by the bank - not the number of checks deposited, which can be counted more than once. Using the results sent in by the banks, the firm will try to calculate annual totals, while factoring in seasonal fluctuations.
"It should help strategists decide whether the move toward electronic banking is going as slowly as it has been over the last 20 years," Mr. Lipis said. "This is sort of the fundamental measurement of how many checks do we have here, and are they going up or not. It may well be that critical payment-industry decisions will be based on this study, and I think the industry will have a great interest in knowing the accuracy of this piece of it."
Global Concepts will also tackle a second piece of the survey, to try to determine, as best as possible, whether the check-writers and recipients were consumers, businesses, or government entities. To do this, the firm will look at a random sample of 40,000 checks from 400 banks and thrifts, trying to categorize the writers and recipients, and to determine whether the checks were written at the point of sale, as bill payments, or as payroll disbursements, among other categories.
Each of the 400 participating institutions will be asked to take random samples of the checks it has paid and to fill out a questionnaire about them, keeping the consumers' names confidential. In the survey results, the names of the banks will be kept private as well.
"We'll have a sense of the magnitude of the paper volumes in these areas, which should constitute the potential that exists in the marketplace to convert them to another form of electronic payment," Mr. Lipis said.
This part of the survey will be challenging, he said, because "even when you look at a check, it's not always quite clear what the check was made out to." Even so, he said, the work should be done by July.
"A lot hinges on what we conclude in this study in terms of strategic planning for the U.S. payment system," Mr. Lipis said. "After all, everybody would like to know if checks are going up." He said the last major study "with any credibility" was the one done by the Atlanta Fed in 1979.
"The bottom line is that nobody knows" how many checks are out there, Mr. Lipis said. "Billions of dollars a year are spent by banks and the Federal Reserve and vendors to manage this enormously huge system, and we have no central source to gather the numbers."
The Federal Reserve has promised to publish the results and make them widely available to the industry at no cost.
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