Magazine article American Banker

Withering Check Volume Needn't Threaten Deposits, Fee Revenues

Magazine article American Banker

Withering Check Volume Needn't Threaten Deposits, Fee Revenues

Article excerpt

Paper checks were supposed to be replaced by electronic payments years ago, and they weren't. Are those companies eager to develop electronic payment strategies worrying over nothing?

Not likely.

The recent landmark study by the Federal Reserve shows that checks are way down. Last year the general consensus was that about 68 billion were written per year in the United States. But the Fed put annual volume at 42.5 billion as of 2000, much less than expected.

Financial companies must adjust to the reality that check volume will steadily decline for the foreseeable future, along with check-based revenue. Lurking underneath this downward trend is an ominous implication that the checking cornerstone may be at risk as customers switch to providers with better electronic payment services.

If the adoption of electronic payments continues in this decade as it did in the 1990s, paper check volume will probably fall by one billion checks per year, to 28 billion to 32 billion in 2010.

Our payments-migration models indicate that paper checks will account for no more than 25% of noncash payments made by businesses and consumers in 2010. Electronic payments will exceed check payments within the next 18 months, and debit card payments alone will eclipse total check payments in less than five years.

Where did the checks go? There are many possible explanations, but most would agree that two types of e-payments are the primary culprits: debit and credit cards. Plastic is now leading the pack at the point of sale on the basis of card base growth, merchant acceptance, and perceived convenience by consumers.

The change in volume mix will present challenges and opportunities for financial companies on at least three fronts:

Customers. Financial companies are discovering the power of autopay in reducing customer churn by encouraging multiple preauthorized debit automated clearinghouse transactions and promoting debit and credit for bill payment. …

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