Shift to Electronics Surprises the Fed

The movement from paper-based to electronic payment is happening even faster than the Federal Reserve expected, and as a result the central bank is cutting its estimate of check volume while raising its check-processing fees. Effective Jan. 2, the Fed's fees for check services will go up by a blended rate of 5.2% as the system tries to recover more of its costs in the face of declining volume. This follows a long-term trend: pricing for check services is up 37% over the past seven years. In a statement, the Fed says check volume through August had dropped 4.8%, and it projects that volume at year-end will be down by that same percentage, to about 14 billion. The Fed had expected a drop of only 1.9%. It further projects volume will fall another 8.9% next year, to 12.8 billion. “The Federal Reserve System's recent retail payments research, along with more recent anecdotal information from the industry, indicates that check use in the United States is continuing to decline,” the Fed says in its statement, while also referring to “higher-than-anticipated volume declines.” Meanwhile, electronic alternatives continue to eat into paper-check traffic. The Fed says its ACH volume shot up 13.2% through August, compared with the year-ago period. As a result, it is able to realize processing efficiencies. The Fed price index for ACH services has plunged 66% since 1996, and come Jan. 2 ACH fees will decline another 1%.