The Fed Says Its Check Volume Will Drop Again in ’05?by 15%

The Federal Reserve Board of Governors expects the volume of checks the Fed processes to drop 15% this year, a sharp acceleration in the long-term decline in check volume that the central bank attributes to continuing movement by consumers and businesses to electronic transaction channels. The drop would send Fed check volume plunging to 11.8 billion items in 2005, and would follow a 12% decline in 2004 to 13.9 billion checks. These declines continue what has been a multi-year trend. Through last year, the number of paper checks processed by the Fed system had plummeted 20% from a peak of just over 17 billion checks in 1999. The 2005 forecast appears in the Fed's annual report for 2004, a document that reveals how the conversion from paper to electronic-transaction processing is forcing changes in the Fed's economics and operations. In an effort to concentrate declining item volume in fewer locations, the Fed has already closed 13 of 45 check-processing centers, and is in the midst of shuttering yet another nine. That process is expected to be completed by early next year, and will result in halving the number of Fed check centers. Another five regional centers that had been dedicated to processing checks have also been closed. At the same time, the central bank has cut check-processing personnel by fully 25% in the past five years, to a head count of about 4,000, according to the annual report. Meanwhile, the Fed's cost to process checks last year was $709.6 million, or about a nickel per item. This was despite the fact that 23.1% of the check volume was presented electronically to paying banks, with images captured on some 10.4%. In 2003, the Fed says, electronic presentment accounted for 22.7% of the 15.8 billion items processed, with images captured on 9.3%. By contrast, the Fed paid just under a penny per transaction to process some 6.5 billion automated clearing house items, the report says.