Financial Update (Second Quarter 2008)

Checks Written to Businesses Predominate, Fed Study Shows

global map graphic Checks written from consumers to business make up nearly half of all checks written, according to the Federal Reserve's 2007 Check Sample Study. The recently released study, which examines the composition of check usage, said the highest percentage of check writers were consumers (at 58 percent), and businesses received 72 percent of checks written.

Remittance payments dominate checks' purpose
The check purpose with the highest percentage was remittance payments—payments to government and business payees that do not occur at the point of sale, such as Social Security—at nearly 49 percent. Checks written for $50 and less accounted for 35 percent of all checks, checks written for between $100.01 and $500 accounted for 30 percent, and checks for between $50.01 and $100 made up 17 percent.

Press releaseoff-site image
Check Sample Studyoff-site image

Demonstrating the accelerating pace of conversion of paper checks to automated clearinghouse (ACH) payments, a 2007 Fed study of depository institutions revealed that 2.6 billion checks were converted and cleared as ACH payments in 2006, an eightfold increase over 2003 levels.

Reserve Banks Reschedule Check Processing Changes

The Federal Reserve Banks recently announced modifications to the schedule for previously announced check processing infrastructure changes as consumers and businesses continue the shift from using paper checks toward electronic payments and as financial institutions rapidly adopt electronic check processing.

Revised schedule of check processing changesoff-site image

Since 2003, the Reserve Banks have reduced check processing locations from 45 to 18 in response to declining volume. In June 2007, the Federal Reserve chose the Atlanta, Cleveland, Dallas, and Philadelphia Feds as regional check processing sites that will provide the full range of paper check processing services and receive processing volume from other sites. Other sites will have their operations scaled back.

As part of the revised schedule, seven sites will transition in 2008 as opposed to the five originally scheduled. Also, the overall transition schedule has been shortened and is set to conclude in early 2010 instead of early 2011. The Reserve Banks will continue to review their check infrastructure annually to respond to further change within the nation's payments system and to meet statutory requirements for long-term cost recovery.

Study sharpens Fed's understanding of trends
The Check Sample Study is the third part of the 2007 Federal Reserve Payments Study, which also consists of the Depository Institutions Payments Study and the Electronic Payments Study, whose results were released in December 2007. The check study, which reported on the composition of the paper check market, was based on a sample of about 35,000 items from nine large financial institutions that together held about 26 percent of U.S. deposit liabilities and about 25 percent of all checks paid in the United States in 2006. It is part of an ongoing effort by the Federal Reserve System to measure and analyze the trends in noncash payments in the United States.

"The findings of the Fed's check sample study are intended to help the Federal Reserve, the industry, and the public better understand how checks are being used and inform future payments investment decisions," said Richard Oliver, executive vice president of the Federal Reserve Bank of Atlanta and the Federal Reserve Banks' product manager for retail payments.

April 9, 2008