DALLAS- The Federal Reserve's recent release of revised estimates on its earlier figures concerning the number and value of checks written by consumers raised only a few eyebrows among most credit union check providers and corporate credit unions that handle item processing for natural person credit unions. In fact, even before the Fed came out with the new set of numbers, many of them had already seen evidence of the decline among the credit unions they service. The new numbers published by the Fed in a revised Retail Payments Research Project Report showed consumers wrote 42.5 billion checks in 2000 valued at $39.3 trillion. Earlier estimates by the agency put the number of checks written at 49.5 billion and worth $47.7 trillion. The Fed offered that check usage in the U.S. probably peaked in the mid-1990, and the agency attributed the correction to "further analysis and data verification" (CU Times, Aug. 21). Jody Beck, senior vice president of operations for Southwest Corporate FCU said the Fed's revised numbers didn't surprise her. After all, she's seen first hand the drop in the number of checks coming through credit unions. Overall the check volume the corporate handles has been increasing about 20% a year, but she qualified that by adding that Southwest Corporate's market share has also been increasing. Southwest Corporate clears about 30 million items a month for about 550 credit unions. For a better indication of the check volume of individual credit unions, Southwest Corporate has been monitoring since 2000 a select group of natural person credit unions the corporate handles the item processing for, and the findings support the Fed's revised numbers. Since 2000, Beck said the percentage of items cleared has been declining – down 2.8% in 2000 and 4.2% in 2001. She expected the number to decline about the same amount in 2002. "There are a lot of things at play here affecting consumers' use of checks, among them the growth of electronic payment technology and the ability to convert checks to electronic ACH items. There are more payment options for consumers to use. But although some consumers' habits have changed, checks won't go away any time soon because they're still a convenient payment mechanism that many consumers are comfortable with," Beck said. Ken Shoga, senior vice president, correspondent services for WesCorp, was also not surprised the Fed released revised numbers. "With a study of that size there's lot of room for interpretation. You're getting information from a lot of sources," he said Shoga said the revised numbers "validated a gut level feeling" he had that the number of checks being written was declining, and he said he wouldn't be surprised to see a continued decline if the Fed repeats the study. But he didn't need the Fed's numbers for that. Theresa Ward, vice president of item processing for WesCorp said she's seen a 5% decline in the number of checks written per active member since 1999. In comparison, WesCorp has also witnessed a 17-18% growth in overall volume in ACH processed items. Shoga, like Beck, doesn't believe checks will go away, but he qualifies his position by adding "completely for awhile. It will be a transition." He cites consumers' comfort with using checks, as well as the infrastructure that's been built to support check processing, as the reasons behind the evolution. Shoga likens the gradual demise of checks to passbook savings accounts. "It's not something that will happen overnight, but at some point, whether it's 10 years out or more, checks will go away." That's why it's so important that financials that can afford to, participate in pilots on new payment technology options. "There's still a lot of technology out there the jury is still out on deciding whether it will work operationally and financially," said Shoga. He said WesCorp has the ability to participate in these types of pilots because the volumes of items it processe allows it to support the infrastructure. In one of WesCorp's latest endeavors, for example, the corporate in June joined Sterling Savings Bank and Pacific Capital Bancorp in becoming the lead participants in a check image exchange pilot initiated by Endpoint Exchange, The National Check Image Exchange, in the Federal Reserve's west coast-based 12th District, the largest of the 12 Federal Reserve Districts. Shoga said participating in the EndPoint Exchange pilot program gave WesCorp "a chance to evaluate firsthand, the specific advantages of digital check image exchange technology." Shoga said credit unions should expect to see more done on the back end of payment system options, like in the ACH arena. "After the excitement over the dot com slowdown is over and things return to a more normal pace, consumers will realize that the payment system pilots are part of the evolution of the payment system and not some grand scheme that someone will make billions of dollars from," he said. Even most of the leading check providers to credit unions were not shaken by the Fed's new numbers. "We've always said check usage was in the process of peaking," said Michael Baum, director of customer development for Deluxe. He acknowledged that down the road the development of other forms of payment options will grow faster than check usage. Having said that, Baum added that "there's still lots of opportunity because there's still a large group of consumers who prefer the paper check." He also doesn't see the decline in consumers' use of the paper check affecting the business paradigm credit unions have subscribed to that the share draft account is the ticket to becoming a member's primary financial institution. "We know from working with credit unions that share drafts continue to be a major member acquisition tool. Members still need a place where they can store their money and have immediate access to it, and the share draft account gives them that," he said. It wasn't the Fed's announcement that caught the attention of David Passman, president of Harland Printed Products, what surprised him was the size of the adjustment. Still, he said, "we know checks are a mature business, that checks as a industry have peaked and that check use is declining." Passman, like Baum, doesn't think the consumers' declining use of checks has a bearing on the relationship they have with their primary financial institution. "The fact that they're writing fewer checks doesn't change that," he said. "Credit unions are bringing in increases in checking accounts regardless of the number of checks that are being written. "Sure I wish there were no ACH or electronic transactions, but there are some very good uses for these technologies," Passman quipped. "The choices consumers are making concerning what payment instrument they use is changing. The number of transactions that are being conducted is growing at a rapid pace, and that's contributing to the number of choices that are available." Of the three major check providers to credit unions, Paul Malone, vice president of check products for Liberty was the only one interviewed who was suspect of the Fed's revised numbers. He said he thought the Fed's revised estimate of 42.5 billion checks "seemed low." Malone stressed that he "did not have an ax to grind with the Fed," but he opined that the Fed's original estimate of 49.5 billion checks that consumers wrote in 2000 was a more accurate figure. "I realize it's incredibly hard to get good data on the number of checks that are written in the U.S. When the Fed released its first study it said it was very precise and carefully done. Now for the Fed to say it double counted and make a quiet change six months later, I find that to be very troubling," said Malone. Malone bases his opinion that the 49.5 billion figure is the more accurate number, on information gathered by the Check Printers System Association, Washington, D.C., which all the major check printers belong to. According to Malone, the association's data shows its members shipped about 41-47 billion checks to consumers in 2000. "And that doesn't include things like government checks, that would add another 10-15 billion checks to the mix." Because of the Fed's credibility, Malone advises that financial institutions should question why the Fed made the adjustment, especially if the data affects the Fed's fee volume. "If the Fed says checks are going away and electronic payments are in, people listen because that's the way consumers behave," said Malone. [email protected]

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