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WASHINGTON – The Federal Reserve’s 89th Annual Report, 2002 to Congress was replete with statistics and trend analyses, and at least one set of expected findings – the number of checks processed by the Fed in 2002 was down from 2001, while the number of items handled by the Fed’s commercial Automated Clearing House increased. The check volume reported by the Fed for last year declined for the third consecutive year. The agency processed 16.59 billion checks in 2002, down 1.9% from 2001. Check volume in 2001 declined .5% from 2000. In contrast to check volume, the Fed’s commercial ACH volume for 2002 increased by 12.1% to 4.99 billion items from 2001. The increase though was less than it was from 2000 to 2001 – up 16.7%. Still 2002′s volume was nearly twice the ACH volume handled by the Fed since 1997. ACH payments include direct deposit of payroll, direct payment of consumer bills, business-to-business payments, and e-check payments. The Fed’s report showed a similar divergence regarding check processing and ACH transaction costs. The cost for the Fed to process a check remained unchanged in 2002 from 2001 – 4.5 cents. In comparison, the cost for the Fed to process an ACH payment declined to 1.3 cents per item. NACHA-The Electronic Payments Association said the data show “that consumers and companies are turning from checks to electronic payments.” Commenting on the declining ACH payment transaction costs compared to check processing costs, NACHA said the difference “is reflective of the cost savings that could be achieved nationwide by the increased use of ACH payments over paper checks.” According to the Fed’s report, the agency has already taken steps to address apparent continuing decline in check volumes. Reserve Bankers, for example, are “developing a business and operational strategy that will position the service to achieve its financial and payment system objectives over the long term.” Last year, the Banks contracted with a consultant to analyze their check-processing infrastructure, and the Fed said Reserve Banks are reducing their check service operating costs by using a combination of measures including streamlining their check-management structures; reducing staff; decreasing the number of check-processing locations; and increasing programs. -

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