he numbers sound impressive but under scrutiny, companies that print and sell paper checks might have reason for concern.

While the Federal Reserve cleared 3.64 billion checks during the first quarter of 2004, it was a 5.8% decrease over the previous quarter, the second largest drop in a single quarter in 15 years. The Fed processes 59 million paper checks a day, worth an average US$953, but this is down from 62 million per day in Q4 2003-the sixth consecutive quarterly drop in the past nine quarters and the lowest daily volume since 1989.

Consumers and businesses still write a lot of checks, but payment options including online bill payment, ACH and debit show steady gains in usage. Utilities, credit issuers, mortgage lenders and the IRS all recommend that consumers pay bills electronically.

The Fed is promoting more widespread usage of e-checks to reduce the number of people who handle each paper check, as a means to stem incidents of identity theft and fraud.

The volume of checks written is declining at a rate predicted to drop by 5% this year. Consumers now make more than 495 million transactions with debit cards every month. NACHA-The Electronic Payments Association said that when consumer payments are included in the figures, ACH transactions skyrocketed by 900% in March 2004.

With Check 21 set to take effect on October 28, banks could save $2 billion a year processing check images instead of paper checks, and some analysts expect paper check volume to fall even further over the next several years.

And that means trouble for companies who print checks, including Deluxe Corp. and Harland Financial Solutions, both of which have experienced drops in sales volumes.

To stay ahead of that downward trend, the companies that produce the billions of checks consumers and businesses use are regrouping by expanding their lines of services and products and closing plants.

Minnesota-based Deluxe Corp. is the largest check printer in the United States. It saw sales drop 6.5% in 2003. It closed or has plans to close three of its production plants (but still operates 10 others).

The second-largest check producer, Atlanta-based John H. Harland Co., has plans to cut the number of its plants from 14 to nine as part of the reorganization of its Printed Products segment after sales fell nearly 6% last year. First quarter 2004 sales from Harland's Printed Products segment were down by $7.5 million.

Deluxe and Harland are both consolidating plant operations and diversifying their offerings through acquisitions of other companies.

In May 2004, Deluxe announced plans to purchase New England Business Service, Inc. (NEBS) to expand its presence in the small business market; NEBS provides office supplies and products. Deluxe refiled those plans in June to allow the Federal Trade Commission time to review the proposed acquisition.

Deluxe also hopes to generate more revenue through its existing check customers by marketing related products including leather check book covers, address labels and personalized checks.

First quarter 2004 sales from Harland's Printed Products segment were down by $7.5 million. In contrast, sales increased 12.1% to almost $5 million in its Software and Services segment, thanks in part to the acquisition of electronic mortgage products producer Greatland Corp. and the release of a new mortgage solution.

Harland's overall revenue increase of $787 million last year was mainly generated from its Financial Solutions subsidiary, which provides software and technical services to banks and other financial institutions.