The 1996 Check Study is posted below as historical
reference.
Special Issue:
United States Check Growth Study Results Of 1996 Research
Checks Increasing Rather Than Declining
Use of paper checks for personal and business payments has grown steadily for more than 125 years and our research suggests that it will continue to grow for at least another 25 years, contrary to reports from many industry experts.
The paper check payment system continues to function very well and there is no basis for anticipating a checkless society, even by the year 2050, as predicted by bankers in the early 1970s.
Future check volume or dollar growth reflects levels approximately 56% higher than previous check forecasts in the marketplace.
According to the National Organization of Clearing Houses (NOCH), "...the check still represents an extremely safe and efficient payment instrument that continues to enjoy widespread and heavy usage."
Primary Payment Systems, a major consortium of banks and electronic funds transfer associations, places the check mechanism peaking in the year 2021, "with checks continuing to be consumers' preferred method of payment."
In the 1996 Findings and Recommendations , the National Organization of Clearing Houses and the National Automated Clearing House Association report, "Processing conventions, technology, clearing options, and the law governing the check payment system have experienced significant development through the years, and today the check remains as one of the primary means of payment in the United States and internationally."
For more than two decades the banking industry has been trying to eliminate the paper check in favor of an electronic payment system. Banks are clearly improving the speed and security of check handling through electronic presentment strategies and bank automation. In addition, hundreds of paperless pilot programs continue to explore new technology, strengthening the banking system's ability to achieve electronic settlement. "Electronic check presentment, image technology, and bank-to-customer information links offer promising advancements that will ensure the continued life of the check as a primary means of payment well into the next century," according to the National Organization of Clearing Houses.
While the Federal Reserve Board announced in 1971 that it intended to move toward an electronic system, the number of paper checks has continued to increase instead of decline.
In the 1970s the number of paper checks was growing at an 8% annual level, which out-paced both the growth of the population and that of the economy. In the 1980s check growth slowed to a 6% annual rate, and in the 1990s the growth rate is in the 3.6% range. NOCH projects the number of checks to grow at an annual rate greater than 1% into the next century, and our research shows growth at a 2% level through 2005, with dollar volume growth continuing to out-pace transaction growth.
Data Gathering
No single source exists in the United States that reports or tracks national check information in a usable manner for check growth analysis purposes. Data must be gathered from the available sources that deal with check information from varying perspectives and then must be analyzed and blended into a cohesive set of statistical data upon which market growth may be calculated.
Currently, checks are processed in the U.S. in one of three ways: First and largest is the settlement between banks, utilizing private clearing efforts (43%), second is checks received by the bank on which they are drawn and referred to in the banking industry as "On-Us" items (30%), and the last is check volume cleared through the Federal Reserve clearing system (27%).
Federal Reserve Information
The Federal Reserve Bank system publishes an annual Report of Operations in Principal Departments of Federal Reserve Banks . This annual report reflects checks handled by the Federal Reserve Banks in terms of both the numbers of checks, as well as their dollar value. (Table 1).
In recent years check processing volume by the Federal Reserve Banks has been on the decline (dropping more than 13% in just one year, from 1993 to 1994), while volume in the private sector has increased. According to the Federal Reserve, "Clearing house volume picked up in 1994, largely at the expense of Federal Reserve-cleared volume, due to market adjustments related to the implementation of the same-day settlement amendments to the Federal Reserve Board's Regulation CC. This trend appears to have continued, though to a lesser degree, through the first half of 1995."
In fact, the National Clearing House Association (NCHA) reporting on NCHA as an alternative clearing mechanism states, "... NCHA today provides a private clearinghouse alternative in every Federal Reserve Bank District. It clears more than 3 million checks a day, worth some $2.2 billion, and its clearing volumes are expanding more than 10% monthly."
From all evidence, it is clear that Federal Reserve transactions and volume are declining, while the private clearing mechanism is growing. The Federal mandate to eliminate checks written by the Federal Government before the end of 1999 will further reduce the checks cleared by the Federal Reserve another 3% over the next three years. This decline in Federal Reserve transactions, in particular the 13.3% decline in transactions and 14.1% decline in dollar volume for 1994, has incorrectly been read by some within the payment service industry to reflect a decline in checks generally, rather than simply a movement between clearing mechanisms, which will be addressed further in the tables and analysis which follows.
Table 2 reflects information from each board member of the National Organization of Clearing Houses for 1994 and 1995. This sample grew 4.7% in dollars and 11.1% in transactions when Federal Reserve items cleared through some of these Clearing Houses are included. This sample increased 3.9% in dollars and 8.3% in transactions when Fed Clearing House items are excluded from 1994 to 1995, reflecting the decline in Fed items and corresponding growth in private sector clearing discussed above.
In addition to reflecting the growth in private sector check volume, NOCH information establishes an average ticket for this representative sample of $1,551 with Federal Clearing House items, and $1,596 without Federal items for 1995.
Tables 1 and 2 provide important information on the overall average check. 27% of the 1995 clearing mechanism are Federal Reserve items with a $749 average ticket. 43% are private clearing items (clearing house, correspondents, and direct sends) with a $1,551 average ticket. These two figures reflect a weighted $1,242 average ticket. Given the addition of another 30% of "On-Us" bank clearing as the remaining clearing mechanism, the "On-Us" ticket is likely to reflect the average of the National Organization of Clearing Houses ticket, less the New York segment, which reflects a highly unusual ticket average due to checks drawn for securities purchases. This calculation reflects a ticket of $532, (the Table 2 total less New York) and creates an overall weighted ticket as calculated in Table 3.
Our research finds that the average check size in 1995 was approximately $1,029 which seems to have remained relatively constant (growing only 7.6%) over the last four years, based on the commercial check average reported by the Federal Reserve of $648 and the lower Travelers Check and Money Order averages of $53 and $95, reported in the 1991 Federal Reserve and private clearing data.
In the footnote to the 1991 data from Bank for International Settlements (BIS), the justification for assuming a U.S. average ticket (check value) of $1,150, slightly greater than our research results, is not explained. This assumption has been utilized in BIS reports for each of the years 1987 through 1994.
Additionally, we have found two more sources reporting a higher U.S. average check. The first is a study prepared for The Banking Research Fund, which reports that the National Clearing House Association processed 877,000 transactions a day in the third quarter of 1994, for $1 billion per day, or an average check of $1,140.
NOCH also reported in 1996 that a check averaged $1,194. Given all the available sources, each which must assume an average check size for the 30% of "On-Us" bank clearing, we end up with a range from $1,029 (our research number explained above) to $1,194, based on the 1996 NOCH data.
For the purposes of the overall check forecast in Table 4, we have assumed a $1,029 average check, which is a conservative number for the forecasting model. Although we believe the $1,029 check average is a reasonable assumption, we acknowledge that it may understate the future check volume by as much as 16%.
Table 4 indicates checks handled by private clearing houses, directly between banks, and by the Federal Reserve System. Data for the Federal Reserve System is detailed above, and is readily available. However, this data represents only a fraction (27%) of all checks written in the United States. Although the National Organization of Clearing Houses compiles various reports, as does the American Bankers Association, only limited data exists on the volume of checks or the dollar value of checks cleared through private clearing efforts or "On-Us" items.
The base data for the information in Table 4 is drawn from the Bank for International Settlements report titled, Statistics on Payment Systems in the Group of Ten Countries in addition, data was drawn from 1987 and 1989 reports on the relative importance of cashless payment instruments in the payment system. This data provides base line information for 1990 through 1995 volume of checks processed outside the Federal Reserve System, with 1994 data confirmed by the 1996 Report of the Settlement Risk Management Task Force, Findings and Recommendations.
Based on our assumed $1,029 average check, and a linear regression analysis with an r-squared value of 0.9862, all information has then been extended into the year 2005, based on the current 2% growth trend, and the continued decline in Federal Reserve processing. It is further assumed that the "On-Us" transactions will continue to represent approximately 30% of the clearing mechanism, with the declines in the Federal Reserve Bank clearing being offset with private clearing, and an elimination of Government checks by the end of the decade, as now mandated by law.
Overall, our research results in a 35.4% increase in dollars and a 21.9% increase in transactions over the next decade, or 65% of the previous decade dollar growth and 54% of the previous decade transaction growth. In conclusion, it should be noted that in spite of the lower average ticket reflected in our research, future check volume (dollar) growth reflects levels approximately 56% higher than previous check forecasts in the marketplace.
Paul H. Green
The complete, fully annotated United States Check Growth Study Results of 1997 Research, prepared by The Green Sheet is available at no charge by clicking the banner at the top of this page or by calling The Green Sheet 1-800-757-4441 or by sending a request for the report to Julie O'Ryan at greensheet@greensheet.com. The Results of 1998 Research will be available by mail in August, to reserve your coppy send your mailing address to greensht2@aol.com.
