Plunging Check Volumes Spur Fed to Speed up Downsizing Efforts

With check volumes rapidly declining, the Federal Reserve on Monday said it would speed up its previously announced plans to downsize its paper-check processing system. Four full-service processing centers will remain, as under the earlier plan. But the closure or downsizing of other facilities will move up by anywhere from three to 15 months under the revised schedule. The Fed since 2003 has cut the number of its processing facilities from 45 to 18. “The paper check volume is falling so rapidly, we have to try to downsize our infrastructure rapidly to match revenues with costs,” Richard Oliver, executive vice president of the Federal Reserve Bank of Atlanta and the Federal Reserve's product manager for retail payments, tells Digital Transactions News. “It's really an indication that electronification of checks with Check 21 has really picked up.” Check 21 is a nickname for the Check Clearing Act for the 21st Century, the law that took effect in October 2004 to spur the electronic imaging of checks. The act allows banks that can't receive imaged checks to use printed substitute checks, or image-replacement documents (IRDs). The downsizing, or what the Fed calls its “transitioning” schedule, is now set to conclude in early 2010 instead of early 2011 under last year's plan (Digital Transactions News, June 26, 2007). Regional centers in Philadelphia, Cleveland, Atlanta, and Dallas will offer a full range of processing services. Smaller remaining facilities will offer limited services such as IRD printing or the capture of paper-check images for processing. The Fed closed a site in Utica, N.Y., in the first quarter. The accelerated 2008 schedule also includes five processing sites converting to print-only locations?Kansas City, Mo., Memphis, Tenn., Cincinnati, Windsor Locks, Conn., and Jacksonville, Fla. A Seattle site will convert to capture and printing. Other changes are scheduled to conclude by the first quarter of 2010. A Fed release indicates that further revisions could be in the offing, depending on check volumes. “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,” the release says. According to the Fed's recent payment study, about 30 billion checks were paid in 2006, down from 37 billion in 2003 and 42 billion in 2001 (Digital Transactions News, Dec. 10, 2007).