A sign of change

Published: Thursday, November 1, 2007 at 6:01 a.m.
Last Modified: Wednesday, October 31, 2007 at 4:45 p.m.

The paper check, a staple of banking for hundreds of years, is rapidly disappearing from modern life.

It all stems from the embrace of electronic paychecks, the rising popularity of online banking and the spread of technology that allows consumers to plunk down plastic for everything from a cart full of groceries to a cookie at the deli.

Four years ago, the volume of electronic transactions surpassed checks for the first time, and the gap is widening as fewer and fewer Americans pull out their checkbooks to pay their bills.

The volume of personal checks has tumbled 26 percent in less than a decade, according to the Federal Reserve, the nation's central bank.

U.S. banks processed 37 billion checks in 2003, down from 50 billion in 1995, according to the most recent Federal Reserve study. Nearly half the drop occurred in just two years.

Check printing businesses report a 4 percent to 6 percent annual decline in check usage.

“The speed at which check writing has gone down is just accelerating,'' said David Fettig, a spokesman for the Federal Reserve, which processes about a third of all checks transmitted between banks.

With less paper moving around, the Federal Reserve is dramatically scaling back its check processing operations. It operates 22 check centers today, down from 45 four years ago. By 2011, it will close all but four of its check centers. More than 1,700 jobs will be eliminated, Fettig said.

Banks and credit unions are reorganizing in response to the steady decline in checks and rapid growth in electronic transactions.

For example at Bank of the West, the fifth largest bank in California, check volumes have been cut in half since 1990 to 45 percent of all non-cash transactions today.

But the decline hasn't led to layoffs. Tellers have been moved into other services inside branches; banks have expanded call centers and online banking operations.

“You've shifted the workforce. It's gone from a transactional dominated environment to much more of a financial education and sales environment in a branch today,'' said Rolf Nelson, senior vice president of retail banking for Exchange Bank.

New technologies also have allowed merchants and banks to improve check processing, helping cut overhead costs and prevent losses through fraud.

Most checks, for instance, are verified for account information at the point of sale. Increasingly, those checks are converted on the spot into an electronic image, which is transmitted from the merchant to a bank. The customer signs a slip similar to a credit card transaction.

Such electronic imaging also allows checks to be sent among banks without moving the original written check.

“The paper doesn't travel, the information travels,'' Fettig said.

Advances in electronic banking are in response to consumer demand for quicker, easier ways to spend money and pay bills. Credit card purchases remain the leading electronic transaction, but debit card use has rapidly closed ground, according to a Federal Reserve study.

“It can make life much easier for people. You don't have to carry a lot of cash. It provides great records compared with cash. It can really help with money management,'' said Erica Sandberg, spokeswoman for Consumer Credit Counseling Service of San Francisco, a nonprofit agency.

The potential drawback, however, is undisciplined spending.

“The reality is when you have dollar bills it feels much more severe when you spend,'' Sandberg said. “It does sort of remove you from that process when you just swipe a card. It can free up the purse strings.''

Demand for debit cards over checks is most evident among the youngest consumers. Exchange Bank is targeting college students with its latest product, check-less checking. The account offers unlimited online bill paying and debit card transactions, but the bank charges a 50 cent fee for each paper check.

“What banks have found is customers want all of the different options. They want to be able to pay their bills in their PJ's at 10 o'clock at night. They want enough ATM's so that they don't have to walk around with a lot of cash. They want to have the convenience of a debit card,'' Exchange Bank's Nelson said.

For Nicolas and Tiffany Chavez of California, it's cash from the ATM for store purchases; online or automated bill payments for everything else.

“We just stopped writing checks," he said.

Online payments have helped simplify their busy lives. They never lose a bill and can be reminded when payments are due. Monthly car and mortgage payments are automatically deducted from their bank account. The couple pays utility, credit card and other bills from their home computer.

“You get in there and you can whip it out real quick," Tiffany Chavez said. "I think it's because we grew up with computers. It's a generational thing."

Michael Coit writes for The Press Democrat in Santa Rosa, Calif.

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