Here's my check

American Demographics, March, 1998 by Bill Stoneman

Analysts disagree about whether the paper check is a dying way to exchange legal tender. The check has plenty of competition, as banks, retailers, and the government find ways to help Americans part with their money electronically. But it still may be around a while.

Forecasters have been predicting a decline in the use of paper checks for 20 years or more, reasoning that they would soon be eclipsed by electronic transfers. The decline hasn't happened yet. But it may be closer than ever, given increased availability and acceptance of debit cards, home-computer banking programs, and other digital payment systems.

If consumers, businesses, and governments really do put away the checkbook in the near future, banks will have to make some serious adjustments in their capital budgets, revenue forecasts, and marketing strategies. But there is little agreement among today's prognosticators about when non-paper methods will become more popular than checks. Most do agree that the use of checks has slowed, and that the total volume of checks will shrink eventually.

Some analysts even cite the same underlying factors in predicting opposite effects. For instance, one observer of the banking business says a move by the federal government to slash its use of paper checks could actually fuel growth of overall check volume. The government is requiring recipients of Social Security and other benefits to accept electronic payments by January 1, 1999. That will force millions of people without banking relationships to open accounts--probably checking accounts--for the first time.

The combination of population growth, economic growth, and the government-induced expanding base of checking-account customers may boost the volume of checks written in the U.S. by about 2 percent annually through 2005, projects The Green Sheet, a newsletter for independent sellers of bank credit-card-processing services to small merchants. This growth rate is much lower than what occurred during the previous three decades, but reflects what publisher Paul H. Green calls the "love affair with the paper check."

Other observers say the same government push to reduce paper handling and trim postage bills may encourage wider use of electronic alternatives to the paper check. This could cut into the number of checks written each year.

For example, food stamps will soon be distributed via electronic benefit cards. If merchants want to sell to food-stamp recipients, they'll have to install equipment to read the cards. The same terminals in all likelihood will handle credit- and debit-card payments. The number of stores that can't take electronic payments should dwindle rapidly, providing increased opportunity for credit-and debit-card users to leave their checks and cash in their pockets, says Mary Donadoni, vice president and managing director of the retail banking group of PSI Global, a financial services consulting firm in Tampa, Florida.

PSI and the Bank Administration Institute (BAI), an industry research group, forecast that the number of checks will barely grow in 1998 and 1999 over 1997's level, and will turn down slightly in 2000. This new report, now in draft form, does not project specific numbers beyond the turn of the century. But Donadoni says the decline will snowball as debit cards and a host of other electronic alternatives to checks catch on with consumers.

Other forecasts fall between the The Green Sheet's expectation for continued growth and the BAI/PSI's view that growth has virtually ended already. Mentis Corporation, a financial services technology research firm in Durham, North Carolina, expects 2 percent annual growth in checks to continue until 2000, but ventures no farther than that. The Nilson Report, a consumer payment systems newsletter based in Oxnard, California, forecasts annual growth of 1 percent through 2001, slowing to 0.8 percent by 2005.

The range in projections boils down to varying expectations for how quickly consumers and businesses will adopt alternative payment mechanisms. Habits change slowly, say The Green Sheet's Green and Allen H. Lipis, chief executive officer of Global Concepts Inc., a payment system consultant in Atlanta. They note that checks work efficiently and reliably, and that many forecasters were wildly off base 20 years ago when they predicted the demise of the check.

That's true to a point, says PSI's Donadoni. But once conditions are right, acceptance of new technologies can be quite rapid, she says. This is evident in the last several years' explosive growth in home computing.

Companies like these who forecast paper-check volume are taking risks, Lipis says. It's nearly impossible to pin down exactly how many checks are currently being written. Most sources put the 1997 figure between 63 billion and 65 billion. These figures are estimates at best, given the difficulty of collecting comprehensive information from 10,000 banks and savings associations nationwide, or from surveying consumers who probably don't even know how many checks they write each month.