Check Processing To Change Fed Looking At Modernization

Check Processing To Change
Fed Looking At Modernization

Federal Reserve Board Chairman Alan Greenspan has acknowledged that paper checks aren't about to go away anytime soon. As a result, the Fed is looking at ways it can modernize check processing, he said. Greenspan said Americans write 68 billion checks a year and that the numbers will increase despite the rise of new electronic payment methods. "Our history vividly affirms that the average person is far more sensitive to what form our money - our store of value and medium of exchange - takes than we payment system specialists have readily understood," Greenspan said. It took many generations to move from gold or silver to paper, and it is taking almost as long to move away from paper, he pointed out.

Paperless Society Postponed
One of the ironies in the situation is that the paperless society predicted many years ago when the automated clearinghouse system and other technologies went into place not only did not occur at the predicted pace, but has been paralleled recently by new payment systems that don't go through the ACH such as Internet payments, he said. However, at the same time, new experiments are occurring that are built on the ACH system, such as truncation of checks at the point of sale, he added.

Use of New Technology
The Fed itself is looking at modernizing its check processing system using some of the new technologies. It is testing systems for truncating and electronically presenting checks, including capturing and storing check images and enabling institutions to make payment decisions in real time by accessing the images via the Internet.

It is also looking at ways to strengthen the payments system and automated clearinghouse services and to encourage innovation in the banking industry, he said. The Fed established a Payment Systems Development Committee last summer that will work with private industry to identify specific barriers to improving the payment system, Greenspan said.

Copyright © 2000 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 10, No. 5, 5/00