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Federal Reserve Check Volume Decreases For Second
Consecutive Year, ACH Volume Continues to Rise
By Michael Herd, NACHA – The Electronic Payments Association
August 15, 2002
The number of checks processed by the Federal Reserve System decreased in 2001 for the second consecutive year, according to the Federal
Reserve System's annual report to Congress. The report is additional evidence that check use in the United States is now declining. The Federal Reserve's August 14, 2002 revision to its recent retail
payments system research concluded that check use peaked sometime in the mid-1990s and has since been declining.
In 2001, the Fed processed 16,905,016,000 checks, down 0.5 percent from the 16,993,800,000 checks processed in 2000. In contrast to check
volume, the Fed's automated clearing house (ACH) volume increased by 16.7 percent in 2001 to 4,448,361,000 items, up from 3,812,191,000 items in 2000.
The Fed's annual report also shows that costs and prices for check processing continue to increase. The unit cost to the Fed to process a
check increased to 4.5 cents in 2001, up from 4.0 cents in 2000. Additionally, the unit price charged by the Fed for check processing increased to 4.5 cents, up from 4.3 cents. The unit cost for an ACH
payment was 1.5 cents, down from 1.6 cents in 2000, and the unit price was 1.8 cents, down from 1.9 cents. The unit cost to the Federal Reserve System of a check is now three times higher than that for an ACH
payment. The unit price is two and a half times higher.
The data were gathered from the Federal Reserve System's annual reports to Congress on Reserve Bank operations. Unit costs are calculated by
dividing total system expenses by transaction volume, and unit prices by dividing total product revenue by transaction volume. In 2001, the Fed incurred $754.4 million in check processing costs and generated
$764.7 million in check revenue. ACH costs were $67.7 million, and revenue $79.4 million.
Long-term trends show a distinct improvement in the position of an ACH payment versus a check. As recently as 1995, unit costs and prices for
checks and ACH payments were virtually identical. Since then, the unit cost for an ACH transaction has decreased from 3.5 cents to 1.5 cents, while the unit cost for a check increased from 3.6 cents to 4.5
cents.
These changes mirror the fees charged by the Federal Reserve Banks for payment services. According to the Fed, its price index for ACH
services for the Year 2001 fee schedule is down 49 percent from 1996, while fees for check services are up 23 percent during that period. The Fed says that the decline in ACH prices is partly due to the
consolidation of data processing facilities and the inherent economies of scale in electronic payment processing.
The Fed's ACH volume has tripled since 1993, from 1.5 billion items to almost 4.5 billion items in 2001.
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