FED Receiving Major Pushback on Eliminating Check Clearing Services
- Fed request to rethink check clearing sparks strong pushback from industry leaders
- Fed Vice Chair of Supervision & small business advocates argue checks remain vital for payments
- Critics warn eliminating Fed check services risks cash flow and market stability
Over the past handful of years, we've seen so-called industry experts and pundits, along with mainstream media, announce that "checks are dead." Yet, for those who are actually in the industry and handle check processing daily, the observable truth is that checks remain a major payment channel that continues to persist.
Recently, the Federal Reserve asked for comments on the Future of the Federal Reserve Banks’ Check Services Request for Information (RFI). While acknowledging that checks are not going away anytime soon, the RFI does note that checks continue to decline in volume.
As noted by a recent article from PYMNTS.com:
Rather than signaling an abrupt end to checks, the Fed’s request framed a more nuanced reality. The infrastructure that supports about half of the nation’s check processing is aging, volumes are declining unevenly and maintaining service quality will require thoughtful investment.
While personal checks have seen the most decline, the article notes that checks continue to thrive in the B2B market, particularly midsize.
Checks persist in the middle-market not because of nostalgia, but because they solve real problems. They are universally accepted, deeply embedded in vendor relationships, and tightly integrated into existing accounting workflows.
Checks Hindering Modernization?
As mentioned earlier, the FED points out that "maintaining service quality will require thoughtful investment." From their perspective, it appears that modernization would be easier by eliminating checks, rather than true modernization wherein new technologies are deployed to automate and increase efficiencies.
The article notes that new business owners are increasingly frustrated with check payments in terms of cash flow.
For digital-native professionals and those younger business owners and leaders who are becoming a majority across the Main Street economy, waiting 30 days for an invoice to clear via check is increasingly unacceptable. This 21st-century cohort expects modern payment capabilities like real-time processing, automated reconciliation and seamless integrations with their ERP systems.
Additionally, the efforts of the US Government initiative to eliminate check disbursements are mentioned, as well as other countries, including Singapore.
The Industry Pushes Back
The FED has seen major pushback from the industry, even from its Vice Chair of Supervision Michelle W Bowman:
I cannot support the Request for Information and Comment on the Future of the Federal Reserve Banks' Check Services (Check Services RFI). The Check Services RFI seems to favor the discontinuation of check services by Reserve Banks, even while checks remain an important payment mechanism. The materials note that in 2021, about 11 billion checks were written, and while they accounted for approximately 5 percent of the overall noncash payments, they represented about 21 percent of noncash payments value. Checks remain important payment mechanisms for consumers and businesses.
Ms. Bowman isn't the only one. The National Federation of Independent Business commented:
When the free market ceases at some point in the future to make significant use of checks, then and only then should the FRS consider leaving the entirety of check clearing services to whatever private sector entities still provide those services at that time. But, with reserve banks processing 3 billion checks in 2024, the market clearly continues to make significant use of checks and continues to find having FRS checking services beneficial. The day may come when the FRS can stop doing check-clearing work (assuming the law allows the FRS to stop), but that day is not today, and that day is clearly a long way off.
Of course, the opposition continues to tout other electronic payments and their tangible benefits. But they clearly have their own agenda as many receive fees for each transaction -- boosting their bottom line and hindering cash flow from businesses.
From what we can gather, it appears that many would like to see checks go away. However, the reality remains that 11B+ checks are written each year, and checks will persist for decades to come.
