Think Fast: Check

Beyond the Check - The Evolution of Payments

For decades, checks were the lifeblood of transactions, embodying trust and reliability in the lives of American consumers. More than 40 billion checks crisscrossed the nation annually at their peak in the mid-1990s. Today, the Fed processes less than 4 billion checks annually.

However, the story of the check is bigger than (dwindling) numbers. It’s also been shaped by legislative milestones and pivotal moments in history. Beginning with the Federal Reserve Act of 1913, a legislative cornerstone that entrusted the Federal Reserve Banks with the crucial role of clearing checks at par and serving as the fiscal agents of the United States.

Years later, the Monetary Control Act expanded the Federal Reserve's responsibilities by allowing for the provision of services to all Depository Institutions, which led to significant expansion of Reserve Bank’s check processing structure as check volume continued to grow.?

As the 1990s unfolded, the payments industry was a whirlwind of growth, innovation, and upheaval. This era was marked by globalization, deregulation, advances in technology, escalating competition, and disintermediation. There were pressure points for change around every corner, and the payments space was no exception. Amidst the looming Y2K concerns, the check, although resilient, found itself at a crossroads, facing the impending rise of electronic payments.

The check experienced a new lease on life with the Check Clearing for the Twenty-First Century Act (Check 21). This change was born out of necessity in the aftermath of the tragic events of September 11, 2001, when grounded planes halted the physical transport of checks. Check 21 ushered in the era of the substitute check and electronic processing. This act catalyzed the banking technology we have available today – which is the ability to clear and settle checks without their physical presence. The widespread acceptance of depositing checks via smartphones might seem ordinary to us today, but it represents a significant departure from the not-so-distant past when the manual, physical handling of checks was the norm. ?

Tasked with a Congressional mandate, the Fed embarked on the enormous effort to reengineer its U.S. check processing business. Leveraging a strategic initiative from 2000, the Federal Reserve System launched the initial Check 21 processing platform, positioning itself to facilitate the electronic processing of checks on behalf of financial institutions nationwide.

The Federal Reserve has a distinctive and important role as financial services provider to support a resilient payments ecosystem that’s accessible by financial institutions of all sizes. The range of services we offer, including checks, is reflective of the diverse set of use cases and populations we serve.? ?

While check volume is trending downward, there are still billions written every year. As instant payments adoption and other digital forms of payment continue to rise, it will be interesting to see what the next chapter will be in the check book.

The views I share here are exclusively my own and do not represent the views of the Federal Reserve System or anyone else at the Federal Reserve.