ORLANDO, Fla.--Acknowledging that this nation continues to depend on a paper check system that is less efficient than an electronic one might be, Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta, asked whether it would be best "to do the unthinkable and try to make the check system better as we simultaneously plan its demise?"
Speaking today at a conference on image technology put on by the Bank Administration Institute, Guynn (pronounced "gwin") pointed out that the paper check system is inefficient for the government and the Fed and from an end-to-end societal perspective. But there is an important reason why more than 60 billion checks a year are still written: Most financial institutions have not yet been able to take advantage of systems, cost discipline measures, and economies of scale to warrant moving entirely from paper checks to electronic debit-and-credit entries while they simultaneously invest in an increasingly complex set of emerging electronic payment options.
He suggested that electronic check presentment (ECP, also known as check truncation) is one method of improving the current system without standing in the way of other promising electronic alternatives. With ECP, the bank or Federal Reserve Bank of first deposit converts the check into an electronic transaction for further clearing and posting to the customer's account. The check is imaged for further reference or retrieval at the originating organization, and the paper may be eventually destroyed.
Guynn said that the Fed has organized an industry advisory group for ECP. The group has already agreed on key principles and has organized several pilot projects that look at ECP for low-dollar exchanges, travelers checks, and return items. "We are very excited about this effort and the interest that exists in the industry," he said.