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Getting rid of paper: savings from Check 21

Author

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  • David B. Humphrey
  • Robert M. Hunt

Abstract

The authors estimate the cost savings to the U.S. payment system resulting from implementing Check 21. This legislation initially permitted a paper substitute digital image of a check, and later an electronic digital image of a check, to be processed and presented for payment on a same-day basis. Check 21 has effectively eliminated the processing and presentment of original paper checks over multiple days. By shifting to electronic collection and presentment, the Federal Reserve reduced its per item check processing costs by over 70 percent, reducing estimated overall payment system costs by $1.16 billion in 2010. In addition, payment collection times and associated float fell dramatically for collecting banks and payees with consequent additional savings in firm working capital costs of perhaps $1.37 billion and consumer benefits of $0.64 billion.

Suggested Citation

  • David B. Humphrey & Robert M. Hunt, 2012. "Getting rid of paper: savings from Check 21," Working Papers 12-12, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:12-12
    as

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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2012/wp12-12.pdf
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    References listed on IDEAS

    as
    1. Garcia-Swartz Daniel D. & Hahn Robert W. & Layne-Farrar Anne, 2006. "The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics," Review of Network Economics, De Gruyter, vol. 5(2), pages 1-24, June.
    2. McAndrews, James & Roberds, William, 1999. "A General Equilibrium Analysis of Check Float," Journal of Financial Intermediation, Elsevier, vol. 8(4), pages 353-377, October.
    3. Bolt Wilko & Humphrey David, 2007. "Payment Network Scale Economies, SEPA, and Cash Replacement," Review of Network Economics, De Gruyter, vol. 6(4), pages 1-21, December.
    4. Paul W. Bauer & Geoffrey R. Gerdes, 2009. "The check is dead! Long live the check! A Check 21 update," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jun.
    5. Geoffrey R. Gerdes & May X. Liu & Darrel W. Parke & Jack K. Walton, 2005. "Trends in the use of payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 91(Spr), pages 180-201.
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    Cited by:

    1. David B. Humphrey, 2014. "Benefits from Collecting Checks Electronically," The American Economist, Sage Publications, vol. 59(2), pages 128-133, November.
    2. Hasan, Iftekhar & Martikainen, Emmi & Takalo, Tuomas, 2015. "Promoting efficient retail payments in Europe," Journal of Payments Strategy & Systems, Henry Stewart Publications, vol. 8(4), pages 395-406, January.
    3. Elbahnasawy, Nasr G., 2021. "Can e-government limit the scope of the informal economy?," World Development, Elsevier, vol. 139(C).
    4. David B. Humphrey & Robert Hunt, 2013. "Cost Savings from Check 21 Electronic Payment Legislation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1415-1429, October.
    5. Hasan, Iftekhar & Martikainen, Emmi & Takalo, Tuomas, 2014. "Promoting efficient retail payments in Europe," Research Discussion Papers 20/2014, Bank of Finland.
    6. repec:zbw:bofrdp:2014_020 is not listed on IDEAS
    7. Richard J. Sullivan, 2012. "The Federal Reserve’s reduced role in retail payments: implications for efficiency and risk," Economic Review, Federal Reserve Bank of Kansas City, vol. 97(Q III).

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