Checks have seen a steady decline in use — with a 2021 Federal Reserve survey finding a decrease of 7%-8% in check volume annually — but the same clearing processes must still be performed by financial institutions. This reduced volume is prompting financial institutions to consider ways to minimize costs and increase efficiencies in the item clearing and settlement process.

PaymentsJournalAs Check Volumes Decrease, Financial Institutions Need to Consider Alternative Clearing OptionsPaymentsJournal As Check Volumes Decrease, Financial Institutions Need to Consider Alternative Clearing OptionsPaymentsJournaljQuery(document).ready(function ($){var settings_ap11910442 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"11910442",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_410428_29",settings_ap11910442); }catch(err){ console.warn("cannot init player", err); } });

The Current State of Item Clearing

When Check 21 was instituted in 2004, there was great excitement about the new process of handling checks electronically. However, as with any innovation that involved image and electronic processing of checks, it was expensive. Over time, as more financial institutions adopted this technology, the costs did eventually decrease as these processes became more efficient and refined.

“I think the death of the check was greatly exaggerated,” said Tony Rosetti, Director of Fiserv Clearing Network at Fiserv. “Checks are still going to exist. And as the volume continues to decrease, financial institutions are at a tipping point where prices will increase.” 

“Checks aren’t going to die,” said Brian Riley, Director of Credit and Co-Head Of Payments at Javelin Strategy & Research. “They’re going to decrease — I agree with that. But there are still times when consumers and businesses need checks, and that brings out the importance of engineering your clearance network properly.”

“You shouldn’t just set that and forget it. As volumes go down and pricing models change and the whole dynamics change, it’s really a good time to understand what’s going on in your clearance process and to make sure that it’s really managed and engineered to the best possible way.”

Banks currently have a few options for their check-clearing needs. These include the Federal Reserve, private sectors, and private exchanges.

According to Rosetti, the private sector was the catalyst that drove the costs of check clearing down through its less expensive channels over the years. Although the Federal Reserve basically sets industry pricing, they have increased fees over the past few years. The pricing increase is actually a participation fee that is assigned to every financial institution.

What Should FIs Expect from Their Clearing Network?

When it comes to the check-clearing process,