Check Imaging Growth Contributing To the Decline Of Paper Checks and Its Own Demise

Implications: Implications: After much prodding and poking banks are integrating image-exchange into their infrastructures to reap the cost benefits of cheaper check processing. Image volume will grow from 2.9 billion items in 2006 to a high of 15.3 billion in 2008 and decline to 10.8 billion items by 2011. Ironically, the image-exchange networks' success may lead to an early demise, which is expected to occur in just two years. The image -exchange networks image volume grew by 95% in a six-month period from Nov 2006 - May 2007. In addition, average daily image volume grew by 526% from May 2006 - May 2007, with an annual volume of 5.7 billion images received. The total dollar amount of check images and substitute checks grew by 132% to $984 billion in May 2007. Total check volume has declined from 50 billion items in 1995 to less than 11.8 billion items in 2005, due to the higher costs to process paper checks, the introduction of new payments instruments and consumers' change in payment behaviors.

Analysis: Comments/Perspective:

Image exchange networks and the financial institutions that use them to process checks electronically may have to contend with a dwindling supply of checks as the volume of image-exchange items will more than quadruple this year, with another increase in 2008, however, after 2009 image-exchange networks may need to venture into other markets to grow their networks because of the decline in image volume. Additionally, check volume has also declined over the last 10 years as a result of the costs to process checks which are higher than image-exchanged items, the introduction of new payment instruments such as credit cards, debit cards, contactless cards and alternative payments such as PayPal and Google, as well as consumer's payment  preferences of switching to more convenient and faster payment instruments over writing checks.

1.  Due to the exponential grow of check image-exchange since the passage of the Check 21 Act in 2004, the Federal Reserve will begin converting its check processing facilities to image-exchange by streamlining operations to reap from the benefits of cheaper check processing as a result of the introduction of image-exchange networks

2.  The image-exchange networks may seek business in other markets where they can leverage their strengths in converting paper documents into electronic files

The networks are running out of time to adopt plans for alternative markets to offer image-exchange services and because networks are owned by one or several financial institutions, they will need to get buy-in from the banks to venture into alternative markets to continue to grow image-exchange volume.