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Who uses electronic check products: a look at depository institutions


  • Joanna Stavins


Approximately 42 billion checks were written and collected in the United States in 2000. The vast majority of noncash transactions continue to be settled with paper checks, which despite gains in efficiency and speed, still require costly and time-consuming sorting and transportation. An alternative-electronic check presentment-could save time and money. Yet, electronic services have been slow to take off, possibly because of the way the Federal Reserve prices them. If the pricing structure were revised, there might be more demand from banks for electronic services, and a higher level of efficiency, theoretically, might be obtained. ; This paper uses data on purchases of the Federal Reserve's electronic check services by individual banks and tests whether demand for these services varies among depository institutions. We find that small and large banks use the services differently-large commercial banks are more likely to use MICR Information and Image than are small or medium banks, but the opposite is true for the other electronic check services. Demand elasticities may vary as well, although few of our estimated elasticities are statistically significant, suggesting that demand for the Federal Reserve's electronic check services does not adjust with price shifts, probably because other factors (besides the Federal Reserve's prices) can influence banks' decisions on how much to buy. We find that small and medium banks have more elastic demand for MICR Information than the large banks. However, data matching limited our sample and prevented us from drawing definite conclusions. Our results presented in this article are not conclusive enough to make policy recommendations, and should not be construed as such. Instead, this article is intended to raise the issue of differentiated pricing for electronic check products.

Suggested Citation

  • Joanna Stavins, 2002. "Who uses electronic check products: a look at depository institutions," New England Economic Review, Federal Reserve Bank of Boston, issue Q 3, pages 3-16.
  • Handle: RePEc:fip:fedbne:y:2002:i:q3:p:3-16

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    References listed on IDEAS

    1. Joanna Stavins, 1997. "A comparison of social costs and benefits of paper check presentment and ECP with truncation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 27-44.
    2. Jeffrey M. Lacker & John A. Weinberg, 1998. "Can the Fed be a payment system innovator?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 1-25.
    3. Geoffrey R. Gerdes & Jack K. Walton, 2002. "The use of checks and other noncash payment instruments in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 360-374.
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    Cited by:

    1. Joanna Stavins, 2003. "Network externalities in the market for electronic check payments," New England Economic Review, Federal Reserve Bank of Boston, pages 19-30.


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