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Getting rid of paper: savings from Check 21

  • David B. Humphrey
  • Robert M. Hunt

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.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 12-12.

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Date of creation: 2012
Date of revision:
Handle: RePEc:fip:fedpwp:12-12
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  1. Geoffrey R. Gerdes & Jack K. Walton & May X. Liu & Darrel W. Parke, 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.), issue Spr, pages 180-201.
  2. 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.
  3. McAndrews, James & Roberds, William, 1999. "A General Equilibrium Analysis of Check Float," Journal of Financial Intermediation, Elsevier, vol. 8(4), pages 353-377, October.
  4. 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.
  5. Wilko Bolt & David B. Humphrey, 2007. "Payment network scale economies, SEPA, and cash replacement," Working Papers 07-32, Federal Reserve Bank of Philadelphia.
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