The Future of Check Processing in the US

October 27, 2004

Abstract

New York, NY, USA October 27, 2004

Celent expects paper check processing to nearly disappear in the US by the end of the decade. Image exchange of transit checks will grow from more than 14 percent in 2005 to 61 percent by 2007. By 2010, more than 93 percent of transit items will be image-exchanged.

In a new report, , Celent examines the significant transformations affecting the American check processing industry. The report scrutinizes the path of adoption of image processing, the fate of check conversion to ACH (often seen as a rival alternative to image exchange), and the prospects of technology vendors, third-party processors, clearing houses, and image exchanges.

Among other key findings, Celent expects the total volume of checks presented to amount to 38 billion this year and to gradually slide down to 24 billion by 2010. The decline in checks processed will accelerate over the next two years as check conversion takes a bite out of volume, but conversion and truncation will not share the check processing roost forever. By 2006, Celent expects that check clearing fees will either level with ACH clearing fees or come close enough to justify switching gears from ARC to check image exchange. ARC volumes are expected to peak by 2007 at 3.5 billion and then fall to 2.6 billion by 2008. By 2010, ARC will be a marginal item in the ACH network. "Given the sheer volume of checks and the number of financial institutions involved in the switch to image exchange, the transition period is expected to last at least six years," comments

Alenka Grealish, coauthor of the report and manager of the banking group at Celent.

On the competition front, Celent anticipates further consolidation among software, hardware, and processing outsourcing providers. Dwindling check volumes around the world, and in recent years the US, have already adversely impacted the revenues of check processing technology vendors. Having plummeted from US$2.3 billion in 2001 to US$1.6 billion in 2004, total industry revenues should continue to decline to US$1.2 billion by 2007. "Consolidation will benefit a small group of software vendors and top-tier third-party outsourcing providers," says

Gwenn Bézard, senior analyst and report coauthor. "Top performers will likely grow their revenues by 5–10 percent annually in the next few years."

The 42-page report contains 29 figures and 4 tables. A

table of contents is available online.

of Celent Communications' Retail Banking and Wholesale Banking research services can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

        

Send mail to info@celent.com with questions or comments about this Web site.

 

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

 

  New York, NY, USA October 27, 2004

The Future of Check Processing  in the US

Return to report Abstract

 

EXECUTIVE SUMMARY 3
DISAPPEARANCE OF THE PAPER CHECK 5
  Fading Use of Checks 5
  Electronification of the Check 6
DAWN OF CHECK TRUNCATION 9
  Check 21: A Summary 9
  Implications of Imaging and Truncation 10
  Slow Yet Steady Migration 13
TRANSITION PERIOD: CONVERSION AND TRUNCATION COEXISTENCE 15
  Foundation of Coexistence 17
  Check Truncation: The End of Game 18
IMPLICATIONS FOR TECHNOLOGY PROVIDERS 19
  Overview of Vendors 19
  Revenue Drag Expected 21
  Attractive Targets 24
FUTURE OF OUTSOURCING AND EXCHANGES 25
  Outsourced Item Processing: Scale Game 25
  Lockbox Processors: A Thinning Field 28
  Consolidation of Paper Clearing Exchanges 32
  Rise of Image Exchanges 35
CONCLUSION 40
 

Sign in to download reports and access personalized information