Adapting as Payments Evolve


By Karl W. Ashman, Senior Vice President, Administration and Payments

Karl W. Ashman

The Federal Reserve System plays an integral role in ensuring an efficient and reliable payment system, allowing consumers, businesses and other organizations to be confident in making transactions. The Federal Reserve Bank of St. Louis, in particular, has played a significant role in helping the System respond as consumer payment preferences have shifted over the years.

It wasn't that long ago that checks were the dominant form of payment. As recently as 2007, the St. Louis Fed alone was working around the clock to process approximately 3.5 million checks per day. Across the System, the Fed in the early 2000s had 45 check-processing sites. These were split among the 12 Reserve banks and their branches, including the St. Louis Fed and its three branches in Little Rock, Ark., Louisville, Ky., and Memphis, Tenn.

One of the challenges of having so many processing sites was that many different methods, software programs and platforms were used. Toward the end of the 20th century, the System embarked on a redesign of its check-processing services. The effort, called Check Modernization, was highly successful. It also occurred as checks were rapidly losing favor as the preferred method of noncash payments by consumers. One study on the Fed payment system shows that the total number of checks processed fell from about 50 billion in 1995 to about 37 billion in 2003. The System began consolidating its 45 check-processing sites in 2003, eventually going with a single processing site—the Federal Reserve Bank of Atlanta—by early 2010. In the Eighth District, check processing for the Little Rock and Louisville branches was consolidated in 2004, the Memphis Branch stopped processing checks in 2008, and the St. Louis Fed processed its last commercial check Feb. 20, 2009.

When the branches lost their check-processing responsibilities, many lost the bulk of their operations work. The only such work that was left was providing cash services for commercial banks. But without the check business to pay for support and overhead costs, it was no longer economically efficient to provide these cash services. The St. Louis Fed pioneered an alternative that has since been adopted in some Fed offices: cash depots.

With a cash depot, the Fed contracts with a third party, such as an armored carrier, to act as a secure collection point for Federal Reserve currency deposits. The depot also distributes currency that depository institutions order from the Fed. The work of counting deposits and preparing orders is done by a Fed office in another city, and the Fed pays for the transportation between the Reserve bank office and the depot operator.

Establishing cash depots made it possible to continue to provide cash services to financial institutions on a timely basis while cutting the Fed's costs. In fact, this innovation led to annual savings of $2 million to taxpayers.

Today, cash operations continue to be a significant function within the St. Louis Fed. In 2013, the St. Louis Fed and its Memphis Branch received and sent out about 3 billion Federal Reserve currency notes, shredded more than 136 million notes deemed unfit for circulation and sent more than 3,000 suspected counterfeit notes to the U.S. Secret Service for investigation.

These changes to the work done by the St. Louis Fed have contributed to the ongoing evolution of its workforce. At one time, most employees worked in operations; today, more and more are skilled in technology and business analysis, in addition to banking and economics.

The St. Louis Fed continues to examine the future of payments in the U.S., recognizing continued shifts in consumer preferences and coming up with innovative ways to ensure stability and efficiency of the payment system.