I will retire as first vice president and chief operating officer of the Federal Reserve Bank of St. Louis on Jan. 3, 2006. The staff of Central Banker suggested that I write a "final Feditorial" concerning the changing landscape of the payment business. Even though it sounded like an invitation to write my own obituary, I agreed to do so.
I've been involved with the payments system in various capacities since 1968-first as a consultant to financial institutions, then as a commercial bank operations manager and now in my assignment here at the Fed. Having observed and participated in the forecasting of a future "check-less society" by some of the leading operations pundits in the '70s and '80s, it's unlikely that I'm going to offer any predictions for the payment business of the future. But I will leave you with a couple of observations based on my experience.
Ultimately, the types and forms of payments most widely used will be decided by the consumers-individuals and businesses. While financial institutions and others continue to invent and offer various payment "whiz-bang" alternatives, consumers will not adopt these alternatives to any large extent unless they view them as convenient, secure, low-cost and reliable. Checks have survived because to some degree they're all these things. And it's unlikely that consumers will readily abandon any form of payment that meets these criteria-particularly something as longstanding and engrained as the writing of a check.
The number of overall payments will likely continue to grow. While the percentage of checks written as a percent of total payments is declining, there are still large numbers of checks being written. Other payment options are being adopted rapidly as consumers see advantages in the alternatives. Perhaps some of the greatest recent impact on the number of checks being processed by the Fed and financial institutions has come from technologies that convert checks to electronics after the checks are written and deposited or mailed. Financial institutions and the Fed are going to be challenged to "right-size" their infrastructures to accommodate the legacy payment alternatives, as well as the increasing volume in the electronic alternatives. I don't believe it's going to be obvious as to when one abandons the legacy payment infrastructure without a significant risk of losing customers and/or non-interest income supported by legacy products.
But these are not observations of doom and gloom. My final comment is that over the years the financial services industry has proven to be adaptable and resilient. In addition, it includes some very creative people. As a result, some of the other predictions I've heard over the years-in terms of banks, credit unions and others becoming irrelevant-have also been inaccurate. Perhaps the more things change, the more they stay the same-at least in terms of how we, the financial services industry, adapt to consumer requirements. If you continue to do so, I believe you'll continue to have a large market share of payments and payment-related income.
Good luck and best wishes to all the financial services industry comrades I've met over the years.