Checks as air cargo seen on the way out


In the not-too-distant future, small cargo planes such as the one that crashed in Ferndale last week, killing its pilot, might no longer embark on such journeys. Or at least, the planes might not carry checks.

Backed by federal legislation called the Check Clearing for the 21st Century Act, banks are making plans to send checks by electronic imaging rather than by ground or air transport. Industry experts predict banks eventually will save more than $2 billion a year through the transition.

"It's cheaper, but it's also quicker," said Nessa Feddis, federal counsel for the American Bankers Association. "I don't think checks will become obsolete overnight, but I think the transition will move fairly quickly, assuming there are no glitches."

A significant reduction in check transporting might be apparent in as few as three years, said Alenka Grealish, senior researcher for Celent Communications, a Boston consultant specializing in technology for financial industries.

"Incidents like that crash ... are only more fuel to the fire to move to imaging," Grealish said.

Americans write about 42 billion checks a year, according to the Federal Reserve. The Baltimore branch alone takes in as many as 2 million checks a day, sorts them and sends them to local banks around the country by truck and plane. The banking industry employs more than 50,000 people to process those checks, according to Celent.

All that paper means steady work for cargo pilots like Thomas F. Lennon, who was killed in Ferndale on Friday. Lennon transported checks up and down the East Coast four times a week. His employer, Epps Aviation of Atlanta, is one of many air freight companies that contract with the Federal Reserve to keep canceled checks circulating.

Epps officials said check carrying makes up 10 percent to 15 percent of their business, and they don't see the revenue stream drying up as quickly as some banking experts predict.

"We're not getting any indication that there's a decreased demand for the service," said Rebecca Lorber, a spokeswoman for Epps. "A lot of people prefer to have their checks returned to them, and as long as that's a service the bank provides, we think there will be a demand."

That's probably an accurate assumption, said William J. Tignanelli, who supervises the Baltimore branch of the Federal Reserve Bank of Richmond.

"The check volume is certainly decreasing, but I don't see eliminating checks altogether," he said.

Though crashes such as Lennon's don't happen frequently enough to have an impact on the banking industry, the grounding of cargo planes after Sept. 11, 2001, helped prompt the federal legislation supporting electronic imaging.

The "Check 21" law, scheduled to take effect Oct. 28, does not require banks to send checks by imaging but does require them to accept images or printout copies of checks. Currently, banks have to strike agreements with one another to accept electronic copies of checks, and it's inefficient for them to have thousands of such arrangements.

Banking experts say the law opens the door for a mass transition from paper checks to imaging, but they're not sure how quickly that transition would take place.

Already, the Federal Reserve has eliminated more than 400 check-handling jobs and consolidated the centers it uses for check sorting. Large companies such as Bank One and Bank Of America have invested millions to be on the vanguard of imaging technology.

Tignanelli predicted that many banks will start by sending larger checks electronically so the money from those checks will begin earning interest more quickly and be less vulnerable to fraud. Less valuable checks may be carried by truck or plane for years, he said.

"We've developed systems to move these checks around very quickly and fairly cheaply," he said. "I think doing it electronically might still be a little more expensive. But that's going to change soon."

Tignanelli said he expects a steady rise in imaging next year, as more banks invest in technology, which includes scanners priced between $200,000 and $600,000 and upgraded computer networks capable of sending high volumes of scanned images quickly.

But many smaller banks can't afford to create their own imaging systems and will wait until ready-made systems are affordable and easy to purchase, he added.

Feddis said those smaller banks may one day be the greatest beneficiaries of imaging technology, because they spend a lot of money moving checks from one remote location to another.

For customers, imaging means receiving printed copies of checks instead of the checks themselves with each bank statement. Experts say some banks already have made aggressive moves toward imaging, without experiencing much backlash. But inertia is always strong, they cautioned.

"You definitely want to warm your customers up to the fact they'll be getting images back," Grealish said.

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