Two of the financial services industry’s largest trade groups are urging the Federal Reserve to begin planning for a future where paper checks play a much smaller role in the U.S. payments system. In a joint letter, the American Bankers Association and the Consumer Bankers Association told the Federal Reserve that check usage has been declining for years while fraud and processing costs continue to rise. Their message to regulators is not to eliminate checks overnight, but to start a coordinated, long-term effort to move consumers and businesses toward electronic payment alternatives while gradually reducing certain paper-based check services.
The recommendation comes as the Federal Reserve evaluates the future of the check processing services it provides to banks and credit unions nationwide. Federal Reserve Banks currently collect and process checks for financial institutions for a fee. However, regulators have acknowledged that maintaining this infrastructure could require significant investment as volumes continue to fall.
The trend: declining checks and rising costs
According to the banking groups, paper checks have been on a steady downward trajectory for more than two decades. At the same time:
- The cost of maintaining check processing infrastructure remains largely fixed
- Check fraud losses remain among the highest of any payment method
- Banks are handling fewer check transactions each year
As the groups explained in their letter, declining volume means that the remaining transactions will become increasingly expensive to process. “Absent intervention, fixed processing costs will increasingly be absorbed by a shrinking volume of check transactions, resulting in materially higher per-item costs. This trajectory is not sustainable over the long term.”
What the industry is proposing
Rather than eliminating checks abruptly, the banking groups proposed a two-part strategy for the Federal Reserve:
- Accelerate the shift to electronic payments
The groups want the Fed to work with banks, businesses, technology providers, and government agencies to promote alternatives such as:
- ACH payments
- Instant payment rails like FedNow and RTP
- Digital invoicing and electronic bill pay
Education campaigns and incentives for digital payment adoption would also be part of the strategy.
- Gradually reduce certain paper check services
The groups recommended that the Federal Reserve review its existing check services and identify areas where it can reduce costs by eliminating services that are underused or duplicative.
However, the letter stresses that core infrastructure should remain intact for now. Certain services, including image cash letter processing, return item handling, and check adjustment services, remain critical to banks that still rely on check payments.
Why the transition will take time
Despite the decline in check usage, billions of dollars in check payments still move through the financial system each quarter. In the third quarter of 2025 alone, the Federal Reserve cleared roughly $2.3 trillion in check value.
Checks also remain embedded in several areas of the economy, including:
- Government disbursements
- Insurance claims and healthcare reimbursements
- Legal settlements and escrow accounts
- Payments from older or digitally underserved consumers
Because of this, the groups recommend a phased transition that could take up to a decade, allowing the industry to gradually shift toward electronic payments without disrupting critical payment flows.
For companies across the credit and collection ecosystem, including lenders, servicers, and collection operations that still receive payments by check, the discussion signals that regulators and major industry groups are beginning to plan for a future where paper checks become far less common.
