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 / Third Quarter 2001 / Issue 24(originally published by Booz & Company)


Recent Studies

  • Multinational Representation. New-product development teams must include managers from every country in which the product is to be launched, and meetings in person provide much richer information exchanges than e-mails and phone calls. When the Japanese electronics firm Sanyo launched its line of cordless telephones, it declared that the phones had to have a “soft appearance.” Only through face-to-face meetings could Sanyo’s managers learn what “soft appearance” meant in each country so they could modify their phones accordingly.
  • Managers with Overseas Experience. Managers of new-product development teams with experience abroad are better able to interpret information provided by country brand managers than are supervisors who have never left headquarters.
  • Frequent Information from Country Managers. Regular communications from managers in each country give new-product development managers the information they need to detect cultural differences.

The End of the Check?
James McAndrews and William Roberds, “The Economics of Check Float,” Economic Review, Federal Reserve Bank of Atlanta, Fourth Quarter 2000

Americans use far more checks than Europeans or Canadians do. In 1997 (the most recent year for which statistics are available), Americans used 66 billion checks, an average of 250 per person. In the U.S., 73 percent of payments were by check; in Britain, only 31 percent; in Canada, 36 percent.

Checks are very costly for banks, note James McAndrews, a vice president of the Federal Reserve Bank of New York, and William Roberds, an assistant vice president of the Federal Reserve Bank of Atlanta. On average, it costs a bank $1.60 more to process a check than to process a comparable electronic payment (such as a debit or credit card). This means that check use costs U.S. banks $100 billion a year. Even if Americans only decreased their check use to the level of Britons or Canadians, U.S. banks would save $60 billion.

Why are checks so popular? Part of the reason is “float,” the time between the day a check is deposited and when it clears the check-writer’s bank. But another reason is a clause of the Uniform Commercial Code that mandates that a bank has “the right to physical inspection” of a check before it is honored. This means that banks must transport the check, and not just hold it and transmit the payment data electronically, causing additional delay.

There are several proposals to speed up check payments, Messrs. McAndrews and Roberds write. One would allow stores to hold the customer’s check and transmit payment data from it as if it were a
debit or credit card. Another would automatically back-date the day a check is settled to the time of deposit, eliminating float.

But consumers won’t easily give up checks, the authors say, unless they get something in return. If banks want consumers to use debit cards more often, they will have to find ways to get people to stop using checks, either by offering discounts as an incentive for electronic payment or by imposing a surcharge for check use. If people don’t respond to this, the authors warn, cost-conscious banks — allied with the Federal Reserve — might persuade Congress to control or eliminate check use.

Martin Morse Wooster, Martin Morse Wooster is an associate editor of The American Enterprise, a visiting fellow at the Capital Research Center, the education book reviewer of the Washington Times, and a contributing editor to Reason and Philanthropy.
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