Reports of imminent death aside, checks aren’t vanishing, and banks need to deal with a future still filled with paper.

For one thing, people—and, especially, businesses—will keep writing them. And the efforts in the banking world have been more to electronify checks than replace them with electronic payments. So while the various methods of squeezing paper out of check processing are making progress, the day when there are no checks is far away, says Alenka Grealish, manager of Celent Communications’ banking practice.

“I don’t think we’re going to be around” when checks vanish, says Grealish, so check processing will persist. “Somebody has to be around to be the last resort—the person processing the last 100 checks.”

While people and businesses continue writing checks almost unabated, fewer of them are being processed every day: According to Grealish’s research, check processing, which has declined by 7.5 percent on a compounded annualized growth rate (CAGR) since 2002, will further decline by a 9.5 percent CAGR between now and 2010.

But even when 90 percent of checks are electronically processed, and Grealish expects that day to come by 2010, plenty of checks will still flow through the system—at least 20 billion, or 80 million a day, compared with about 33.5 billion in 2004, she estimates. So even under the most optimistic scenario, banks will need to be able to process paper checks well into the future: The event horizon for a checkless world is, at best, indeterminate.

Not to say that pressure won’t keep building to minimize paper checks: Among other factors militating against paper checks, processing costs will keep rising, and transport options will keep shrinking, until the sheer economics of check processing will drive much processing into the hands of a few third-party outsourcers with enough volume to make a living out of a business that was once the average bank’s meat and potatoes.

But meanwhile, and try as they may, banks won’t be able to punish their customers enough to stop all of them from writing checks. Ghoulish as it may sound, the banking system qua system is going to have to wait until check writers who are now 50 or 60 die off, which guarantees that on the retail side alone, checks have at least another 20 years of life in them.

Meanwhile, getting businesses to stop writing checks is almost a fool’s errand. For one thing, the game of treasury management is built around checks, the post office, and float. For another, the accounts system of the typical business is still what you could call a paper-rich environment, and not every business is big enough to profit from the agony a wholesale switching to computerized systems entails. Also, even if every large corporation switched to a fully computerized accounts system tomorrow, rivers of paper checks would still flow from the nation’s small businesses. And lawyers are very attached to paper receipts, whether or not electronic ones are admissible in court.

Banks are just as bad as check writers, she adds. Business checks are a fee-generating cash-cow for banks, and even the most enthusiastic advocate of electronic payments would be hard put to convince a typical bank to abjure business check processing in a period when almost every revenue source is under attack by technology and non-bank competitors.

Still, Grealish says there are ways to encourage even businesses to write fewer checks, and eventually whittle down the volume. “There are carrots and sticks,” she says. “Banks can offer economic incentives to customers to move to electronic payments. And I think the big cash-management banks will develop products that reflect the attributes of a check, but are electronic,” like a procurement card that replicates controlled disbursement and replicates the float.

There are other factors working against a long, prosperous future for checks, she thinks. While no bank has to pay a penalty for accepting only paper payments, notes Grealish, three significant trends are conspiring to discourage the practice, aside from rising processing costs.

These include the aforementioned decline in the number of air couriers specializing in checks: Grealish expects costs to skyrocket as much as 10 percent per year as a result. Also, she points out, rising short-term interest rates inflate the cost of float: She estimates that 50 extra basis points in the federal funds rate means an extra $50 per $1 million in float for a bank.

Added to this will be that generally increasing processing cost: The Federal Reserve, for instance, has been trimming check processing facilities and raising processing prices for the past several years. Costs like that should increase as much as 23 percent by 2010, she estimates. Also, says Grealish, third-party processors will gradually stop supporting paper-based processing technology over the next five years. The result of all these pressures will be a marked diminishment of paper in the system within four years, she says.

Don’t expect paper checks to vanish, though. Paper checks, diminished in numbers or not, will be with us for a long time. It’s like what actor Art Carney’s character said in one of his last movies, Harry and Tonto: “Nothing ever changes in this town—they just move the names around.” (Contact: Celent Communications, Alenka Grealish, 503-228-0878)