The commercial banking system not only creates the principal menans of payment (demand deposits) and serves as the custodian of this supply of money but also provides the means by which payments can be simply and expeditiously made. This is the collection system through which checks, primarily, but also notes, drafts, coupons, and money transfers by letter and telegraph are made each day in tremendous and ever-increasing volume. As we move toward a "checkless" society, payments will still be made through electronic debits and credits to bank accounts maintained in bank computer memories. Some automated clearing houses will be established in the future cities to handle electronic transfers, primarily the direct deposit of social security payments, the deposit of payrolls to the bank accounts of employees, as well as certain preauthorized debits such as insurance payments. It is likely that point-of-sale computer entries will eventually swell the volume of payments that can be made without the use of paper checks.
Checks serve as money, although they are not legal tender, because they can be collected quickly and cheaply through the banking system. The collection of checks and other forms of payment orders is largely a routine banking function. The law with respect to negotiable instruments has been well standardized, and the procedures of collection, almost as uniformly followed, are set forth in detail in the regulations of the Federal Reserve System. Nevertheless, if one includes the payment and receipt of funds through the teller's window, more man-days are spent by banks in the performance of the collection function than in any other. Available figures indicate that close to onethird of bank operating costs, exclusive of interest paid, are the direct costs of their teller, transit, and bookkeeping operations. The growth in use of bank credit cards as a means of payment may shift these costs but will probably not reduce them. From the viewpoint of bank policy, the system is primarily a service function.
