March 23, 2004

By the year 2007, several factors may contribute to a decline in cash utilization: low-cost technology, consumer adoption trends, the changing economics of cash transportation and perhaps even a regulatory push.

That's why Wells Fargo has been looking ahead at ways to lessen the impact of a potential shift from cash to electronic payments.

The decline in the use of checks has already caused the industry to incur significant write-downs on the necessary infrastructure for check processing. "Checks declined faster than we were ready to manage them," says Mitch Christensen, executive vice president of Wells Fargo Services Company, the support organization for Wells Fargo Corporation (San Francisco, $349 billion in assets). "Some of that was our own problem, because we let the rules get changed before we were really ready to manage that capacity down, so now we're doing wholesale hub shutdowns, and painfully ratcheting down that excess capacity in the check environment."

If a decline of cash indeed comes to pass, get ready for more write-offs, and even more pain. "It's one thing to close down a check hub -- you lease the building out, or sell the building to someone else," says Christensen. "But it's very difficult to get rid of a vault."

Consequently, some banks may end up with stranded costs weighing down their operations. "Whoever owns the infrastructure in a channel that's declining is going to have a challenge," says Christensen.

Watch for the April issue of BS&T to read more on this subject.