Fed Text: Paper Checks Continue to Give Way to Credit Cards

WASHINGTON (MNI) – The following are excerpts from a report by
the Federal Reserve’s Financial Services Policy Committee Wednesday
that showed paper checks continued to give way to electronic payments in
2009:

More Than Three-Quarters of Noncash Payments Are Now Electronic

Cleveland, Ohio, Dec. 8, 2010 — The Federal Reserve’s 2010 study
of noncash payments released today revealed that in 2009 more than
three-quarters of all U.S. noncash payments were made electronically, a
9.3 percent annual increase since the Federal Reserves last study in
2007. This growth and other statistics in the study emphasize
consumers increasing adoption of electronic alternatives for payments
in the United States. The 2007 study revealed that in 2006 roughly
twothirds of the payments were made electronically.

From 2006 to 2009, the period covered by the study, all types of
electronic payments included in the study grew with the exception of
credit cards. (Wire transfers were not included in the study.) The
number of noncash payments in the United States grew more slowly between
2006 and 2009 than in prior periods and the total value of noncash
payments declined. As in previous years, check payments continued to
decline and were eclipsed by debit cards as the most used noncash
instrument in the United States.

“The results of the study clearly underscore this nation’s efforts
to move toward a more efficient electronic clearing system for all types
of retail payments,” noted Richard Oliver, executive vice president of
the Federal Reserve Bank of Atlanta, which sponsored the study. “It is
also likely that the results reflect changing consumer behavior during
difficult economic times.”

The number of noncash payments in the United States increased 4.6
percent per year since 2006, approximately the same pace as the previous
three-year period, 4.5 percent. The value of noncash payments
experienced an annual rate of decline of 1.6 percent over the last three
years compared to an annual growth rate of 3.9 percent from 2003 to
2006. About 20 billion more electronic payments were made in 2009 than
in 2006 which represented a 9.3 percent annual increase. In contrast,
the number of checks paid fell by about 6 billion or 7.2 percent over
the same period, while the number of checks written fell by about 5.7
billion, an average of 6.1 percent per year.

While checks written by consumers to businesses for household bill
payments and point-ofsale transactions represented 44 percent of all
checks written, both payments types declined by 4.9 billion or 10.6
percent annually, reflecting growing comfort of consumers with
electronic options. The use of checks between businesses and between
businesses and individuals experienced more modest declines. Checks
written between individuals, which may include some very small
businesses, actually increased slightly.

The annual use of debit cards increased by over 12.8 billion
payments, the largest increase by any payment type during the survey
period, reaching 37.9 billion payments in 2009, which represented a 14.8
percent annual growth rate. Debit card usage now exceeds all other forms
of noncash payments and, by number of payments, represents approximately
35 percent of total noncash payments. Over the same period, automated
clearinghouse (ACH) payments grew to 19.1 billion, an increase of 4.5
billion payments. Credit card payments declined by 0.1 billion to 21.6
billion in 2009. Prepaid card transactions had the lowest transaction
volume of all noncash payments at 6 billion; however, these transactions
represented the fastest growing payment type, increasing 21.5 percent
annually from 2006 to 2009.

The check collection process continued to become increasingly
electronic over the survey period. Approximately 96 percent of interbank
checksXthose drawn on a different depository institution than the one
at which they were depositedXinvolved electronic clearing, compared to
roughly 43 percent during the 2007 study. Approximately 13 percent of
checks were deposited as images at the bank of first deposit.

“Not only does this study show the continued move from checks to
electronic means of making payments, but we also see the extraordinary
progress the industry has made in electronifying the clearing process
for the 27.5 billion checks still being written,” added Oliver.

The 2010 Federal Reserve Payments Study consists of three research
efforts commissioned to estimate the annual number, dollar value, and
composition of noncash retail payments in the United States. The
Depository Institutions Payments Study included responses from
approximately 1,300 financial institutions (commercial banks, savings
institutions and credit unions). The Electronic Payments Study included
responses from 94 of the largest payment networks, processors and card
issuers. The Check Sample Study characterized check payments according
to type of payer, payee and purpose. Study data are based on a random
sample of checks processed by 11 banks that use the Viewpointe archive.

A summary report of the 2010 Federal Reserve Payments Study is available at www.frbservices.org.
Detailed reports on the individual studies will be available in early 2011.

–Number of checks paid: 24.4 billion

–Value: $31.6 trillion

–Annual rate of decrease in transactions from 2006 to 2009: 7.2
percent Electronic Payments

–Number of electronic payments: 84.5 billion

–Value: $40.7 trillion

–Annual growth rate of transactions from 2006 to 2009: 9.3 percent
ACH Transactions

–Number of ACH payments: 19.1 billion

–Value: $37.2 trillion

–Annual growth rate of transactions from 2006 to 2009: 9.3 percent
Credit Cards

–Number of credit card payments: 21.6 billion

–Value: $1.9 trillion

–Annual rate of decrease in transactions from 2006 to 2009: 0.2
percent