US consumers migrate to electronic payments

US consumers migrate to electronic payments

The first comprehensive studies of the retail payments system commissioned by the Federal Reserve System in more than 20 years reveals that 30 billion of the total 80 billion transactions conducted by Amercian consumers and businesses are performed using electronic payment instruments.

According to the new data, cheques have declined from approximately 85 per cent of non-cash payments since the last study in 1979 to about 60 per cent today. Since 1979, the total number of non-cash retail payments has doubled from approximately 37 billion to 80 billion. The number of cheques has grown about 55 per cent from the 1979 estimate of 32 billion.

The data collection effort was commissioned by the Reserve Banks. Approximately 1300 financial institutions, including banks, thrifts and credit unions, and 89 electronic payment processors responded to three surveys that looked at methods and volumes of retail payments.

The first survey, the Depository Financial Institution (DFI) Cheque Study aggregated the total number of cheques processed in the United States for a 12-month period. It also looked at the composition of the cheque market, namely, who (consumers, businesses or government) writes cheques to whom, and why (remittance, point-of-sale, income or casual payment). Results of this study estimate that about 50 billion cheques are written annually in the United States, totaling about $48 trillion in payments. The study reveals that approximately 30 per cent of cheques are "on-us" items, meaning the bank of first deposit for these items is also the paying bank. The remaining cheques are cleared and settled between financial institutions.

Conducted as a complementary study, the Cheque Sample Study involved 149 financial institutions examining more than approximately 29,000 randomly selected deposited cheques and categorising them by type of payor, payee and purpose. The study shows consumers write approximately 50 per cent of all cheques and businesses receive about half of all cheques. The study also reveals that more cheques are written for remittance or bill payment, than for any other purpose (25.7% of cheque volume). The next primary use for cheques is at the point-of-sale, where 19% of cheques are written. Income payments, such as salary and benefits payments, from businesses and governments to consumers equal 17.8% of all cheque payments.

The third survey, the Electronic Payment Instruments Study gathered data on the volume and value of electronic payments processed during 2000. These results show that during 2000, about 30 billion retail electronic payments were originated in the United States with a value of more than $7 trillion. Credit card transactions represent about half of electronic payments (15 billion, worth $1.23 trillion). Debit cards remain the second most dominant electronic instrument with 8.3 billion transactions worth $348 billion. While the Automated Clearing House is the third most commonly used electronic payment method for retail transactions (5.6 billion items, which does not include cash concentration settlement transactions), the ACH carries more than three-quarters of all electronic payment value ($5.67 trillion).

Cathy Minehan, president of the Federal Reserve Bank of Boston, says: "If you compare these results with 1979 research estimates it seems clear that the proportion of cheque payments is declining as substitution for electronic payment instruments accelerates."

"Not only do we have a much better idea about the size of the total retail payments system, we clearly see that electronic payments are taking a strong hold of the market and are poised for significant growth in the next few years," she says.

The Fed anticipates repeating the study every two-to-three years providing detailed information on changing behaviors and trends in the use of payment instruments.

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