Financial Update (First Quarter 2002)


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Bank Securitization

Subordinated Debt

Board Appointments

Small Banks

Atlanta Fed Board

Guynn’s Speech

2002 Outlook


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Data Bank

The Docket

New Research Provides Snapshot of U.S. Retail Payments

Check Writing
American consumers and businesses make 80 billion retail payments annually, nearly 50 billion by check and 30 billion by electronic instruments, such as credit cards, debit cards and the automated clearinghouse. While check volume has grown, checks’ share of noncash payments has declined from approximately 85 percent of noncash payments in 1979 to about 60 percent today.

by Susan Robertson, assistant vice president

For more than 20 years educated guesses and speculation have been the primary source of information about the retail payment system in the United States. The size of the check payment market and the relationship between checks and electronic payments are significant issues for payment system participants, including the Federal Reserve, depository financial institutions, payment processors and vendors, businesses, and consumers. How many checks are written annually, for what purposes, and by whom? Are electronic payments affecting the noncash payment market?

To address these questions, the Federal Reserve sponsored the first authoritative study of the retail payment system since its 1979 check collection study. The research project conducted in 2001 consisted of three initiatives: the Depository Financial Institution (DFI) Check Study, the Check Sample Study and the Electronic Payment Instruments Study.

Their combined results provide a snapshot of U.S. retail payments in the beginning of the 21st century. The three studies reveal that American consumers and businesses make 80 billion retail payments annually, nearly 50 billion by check and 30 billion by electronic instruments, such as credit cards, debit cards and the automated clearinghouse (ACH). Checks have declined from approximately 85 percent of noncash payments in 1979 to about 60 percent today.

Just checking
The DFI Check Study gathered paid-check volume and value data for the months of March and April 2001. Based on data from nearly 1,300 U.S. financial institutions, the study estimates that 49.6 billion checks are written annually in the United States (up from 32 billion in 1979), accounting for $47.7 trillion in payments (up from $24 trillion). The average value across all checks is $961 (up from $757).

For returned checks, the study estimates that 300 million of the 49.6 billion checks (or 0.6 percent of total check volume) are returned. The average value of a returned check is $656.

Cover Story Callout 1

Who and why?
A second study, the Check Sample Study, probed check-writing data for dynamic characteristics. Moving beyond the total number of checks written annually and their value, the Check Sample Study quantified who writes checks to whom and for what purposes.

Check writers and recipients were categorized as consumers, businesses or governments. After randomly selecting nearly 29,000 checks deposited at 149 depository financial institutions, the study found that consumers are the predominant check writers, accounting for slightly over 50 percent of checks written to other consumers, businesses and governments. Businesses make up the largest recipient category and account for almost 50 percent of all checks received (see table 1).

Payer Consumer Business Government Business/
Unknown Total
Consumer  11.2  33.8   1.7   2.6   1.6 50.9 (± 2.2)
Business  14.6  15.0   0.8   1.0   0.9 32.3 (± 2.1)
Government   2.5   0.7   0.2   0.0   0.1   3.5 (± 0.7)
Business/Government   0.6   0.4   0.0   0.1   0.1   1.3 (± 0.1)
Unknown   0.1   0.2   0.0   0.0  11.6 12.0 (± 2.6)
Total  29.1  50.2   2.7   3.7  14.3 100.0
  (± 4.4) (± 3.2) (± 0.5) (± 0.6) (± 2.5)  

Note: Standard errors are in parenthesis.

Although consumers write more checks than businesses or governments, the value of the consumers’ checks accounts for only 19 percent of the total value of payments made by check. In contrast, businesses write checks accounting for 62 percent of the value of all checks.

The study identified six broad categories of check writing by purpose. All consumer-to-consumer payments were termed casual. Check payments to an individual from either a business or a government entity were categorized as income; they included payroll, pension, expense reimbursement and investment disbursement. Rebate checks were also classified as income. A third category, remittance, covered check payments from any type of a payer to either a business or a government entity but did not include check payments made at the point of sale.

Payments from any type of payer to either a business or a government entity that occurred at the storefront, over-the-counter retail remittances, mobile transactions such as checks written at home to repairmen, and C.O.D. payments were categorized as point-of-sale (POS) payments. Two remaining categories, remit/POS and unknown, account for payments where the purpose could not be distinguished.

The Check Sample Study revealed that more checks are written for remittance or bill payment than for any other purpose (25.7 percent of check volume). The next primary use was at the point of sale, where 19 percent of checks are written. Income payments from businesses and governments to consumers equal 17.8 percent of all check payments.

Future opportunities to substitute electronic payment alternatives for checks appear significant for payment system participants. The Check Sample Study results indicate that approximately half of all check payments could be replaced by consumer substitution of direct deposit, electronic bill payment, debit cards or credit cards.

Cover Story Callout 2

The check isn’t always in the mail
A third study, the Electronic Payment Instruments Study, set out to estimate the volume and value of electronic payments made in the United States during 2000. This study was conducted independently of the two check studies but reported on similar types of payment attributes. The study revealed that, in 2000, 29.5 billion electronic payments were made by consumers, businesses and governments, representing a total value of $7.3 trillion.

Electronic payments were grouped into three categories: electronic payments made to buyers of goods and services, including point-of-sale transactions; payments to effect final settlement for purchase transactions, including bill payment; and electronic payments used by employers, state agencies and others such as payroll and benefit disbursements. This study did not include nonpurchase transactions such as automated teller machine and settlement transactions.

Data gathered from 118 organizations represented 94 percent of the total payment value of all electronic payment transactions for the year 2000. Leading processors of electronic funds transfer transactions — including major credit/debit card industry associations and processors, federal government agencies and electronic funds transfer networks — provided the data. Transaction volume, dollar volume, and average payment value were collected on general-purpose and private-label credit cards, off-line and online debits, automated clearinghouse transactions and electronic benefits transfers.

Credit card transactions represent about half of electronic payments, according to the study. Debit cards remain the second most dominant electronic instrument. Surprisingly, the survey revealed that while the automated clearinghouse is the third most commonly used electronic payment method for retail transactions, the ACH carries more than three-quarters of all electronic payment value. (See table 2 for exact figures.)

Electronic Payment Instrument Transaction Volume
Dollar Volume
Average Payment
Value ($)
General-Purpose Credit Cards 12,300.2 1,072,555     87.20
Private-Label Credit Cards   2,748.6    162,819     59.24
Off-Line Debits   5,268.6    209,980     39.85
Online Debits   3,010.4    138,151     45.89
Automated Clearinghouse   5,622.0 5,674,851 1,009.40
Electronic Benefits Transfer     537.7      13,744     25.56
Total 29,487.5 7,272,100   246.62

Using the data
Beyond achieving benchmark numbers reflecting definitive volumes and value of retail payments, the three studies offer much more to payment participants. For instance, the financial services industry and the Federal Reserve should find that payment trends preferences are easier to identify, predict and measure. The new information the study provides will help guide strategic decisions and implementation of technology and market segmentation plans.

The Federal Reserve hired Dove Consulting to conduct the electronic payment study and Global Concepts and Westat Inc. to execute the two check studies. The Fed plans to repeat the study periodically so that payment industry participants can assess changes within the nation’s retail payment system.

For more information on the study results, go to the Federal Reserve’s Financial Services Web site at