Financial Update (Fourth Quarter 2007)

Fed Study Shows Two-Thirds of Noncash Payments Electronic

couple with credit reportThe latest Federal Reserve study of noncash payments, released in December, showed that more than two-thirds of all U.S noncash payments in 2006 were made electronically.

Electronic payments grow as checks decline
The 2007 Federal Reserve Payments Study confirms that the number of electronic payments continues to grow while check volume continues to decline. From 2003 to 2006, the period covered by the study, all types of electronic payments grew while check payments decreased. The Federal Reserve's 2004 payment study found that the number of electronic payments and check payments were roughly equal in 2003.

2007 Federal Reserve Payments Study summaryoff-site image
Press releaseoff-site image

About 19 billion more electronic payments were made in 2006 than in 2003, a 43 percent rise. Meanwhile, the number of checks paid fell by about 7 billion, a decline of 19 percent. Of the 93 billion noncash payments in 2006, about 63 billion were electronic and around 30 billion were checks.

Debit cards overtook credit cards as the most common form of electronic payment, the study also found. The annual use of debit cards increased by about 10 billion payments over the survey period, to 25.3 billion payments in 2006. Credit cards grew by almost 3 billion payments to 21.7 billion in 2006.

Highest growth in ACH payments
The highest rate of growth from 2003 to 2006 was in automated clearinghouse (ACH) payments, which include payments such as direct payroll deposits and automatic monthly bill payments for mortgages and car loans. ACH payments grew about 19 percent per year, followed closely by debit card payments at almost 18 percent.

Over the same period, ACH payments grew to 14.6 billion, an increase of almost 6 billion payments. Much of the growth in ACH transactions occurred in payments that were converted from paper checks to electronic transactions.

Meanwhile, checks declined by an average of 6.4 percent per year since 2003, indicating that check usage is declining even faster in recent years.

One of the most significant changes of the past three years has been the increasing proportion of checks processed electronically, according to the Fed research. At the time of the survey, about 40 percent of all interbank checks paid were replaced with electronic information during the collection process. Interbank checks are those drawn on a different bank from the one where they are deposited.

"The results of our study underscore the ongoing importance of check electronification and other innovations that improve the efficiency of the U.S. payments system," said Richard Oliver, executive vice president of the Atlanta Fed and the Federal Reserve System product manager for retail payments. "With around 33 billion checks written in 2006, we expect checks to be around for some time."

Detailed reports from the study will be available in early 2008.

December 21, 2007