Last February, the New England Patriots and their future first-ballot Hall of Fame quarterback, Tom Brady, won their sixth Super Bowl title since 2002. Over this 17-year period, they have played for the National Football League title nine times. In college football, a similar scenario has emerged, with two teams (the University of Alabama and Clemson University) winning seven out of the last 10 collegiate football national titles. It is proving to be very difficult to upend the dominant players in this sport, and many football fans and pundits believe that such domination makes the overall sport less interesting (especially if your favorite team isn’t Alabama, Clemson, or the Patriots). They think it’s bad for the sport and argue it would be better to see more variety in championship teams. As I think about that perspective, my mind drifts to a payments conversation that I am often a part of in both business and social settings: Where are payments going to be in the next three to five years?
While it would be much "more entertaining" in my social settings to be able to discuss some great shift in payments on the horizon, the fact is that right now payments is in a place similar to football’s. Card-based payments are sitting on top of the non-cash-based payments world and will be difficult to dethrone anytime soon. According to the Federal Reserve Payments Study 2016 (the last report that provided annual estimates for both automated clearinghouse (ACH) and check payments), card payments, by number of transactions, made up 72 percent of noncash payments. Now the latest figures from the payments study’s 2018 Annual Supplement report reveal that there were 123.5 billion card transactions in 2017, a figure representing robust growth of 10.1 percent from 2016. The report also highlights that, during this 2016–17 period, the number of network ACH payment transactions grew at an accelerated pace of 5.7 percent while large-institution check payments declined in number of transactions at an accelerated pace of 4.8 percent. The Federal Reserve is currently conducting its triennial payments study, which will provide updated national estimates on all noncash payments for 2018.
In the future, we might be dipping cards more often, tapping contactless cards, or even tapping our phones more, but it’s hard to envision a new payment channel making much headway in the next three to five years. Cards just have too big of a share and are experiencing accelerating growth. Consumers are not only accustomed to using them, but they also find that cards work very efficiently for them. And just like the football fans and pundits who talk or write about the need for different champions in the football world, payments professionals and pundits are enamored with writing about and discussing how blockchain, distributed ledger technology, faster payments, or some other brave, new technology are going to be the next frontier in payments. And you know, they might be right one day, but it’s not going to happen anytime soon, certainly not before Mr. Brady finds his way into the Hall of Fame.
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed