by Daryl Cornell, CEO, Triton
Under the cover of pre-holiday bustle, the Federal Reserve quietly released its 2016 study of how we Americans pay.
While the Federal Reserve Payments Study 2016 largely excludes cash — which remains the dominant payment method for gifts and purchases under $60 — it does contain a few nuggets worth pondering:
Debit cards rock
At least, they do in terms of transaction numbers. Nearly half (48 percent) of all noncash payments are made via debit cards.
Granted, this category includes electronic benefit transfers, which have grown steadily over the last eight years. Still, the number of debit card payments in 2015 was twice that of credit card payments.
One has to wonder about the impact of fraud on the nonprepaid and non-EBT members of the debit group.
Unlike credit card fraud, debit card fraud can result in temporarily drained bank accounts. This situation, while rectifiable, can cause serious short-term financial pain for the affected consumer.
The flip side is the financial constraint on the use of debit cards — if you don't have it, you can't spend it.
The adoption of EMV smart chip technology will reinforce the security of debit cards, but as long as the magnetic stripe remains as a fallback option, card-present fraud will remain a threat to debit card users.
Credit card growth continues to surge
From 2012 through 2015, the number of U.S. credit card transactions made annually grew from approximately 27 billion to nearly 34 billion. This increase of 7 billion transactions equates to an 8 percent compound annual growth — the largest percentage of any noncash payment group.
This bodes well for the stock prices of the card brands and their issuers. An added plus for the networks is the ongoing shift of fraud liability costs to non-EMV terminals of all types — POS, ATM and fuel pump — between 2015 and 2020.
Of course, with any strong run-up in credit-based spending, an economic contraction could expose overly aggressive underwriting. As Warren Buffet famously quipped, "It's only when the tide goes out that you discover who's been swimming naked."
ACH transfers dominate
... when you consider the total dollar value of payments, that is. ACH has risen to dominance primarily due to the increasing use of direct deposit for payroll and automatic and insurance payments.
For us old folks, it doesn't seem so long ago that people stood in line to cash their payroll checks or sent their mortgage and insurance checks through the mail. Today nearly all companies pay employees via direct deposit and financial institutions "strongly encourage" customers to set up recurring mortgage payments.
It is this growth in ACH payments — combined with the rapid expansion of white label ATMs over the past 20 years — that has facilitated the widespread closure of expensive bank branches.
Checks continue their slow march to oblivion
Having peaked in the 1990s, the use of checks for consumer and commercial payments has steadily declined, giving way to other non-cash payment methods.
The news this year is that the decline of checks has slowed from more than 6 percent per year to just slightly more than 4 percent most lately. Short of an outright prohibition on the use of checks, it appears that this payment method may linger a while, aided in part by the drastic reduction in banks' check processing costs since the adoption of remote check deposit — even by small businesses.
Should interest rates rise again, the business use of checks to manage float may see a resurgence. Households now tend to use checks primarily for expenses such as charitable donations, school tuition and registration fees — all recipients unlikely to move to ACH, credit or debit.
Finally, the relatively high cost to small businesses of accepting debit and credit transactions will likely continue to support the use of checks and, to a much greater extent, cash.
Counterfeit card fraud dwarfs that of other nations
Counterfeit card fraud as a percentage of total card fraud is more than five times greater in the U.S. than in Canada and the U.K., and more than 10 times greater than in Australia.
Blame the pesky magnetic stripe that facilitates skimming at both fuel pumps and ATMs. But don't look to EMV technology as the magic bullet to eliminate the problem.
While most post-EMV countries have seen a dramatic decline in counterfeit card fraud, some of it has simply migrated to card not present fraud. Given the continued slow adoption of EMV technology in the U.S., it may take some serious liability shift pain to complete the push to EMV.
ATM cash withdrawals remain solid
Although the compound growth of ATM cash withdrawals declined by 0.3 percent, the total value of ATM cash withdrawals rose nearly 1 percent.
Despite a global surge in governments' disdain for cash, U.S. customers continue to use it as an integral part of their payment portfolio.
As we have already seen in Canada, the U.K. and other post-EMV countries, growth in the number of ATMs is largely at an end. However, customers will continue to use both bank and nonbank ATMs, often paying for the convenience of access to their cash.
This article was republished from the Triton blog, atmAToM, with permission from Triton.
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/ Posts for the atmAToM blog are contributed by a collective of writers from Triton Systems and ATMGurus seasoned ATM pros who thought they might like to share a few things they've learned during the last 30 years in the ATM industry.