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E-payments exceed checks in '03; debit is fastest-growing payment mechanism

December 6, 2004

MINNEAPOLIS - Surveys conducted by the Federal Reserve confirm that electronic payments in the United States exceeded check payments for the first time in 2003.

Americans made 44.5 billion electronic payment transactions in 2003, while the number of checks paid totaled 36.7 billion, according to recent surveys of U.S. depository financial institutions and electronic payments organizations.

Previous research by the Federal Reserve found that the number of checks paid in 2000 was 41.9 billion transactions, compared with 30.6 billion electronic payments.

Electronic payments consist of such payment methods as credit cards, debit cards and automated clearinghouse (ACH) transactions, like direct debit.

"At current growth rates, credit cards and debit cards will both surpass checks in terms of total annual transactions in 2007," said Richard Oliver, senior vice president of the Federal Reserve Bank of Atlanta and the Federal Reserve Banks' product manager for retail payments."Such rapid change presents opportunities and challenges for an industry traditionally geared toward paper-based payments."

The 2004 Federal Reserve Payments Study (PDF) consists of two research efforts commissioned to estimate the annual number, dollar value, and makeup of payments in the United States, and to estimate the annual volume of electronic payments.

The first survey, the Depository Institutions Payments Survey, included responses from more than 1,500 depository financial institutions (commercial banks, savings institutions and credit unions). The second research effort, the Electronic Payment Instruments Study, included responses from 68 organizations involved in originating, switching or processing electronic payments.

According to the Depository Institutions Payments Study, the 36.7 billion checks paid in 2003 had a total value of about $39.3 trillion. These estimates do not include checks that are written and subsequently converted to electronic transactions for clearing.

The study also found that approximately 77 percent of checks are interbank checks, which are cleared between financial institutions; the remaining 23 percent are so-called "on-us" checks, or those for which the financial institution of first deposit is also the paying institution.

The second survey, the Electronic Payment Instruments Study, revealed that the 44.5 billion electronic payments -- including consumer, business, and government-initiated electronic payments -- had a dollar value of $27.4 trillion.

Debit card transactions, with an estimated annual growth rate of 23.5 percent, are the fastest growing type of electronic payment. ACH transactions increased 13.4 percent on an annual basis, and credit cards grew at a 6.7 percent rate.

The Fed's results mirror the results of a study of consumer payment preferences conducted by Dove Consulting and the American Bankers Association. That study showed that cash and checks now account for 47 percent of consumers' in-store purchases, compared with 57 percent in 1999 and 51 percent in 2001.

See related story: Electronic payments surpass cash, checks