Hitachi, BAI study shows growing acceptance of electronic payments

"Bill payment has historically been a stronghold for checks," said Ajay Nagarkatte, managing director of Syndicated Research at BAI. "But increases in the adoption and usage of online bill payment over the past three years have significantly eroded the number of paper checks being mailed to pay bills."

Retail store purchases account for the majority of consumer payments. For in-store purchases, the migration to electronic payments continues to be driven by the increasing popularity of card-based payments, particularly debit. PIN and signature debit now account for 37 percent of consumers' in-store purchases, up from 21 percent in 1999. 

Checks and now cash are giving way to card-based payments at the point of sale. Checks' share of in-store purchases has declined from 18 percent in 1999 to 8 percent in 2008, and after holding relatively steady for the past several years, cash has dropped to 29 percent. Contrary to robust forecasts, gift/prepaid cards' share of purchases has not increased significantly over the past three years.

Looking forward, electronic payments will likely continue to erode the share of payments made using paper-based methods. As one young consumer observed when answering the survey, "paper is old school," and over the next two years, consumers expect to increase their use of debit and decrease their use of checks and gift/prepaid cards.

"I expect the shift from paper to electronic payments to continue as consumers increase their use of cards and new forms of electronic payments gain traction," said Chris Allen, director of consulting services in the financial services practice at Hitachi Consulting. "Although the proliferation of payment methods increases the complexity of managing payments, it also creates opportunities for financial institutions and payment service providers. There are a lot of changes taking place, and it's an exciting time to be in the industry."