JANUARY 2004

Plastic Trumps Checks and Cash

A new study conducted by Dove Consulting for the American Bankers Association documents for the first time that plastic payment devices (debit and credit cards) are now the most common form of payment at the point of sale, displacing checks and cash. Debit and credit cards account for 52% of all point of sale transactions, while cash and checks combine to account for 47%. The remaining 1% of payments are made with alternative payment mechanisms such as prepaid cards.

While plastic’s eclipse of cash and checks is a milestone, the significant underlying story is that the real change over the last several years has been in the rapid growth in debit card usage. Debit cards accounted for 21% of all point of sale transactions in 1999 vs. 31% in 2003. Credit card’s share actually declined from 22% to 21%. The American Bankers Association’s managing director of surveys and statistics, Jane Yao, told the American Banker "Debit is really the closest substitute for using cash and checks, because the money comes directly out of their bank accounts right away." In addition, many consumers apparently look at debit card use as a means of controlling spending. Yao said that "With the current emphasis on controlling your personal finances, a lot of people are becoming very conscientious about not overusing their credit cards."

The same shift is taking place in bill payments, although checks still remain the dominant method. The study found that 60% of recurring bills were being paid by check in 2003, down from 72% in 2001. Yao said that younger consumers are more likely to pay bills electronically instead of using checks. Moreover, as check scanning and electronic file transmission speeds up the check-clearing process, there is less reason to use a check because the "float" has been reduced. "If the banks can take the money out almost immediately, then writing a check becomes just like a card, and there really isn’t any advantage to checks. With less float, people will probably start using cards more often."