JANUARY 2005

Noncash Payments No Longer Led by Checks

The 2004 Federal Reserve Payments Study reveals that check payments were used less frequently than electronic payments in the U.S. for the first time in 2003. This latest study is a follow up to the Fed's 2001 Retail Payments Research Project and identifies trends in U.S. noncash payments from 2000 to 2003. The instruments tracked include payment by check, automated clearing house (ACH), credit card, debit card, and electronic benefits transfer (EBT).

While the number of noncash payments increased from 72.5 billion in 2000 to 81.2 billion in 2003, the number of check payments decreased at an annual average rate of 4.3 percent from 2000 to 2003. The use of electronic payments increased by 13.8 billion transactions over the same period and debit card usage experienced the fastest rate of growth in this payment category (at an annual average rate of 23.5 percent). ACH payments increased at an annual average rate of 13.4 percent. The 2004 Fed study attributes the shift in the distribution of noncash payments to an overall increase in payment activity, the substitution of electronic payments for checks (for example, the conversion of check payments to ACH payments), and the replacement of cash payments by electronic payments in the form of debit card transactions.

Credit card transactions increased at an annual average rate of 6.7 percent from 2000 to 2003, the slowest rate of growth among the electronic payment methods. Richard Oliver, the Federal Reserve System's product manager for retail payments noted that while credit cards represent a well-established payment option, "at current growth rates, credit cards and debit cards will both surpass checks in terms of total annual transactions in 2007. Such rapid change presents opportunities and challenges for an industry traditionally geared toward paper-based payments."

See Larger Chart