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Cascade: No. 69, Fall 2008

Federal Reserve Study Shows Continued Decrease in Check Usage

Every three years since 2000, the Federal Reserve has sponsored a major study of the nation’s payments system to try to identify trends and to help consumers, businesses, and financial institutions prepare for the changes these trends point toward. The most recent iteration of this study reveals that, from 2003 to 2006, electronic payments continued to grow, while the number of check payments fell.1 Electronic payments include debit and credit card payments and purchases, automated bill payments and deposits via the automated clearinghouse (ACH),2 and Internet banking transactions. These comprise over two-thirds of all noncash transactions, although these payments constitute less than half of the dollar value of all transactions.3

The study, which is part of an ongoing FRS effort to measure trends in U.S. noncash payments, found that of 93 billion noncash payments in 2006, nearly 63 billion were electronic and over 30 billion were by check. From 2003 to 2006, on an average annual basis, the number of electronic payments rose 12 percent, while the number of check payments fell 6 percent. The number of electronic payments and check payments was roughly equal in 2003.

The latest study found:

  • Automated clearinghouse (ACH) payments totaled $31 trillion in 2006, accounting for 91 percent of the value of all electronic payments. ACH payments rose by $7 trillion from 2003 to 2006, constituting 83 percent of the overall increase in the value of noncash payments. The payments include direct deposit of payrolls (credits), governmental payments such as Social Security and income tax refunds (credits), and automatic bill payments for mortgage and auto loans (debits).
  • The number of checks paid fell from 37 billion in 2003 to 31 billion in 2006. Almost 3 billion consumer checks were converted and cleared as ACH payments — an eight-fold increase since 2003. This conversion to ACH happens most often for recurring bill payments such as telephone, utilities, and loan payments. Other check-to-ACH conversions can happen at retail stores in point-of-sale arrangements.
  • The use of debit cards increased by more than 60 percent during the survey period and surpassed credit cards as the most frequently used electronic payment type. However, the dollar value of debit card payments was less than half the dollar value of credit card payments.

The payments study consists of three research efforts: the depository institutions payments study, the electronic payments study, and the check sample study.4 The depository institutions payments study estimated the number and dollar value of checks and other payments from deposit accounts based on responses from approximately 1,400 financial institutions in the United States. The electronic payments study estimated the number and dollar value of electronic payments based on responses from 65 of the largest payments networks and card issuers in the United States. The check sample study is based on checks processed in 2006 by nine large commercial banks, which process approximately 40 percent of all checks processed in the United States.


Overall, the number of noncash payments has increased 5 percent per year since 2003, and the dollar value of noncash payments has increased 4 percent per year.

Over the past three years, significant changes in the way checks are cleared have increased the efficiency of the check clearing system. At the time of the 2006 survey, about 40 percent of all interbank checks involved the replacement of the original paper check with electronic payment information in the collection process. Interbank checks are those checks deposited at one bank but drawn on a different bank (that is, the check writer’s bank). By being converted to digital images, checks can be collected electronically without the need to physically transport the paper checks between banks.

In terms of dollar value per transaction, ACH payment was the highest at an average of over $2,000 per payment, followed by check payment at about $1,400. Debit card transactions were about $40 per payment and credit card transactions are estimated at $100 per payment. ATM transactions are estimated at about $100 per withdrawal (an increase from $85 in 2003) and EBT transactions are estimated at $30 per transaction.

Highlights of 2007 Federal Reserve Payments Study*
  2003 2006 Compound annual growth rate 2003 to 2006
Payment Type Number Number Percent
Checks (paid) 37.3 30.6 -6.4
Electronic payments 44.1 62.7 12.4
 ACH 8.8 14.6 18.6
 Debit cards 15.6 25.3 17.5
 Credit cards 19.0 21.7 4.6
 Electronic benefits transfer 0.8 1.1 10.0
ATM cash withdrawals 5.9 5.8 -0.4

* Numbers are in billions. Numbers may not add due to rounding. This table shows highlights; for more complete results, see “The 2007 Federal Reserve Payments Study,” page 17. It may be found at Click Payment Systems, Payment Research, and the study.

The check sample study involved a detailed visual inspection of the images of about 32,000 randomly selected checks. The study revealed that the highest percentage of check payers5 were consumers at 58 percent, followed by business at 39 percent, and government at 3 percent. However, the highest percentage of check payees6 was businesses at 72 percent, followed by consumers at 23 percent, and government at 4 percent. The most common reason for writing checks was for remittance payments7 at 49 percent, which represent payment of recurring monthly bills. Consumer-to-consumer checks are estimated at 7 percent, payroll checks at 17 percent, and point of sale at 17 percent. In terms of dollar value, business payers accounted for almost 80 percent of all check payments.

A press release on the study can be found at External Link. Go to News and Events, Press Releases, All Press Releases, and the press release dated December 10, 2007. Reports on the three research efforts are available at External Link under Payment Systems and Payment Research.

  • 1“The 2007 Federal Reserve Payments Study,” Copyright 2007, Federal Reserve System.
  • 2ACH refers to an electronic clearing system in which a data processing center handles payment orders that are exchanged among financial institutions. ACH transactions are payment instructions to either debit or credit a deposit account, typically for bill payments, corporate payments (business-to-business), and government payments (e.g., tax refunds). For further information, see a booklet on retail payment systems at www. External Link.
  • 3Noncash payments included checks, automated clearinghouse (ACH), credit card, debit card (both signature and PIN), and electronic benefits transfer (EBT) transactions. The study also estimated the number and value of ATM withdrawals.
  • 4This study repeats critical aspects of the 2003 FRS Payments Study, providing additional point-in-time estimates from which inferences can be drawn about the rate and nature of change of the U.S. payments system.
  • 5Check payers, or makers of the checks, write the checks.
  • 6Check payees are the entities to whom the checks are made payable.
  • 7Remittance payments typically are checks used to pay utility, credit card, or other recurring bills.

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