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Sunday, September 11, 2005

How Fast are Debit and Credit Cards Replacing Checks?

Debit and credit cards are replacing paper checks.  It is estimated that in 2007 debit and credit card payments will both, individually, surpass checks in terms of total transactions.  Anthony M. Santomero, President of the Philadelphia Fed discusses the evolution of our payments system:

The Evolution of Payments in the U.S.: Paper vs. Electronic, by Anthony M. Santomero, President FRB Philadelphia:  The tide is turning in our nation’s payments system. ... hard evidence came last December ... electronic payments, for the first time ever, had trumped the paper check in terms of transactions. It appears our nation’s pattern of payments is finally evolving  ... from one based on paper checks to one based on electronics...

According to the Fed’s most recent study, only about 45 percent of all U.S. noncash retail payments are made by paper check, with payment cards and Automatic Clearing House (ACH) accounting for the remainder of retail payments. And at current growth rates, credit cards and debit cards will both individually surpass the paper check in terms of total annual transactions by 2007. This is quite a change! The once dominant check is finally giving way to electronics in the U.S. payments system. .... [D]ebit cards in general seem to be leading the migration away from cash and checks, and toward electronic payments. ... Indeed, the growing popularity of debit cards seems to be part of a broader phenomenon. Last year, Visa announced that for the first time ever, its global debit sales volume surpassed its credit sales volume. Looking ahead, most experts expect that retail payments will continue moving away from cash and paper checks toward electronic instruments. Today these include credit cards, debit cards, and ACH, but other payments mechanisms are also finding their way into the payments structure... [W]hile the private sector is shifting retail payments away from paper-based instruments and toward electronic ones, history tells us that people’s payment habits change gradually. Only when people are comfortable with, and confident in, a payment structure are they willing to accept it. As a result, the paper check is likely to be with us for some time...

He also discusses the history of the payments system which is in a separate post.

    Posted by on Sunday, September 11, 2005 at 01:53 AM in Economics, Financial System | Permalink  TrackBack (0)  Comments (10)


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