Geoffrey R. Gerdes, Jack K. Walton II, May X. Liu and Darrel W. Parke.


An efficient payments system is important for the smooth functioning of the large and complex U.S. economy. As the availability and use of technology evolves, the payments system adapts to the chang­ing needs and expectations of individuals, busi­nesses, and governments. In the United States, many payments traditionally made with paper instruments - checks and cash - are now being made electronically - with debit or credit cards or via the automated clearinghouse (ACH).

Until recently, paper checks accounted for the majority of noncash payments. 1). A Board of Gov­ernors study published in 2002 concluded that the number of checks paid annually in the United States likely began to decline during the mid-1990s (chart 1) 2). A more recent study conducted by the Federal Reserve System, which estimated and com­pared the number of checks paid in 2000 with the number paid in 2003, showed that the decline in the number of checks paid may have accelerated over the past few years. 3). The average annual rate of decline in the number of checks paid is estimated to have been 3.3 percent between 1995 and 2000 and 4.3 percent between 2000 and 2003. 4). Although growth rates for electronic payments have been high for decades, the cumulative effect of this growth has only recently become large enough to substantially affect the num­ber of checks paid. By 2003, led by rapid growth in debit card payments, the number of electronic pay­ments exceeded the number of check payments for the first time in U.S. history (chart 1, table 1).

The large number of electronic payments generally indicates growing efficiency of the payments system. The processing of paper payments typically requires extensive physical handling. Automation has created opportunities for depository institutions and other payments processors not only to introduce new pay­ment instruments, but also to reduce their costs in processing paper and electronic payments. Future innovations are expected to continue to help decrease costs and add value and functionality. (See box ‘‘Changes in the Processing of Payments.’’)

This article analyzes the results of two payments surveys conducted in 2004, one of depository insti­tutions (the 2004 depository institution survey) and one of electronic payments networks, processors, and credit card issuers (the 2004 electronic payment survey). It also draws on the results of two similar surveys conducted in 2001. The primary purposes of the 2004 surveys were to estimate the number and value of payments made by means of several types of noncash payment instruments in 2003 and to estimate rates of change from 2000 to 2003. (See the appendix for details on the surveys.)

The 2004 depository institution survey allowed for comparisons among different types and sizes. It also made possible an analysis of regional differences in the number and value of check, ACH, and debit card payments and automated teller machine (ATM) withdrawals. The 2004 electronic payment survey provided additional information on the use of ACH, cash back from debit cards, and different types of credit cards. The surveys have focused on the amount of and trends in noncash payments. Indirect evidence dis­cussed later, however, suggests that the use of cash has declined as a share of all payments in recent decades. 5). Whether the total number of cash trans­actions has begun to decline, as has the number of checks, is less clear.


1. Because some checks are converted to electronic payments at the point of sale or during the process of collection, the number of checks paid differs from the number of checks written. This point is discussed in the box ‘‘Changes in the Processing of Payments.’’ Unless otherwise noted, statements in this article about the number of checks refer to the number of paid checks.

2. Geoffrey R. Gerdes and Jack K. Walton II (2002), ‘‘The Use of Checks and Other Noncash Payment Instruments in the United States,’’ Federal Reserve Bulletin, vol. 88 (August), pp. 360–74,

3. Federal Reserve System (2004), The 2004 Federal Reserve Payments Study: Analysis of Noncash Payments Trends in the United States: 2000–2003, Federal Reserve System Study, December 15, Some figures reported in this article are revised from that earlier study because of improvements to the statistical imputation procedure, described in the appendix.

4. Rates of change (for example, rates of decline and rates of growth) reported in this article are computed as the average com­pounded annual rate of change, that is, the constant rate that if compounded annually would yield the observed change for the indi­cated time period.

5. Although the 2004 depository institution survey collected data on the number and value of ATM withdrawals, the surveys generally did not collect data that could be used to estimate the number or value of cash payments.


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