The use of checks and other noncash payment instruments in the United States - Statistical Data Included

Federal Reserve Bulletin, August, 2002 by Geoffrey R. Gerdes, Jack K. Walton, II, Thomas Guerin, Amin Rokni

Over the past several decades, the payments industry has undergone significant change. New electronic payment instruments have been introduced, and the means for making electronic payments have become increasingly available for use in everyday commerce. Further, the adaptation of technology has driven down the costs of processing electronic payments relative to check payments. Partial statistics and anecdotal evidence suggest that consumers and businesses are increasingly using electronic payments. Nevertheless, the paper check continues to be the most commonly used type of noncash payment instrument in the U.S. economy. Checks' share in noncash payments has been declining, however, and recent evidence suggests that the total number of checks paid has been declining as well.

To shed light on the use of checks and other noncash payment instruments in the United States, the Federal Reserve recently sponsored three related surveys collectively referred to as the Retail Payments Research Project. The survey data were used to estimate the number and value of payments made in 2000 using checks and several types of electronic payment instruments as well as to study the characteristics of individual checks paid in 2000. The magnitude and diversity of the samples also enabled a comparison of check use across type and size of depository institution and across geographic regions. In addition, the data provided a basis for looking at changes in noncash payments since 1979, when the Federal Reserve collected data on checks for an analysis of the check-clearing system, and since 1995, when the Federal Reserve collected data on checks for a report to the Congress on funds availability and check fraud. The surveys are described in detail in the appendix.

Taken together, the data show that an estimated 32.8 billion checks were paid in the United States in 1979, 49.5 billion in 1995, and 42.5 billion in 2000 (chart 1). The exact year in which check use peaked is unknown, but it appears that the number paid began to decline sometime in the mid-1990s. By 2000, retail electronic payments had gained considerable ground. Nonetheless, checks remained the predominant type of retail noncash payment. Checks also continued to account for a large proportion of the total value of retail noncash payments in 2000, though the real value of total checks paid had declined since 1979.

OVERALL TRENDS IN THE USE OF CHECKS

In the United States, most noncash payments are made using checks, credit cards, debit cards, and the electronic payment system called the automated clearinghouse (ACH)--collectively referred to as retail noncash payments. (1) Consumers, businesses, and government entities made about 71.5 billion retail noncash payments in 2000 (table 1). The total value of these payments was about $46.6 trillion, approximately four and three-fourths times U.S. gross domestic product (GDP) for that year. Checks were the predominant type of retail noncash payment, accounting for 59.5 percent of these payments by number. By comparison, checks constituted 85.7 percent of retail noncash payments in 1979 (table 2). Although the number of check payments increased from 1979 to 2000, the number of checks as a share of retail noncash payments declined about 26 percentage points.

Growth in overall economic activity and population led to a general growth in payments, including cash payments, between 1979 and 2000. Such factors as technological change and increased availability and acceptability of alternatives to cash influenced the proportion of payments made with retail noncash instruments. From 1979 to 2000, the number of retail noncash payments grew approximately 3 percent a year, about the same as the rate of growth of real GDP. Hence, both the number of retail noncash payments and the amount of economic output roughly doubled over the period. Over the same period, the number of households increased from 78.8 million to 105.5 million, for an annual rate of growth of almost 1.5 percent.

The growth in retail noncash payments leading up to the mid-1990s may have resulted from a general increase in payments, an increase in the number of households with checking accounts, and the replacement of some cash payments by noncash payment alternatives. (2) About 9.2 billion more retail electronic payments were made in 1995 than in 1979. The number of checks also rose considerably over the period. In fact, about 16.7 billion more checks were paid in 1995. However, the number of checks paid as a share of all retail noncash payments declined, from 85.7 percent to 77.1 percent.

The decline in the number of checks as a share of retail noncash payments continued over the period 1995 to 2000, and the number of checks paid declined as well, from an estimated 49.5 billion in 1995 to 42.5 billion in 2000. (In comparison, the annual number of electronic payments increased 14.2 billion over the period.) Whether the number of checks paid in nearby years was higher or lower than in 1995 is unknown. However, these estimates suggest that the number of checks paid peaked during the mid-1990s.