By Patti Murphy
Cards – credit, and especially debit – continue to lead the charge toward noncash payments in the United States, and card-not-present (CNP) transactions are rising sharply. Meanwhile, growth in automated clearing house (ACH) payments is slowing, as is the decline in check payments. These are key trends revealed by the recently released 2016 Federal Reserve Payments Study.
The Fed conducts extensive research into noncash payments (exclusive of wire transfers) every three years, soliciting input from financial institutions and payment networks. Its latest study details card, check and ACH payments in 2015. It also addresses card fraud and security trends. For example, the study revealed that payments secured with EMV (Europay, Mastercard and Visa) chips and chip readers grew 230 percent between 2012 and 2015, but EMV cards accounted for just 2 percent of all in-person, general-purpose card payments in 2015.
Research also revealed that counterfeit card fraud in the United States is substantially higher than in other developed economies, where fraud is more prevalent in CNP environments. Pointing to EMV rollout experiences in other countries, the Fed predicted counterfeit card fraud will also fall in the United States once a majority of merchants are running card payments through EMV-compliant terminals.
More than 144 billion noncash payments were made in 2015 totaling nearly $178 trillion in value, according to the report. Payments by card (credit, debit and prepaid) represented well over half the total number of transactions, yet only a fraction of total value: 103.3 billion transactions worth $5.7 trillion, up 19.9 billion transactions and $1.07 trillion in value from 2012.
In each of the three years since the Fed's last study, noncash payments grew 5.3 percent, while the combined value of those payments rose 3.4 percent per year. Meanwhile, the inflation rate hovered between 1 percent and 2 percent annually during that period, while gross domestic product grew at an average of about 2 percent per year. "The distribution of noncash payments in 2015 is the outcome of many decades of change," the Fed wrote. "Much of the change has occurred in the new millennium."
Debit cards continue to dominate the noncash payments pie, with more than twice as many transactions as there were credit card payments in 2015. Credit cards are used for larger payments, however, as the data indicates the total value of credit card payments in 2015 exceeded that of debit card payments by about 23 percent. The Fed's debit data includes payments using traditional debit cards (those tied to checking accounts) and all types of prepaid debit cards (general purpose, private-label store, government-issued, reloadable and single use).
Credit card payments charted the fastest growth among noncash payment formats. These payments increased at an annual rate of 8 percent by number and 7.4 percent by value from 2012 to 2015, with most of that growth driven by general purpose credit cards. In fact, the 6.9 billion increase in transactions since 2012 exceeded each of the previous three-year study periods for credit cards since 2000, the Fed noted.
The data also indicate a swift rise in CNP credit card transactions, accounting for 19 percent of all general-purpose card payments in 2015, up from 16 percent in 2012. With debit cards, growth in card-present payments was twice that of CNP payments, according to the Fed's preliminary data. (Given the extensive data collection and analysis required, the Fed regularly updates its payments data reports between triennial studies.)
Meanwhile, growth in payments using prepaid cards (general purpose, private label and government-administered electronic benefit transfer (EBT) cards dropped to the lowest annual rate since the Fed started collecting prepaid card data in 2000. The average value of general purpose reloadable (GPR) cards also fell slightly, from $35 in 2012 to $34 in 2015, the Fed reported. Private-label prepaid card payments declined slightly by number, from 3.7 billion in 2012 to 3.6 billion in 2015, and rose slightly by value (from $50 billion to $70 billion). EBT card payments also rose slightly, to 2.6 billion payments totaling $80 billion in value.
Here are additional key data points from the Fed's report:
While cards dominate noncash payments in terms of transactions, the ACH was the noncash payment system that transacted the most value in 2015: $90.54 trillion in credit transfers (for example, direct deposit) and $54.76 trillion in debit transfers (for example, automated bill payments). The ACH was used to clear 23.5 billion payments valued at just over $145 trillion in 2015. (About 4 billion of these were on-us transactions, according to the Fed.)
Check writing continues to decline, falling at an annual rate of 4.8 percent between Fed studies. In all, American businesses and consumers wrote 19.4 billion checks with a combined value of $27.34 trillion in 2015, representing a decline of 3.1 billion in total number of checks written and $490 billion drop in total value since 2012. The average value of checks written, however, rose to $1,410 in 2015, up from $1,239 in 2012.
While many checks continue to originate as paper payments, checks "are now effectively all processed electronically once they enter the banking system and are increasingly being scanned and deposited electronically," the Fed noted. Some checks are being converted to ACH payments for clearing, but the practice has shown little growth since the Check 21 Act led to widespread adoption of remote deposit capture and electronic check clearing, the Fed added.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at firstname.lastname@example.org.
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