The 2007 Federal Reserve Payments StudyNoncash Payment Trends in the United States: 2003 – 2006Research Sponsored by the Federal Reserve SystemReleased December 10, 2007Copyright 2007, Federal Reserve System2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System2Project Team MembersFederal ReserveGeoffrey R. GerdesEconomist, Payment System Studies Section
Division of Reserve Bank Operations and Payment Systems
Board of Governors of the Federal Reserve SystemJack K. Walton IIAssociate Director
Division of Reserve Bank Operations and Payment Systems
Board of Governors of the Federal Reserve SystemMay X. LiuStatistician, Micro Statistics Section
Division of Research and Statistics
Board of Governors of the Federal Reserve SystemKathy C. WangResearch Assistant, Payment System Studies Section
Division of Reserve Bank Operations and Payment Systems
Board of Governors of the Federal Reserve SystemRichard R. OliverExecutive Vice President and Retail Product Manager
Retail Payments Office of the Federal Reserve System
Federal Reserve Bank of AtlantaAdrienne M. WellsVice President
Retail Payments Office of the Federal Reserve System
Federal Reserve Bank of AtlantaDarrel W. ParkeChief, Micro Statistics Section
Division of Research and Statistics
Board of Governors of the Federal Reserve SystemConsultantsMichael D. ArgentoExpert
Global Concepts / McKinsey & Company, Atlanta, GAJoel R. StantonManager, Financial ServicesDove Consulting, A Division of Hitachi Consulting,
Boston, MAEdward L. BachelderDirector, Research & Analytics
Dove Consulting, A Division of Hitachi Consulting,
Boston, MADavid C. StewartSenior ExpertGlobal Concepts / McKinsey & Company, Chicago, IL2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System3Contents1EXECUTIVE SUMMARY ........................................................................................................ 42SUMMARY OF FINDINGS...................................................................................................... 62.1Check Payments ............................................................................................................... 62.1.1 Checks Cleared Electronically ......................................................................................... 72.1.2 Checks Returned Unpaid ................................................................................................ 82.1.3 On-Us Checks................................................................................................................. 82.1.4 Checks Paid by Type of Depository Institution ................................................................. 82.2Electronic Payments ......................................................................................................... 92.2.1 Debit Card Payments .................................................................................................... 102.2.2 Credit Card Payments ................................................................................................... 102.2.3 ACH Payments ............................................................................................................. 112.3ATM Withdrawals ............................................................................................................ 133CONCLUSION...................................................................................................................... 144APPENDIX ........................................................................................................................... 154.1About the Study .............................................................................................................. 154.1.1 Depository Institutions Payments Study......................................................................... 154.1.2 Electronic Payments Study............................................................................................ 164.2Tabular Results ............................................................................................................... 172007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System41 Executive SummaryThe 2007 Federal Reserve Payments Study is part of an ongoing effort by the Federal ReserveSystem to measure trends in noncash payments in the United States. The study estimated thenumber and value of payments by check, debit card (both signature and PIN), credit card,automated clearing house (ACH), and electronic benefits transfer (EBT).1The study alsoestimated the number and value of ATM withdrawals.The number of noncash payments was 93.3 billion in 2006, with a value of $75.8 trillion. Thenumber of noncash payments in the United States increased at an annual rate of 4.6 percentsince 2003 (exhibit 1).Exhibit 1: Number of Noncash Payments20032006CAGR*Total (billions)81.493.34.6%Checks (paid)37.330.6-6.4%Debit card15.625.317.5%Signature10.316.015.8%PIN5.39.420.6%Credit card19.021.74.6%ACH8.814.618.6%EBT0.81.110.0%Figures may not add due to rounding.
*CAGR is the compound annual growth rate.Electronic payments now exceed two-thirds of all noncash payments (exhibit 2). Some of theincrease in the use of electronic payments was due to changes in financial behavior ofconsumers and businesses, particularly payment instrument choice. For example, electronicpayments are being used more frequently in transactions where checks or cash may have been1 Signature debit card payments are made like credit card payments, but use funds from transaction deposit accounts. PIN debit
card payments also use funds from transaction deposit accounts and typically require the entry of the same personal identification
number (PIN) used to access automated teller machines (ATMs).2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System5used in the past. Many other factors, such as growth in economic activity and population, mayhave contributed to the increase in electronic payments.Exhibit 2: Distribution of the Number of Noncash Payments19%46%EBT1%ACH11%Credit card23%Debit cardChecks
(paid)200327%33%EBT1%ACH16%Credit card23%Debit cardChecks
(paid)2006While the use of all other major payment instruments increased, the number of checks paiddecreased 6.4 percent per year. The number of checks written also continued to decrease,albeit at a somewhat slower pace (4.1 percent) than checks paid.2In addition, the checkcollection process is becoming increasingly electronic.Although the value of debit card payments is still less than half the value of credit cardpayments, the number of debit card payments now exceeds that of credit cards. Payments bydebit card and ACH increased at the highest rates.This report reflects the efforts of hundreds of organizations across the industry. Someestimates are from the 2007 Depository Institutions Payments Study and are based onresponses to surveys sent to a nationally representative, stratified random sample of depositoryinstitutions (DIs). Other estimates are from the 2007 Electronic Payments Study and are basedon data provided by payment networks and card issuers that process most of the electronicpayments in the United States. See section 4.1 for a description of the studies.2 The difference between checks written and checks paid is equal to the number of checks converted to ACH payments.2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System62 Summary of FindingsOverall, the number of noncash payments in the United States increased 4.6 percent per yearsince 2003, a somewhat faster pace than the previous three-year period (4.0 percent).3Bycomparison, constant dollar gross domestic product and personal consumption expenditureincreased by 3.2 and 3.3 percent, respectively, during the 2003-2006 period. Dollar value ofnoncash payments increased 3.9 percent per year.2.1 CHECK PAYMENTSThe annual number of checks paid in 2006 is estimated to have been 30.6 billion, for a value of$41.7 trillion.4The number of checks paid decreased 6.4 percent per year between 2003 and2006, for a total decrease of 6.7 billion checks by the end of the period.5Because of theincreased use of the ACH to convert checks by billers and merchants, the number of checkspaid differs from the number of checks written (exhibit 3).6The number of checks writtendecreased 4.1 percent per year.3 In this report, estimates of noncash payments exclude payments made using large-value funds transfer systems.
4 The estimated value of checks paid in 2003 was revised upward to $41.1 trillion from $39.3 trillion; the estimated number of
checks paid in 2003 was revised upward to 37.3 from 36.7.
5 Checks paid include those cleared as original paper checks or substitute checks or via electronic check presentment or image
exchange but exclude checks converted to other forms of payment, such as ACH, for clearing and settlement.
6 By agreement, consumer checks can be converted into electronic payments by merchants at the point of sale or by billers that
receive check remittances. Some checks counted as written are used as source documents to initiate electronic payments at the
point of sale. Electronic payments originating as checks now represent about 8 percent of all checks written. Alternative methods of
converting checks exist, but compared to ACH conversion, their use is insignificant.2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System7Exhibit 3: Number of Checks Written, Paid, and Converted to ACH37.330.60.32.6Paid as checks2006-4.1%37.6200333.1billionsConverted to ACHChecks written-6.4%Figures may not add due to rounding.The average value of checks paid increased from $1,104 in 2003 to $1,366 in 2006. In additionto the effects of inflation, this increase reflects the conversion to ACH payments of consumerchecks, which are typically of smaller value than business checks.7In particular, convertedconsumer checks averaged $267 in 2006 while all checks written averaged $1,280. Theincrease in average value also reflects the increasing use of alternative payment types andchanges in the financial behavior of consumers and businesses.2.1.1 Checks Cleared ElectronicallyOver the past three years, there have been significant changes in the way checks are cleared.These changes are increasing the efficiency of the check clearing system for interbankchecks—those drawn on a different depository institution than the one at which they weredeposited. At the time of the survey, about 40 percent of all interbank checks involved thereplacement of the original paper check with electronic payment information in the collectionprocess.87 In constant 2006 dollars, average value of checks paid in 2003 was $1,209.
8 The depository institution survey collected information from March and April 2007. Based on industry data on the rapidly
increasing use of electronic collection during 2006 and 2007, these percentages likely overstate the use of electronic collection in
2006 but understate its current use. The estimate includes substitute checks, which are checks that were converted to images
during processing but reconverted to paper for presentment to the paying depository institution.2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System82.1.2 Checks Returned UnpaidFrom 2003 to 2006, the number of checks returned unpaid decreased at the same rate aschecks paid (6.4 percent per year). Thus, the ratio of checks returned to checks paid (0.5percent) was unchanged. The value of returned checks increased 8.0 percent per year duringthe same period, and the ratio of returned checks to paid checks by value increased from 0.3percent to 0.4 percent. The average value of returned checks increased from $731 to $1,124.2.1.3 On-Us ChecksFrom 2003 to 2006, the number of on-us checks—checks that are deposited or cashed at thesame depository institution on which they are drawn—decreased from 8.2 billion in 2003 to 6.1billion in 2006. The proportion of on-us checks also decreased, from 22.1 percent of paidchecks in 2003 to 19.9 percent in 2006.2.1.4 Checks Paid by Type of Depository InstitutionIn 2006, commercial banks paid 82.3 percent of checks by number and 93.5 percent by value.Credit unions and savings institutions paid 8.9 percent and 7.5 percent by number and 2.1percent and 3.7 percent by value, respectively. From 2003 to 2006, the number of checks paidby credit unions decreased most rapidly (13.2 percent per year), followed by savings institutions(7.9 percent per year) (exhibit 4). The larger relative decreases at credit unions and savingsinstitutions can be accounted for by the increased use of debit cards by consumers. Creditunions, and to a lesser extent savings institutions, have a higher proportion of consumers intheir account base than do commercial banks.2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System9Exhibit 4: Checks Paid by Type of Depository InstitutionNumber(billions)Value(trillions)AvgValueNumber(billions)Value(trillions)AvgValueNumberValueTotal37.3$41.1$1,10430.6$41.7$1,366-6.40.5Commercial banks29.7$38.4$1,29325.2$39.0$1,551-5.40.6Credit unions4.2$0.9$2192.7$0.9$326-13.2-1.0Savings institutions3.0$1.5$5112.3$1.6$675-7.91.0Postal money orders0.2*$1460.2*$164-4.8-1.2U.S. Treasury checks0.3$0.3$1,1540.2$0.2$1,203-10.4-9.120062003CAGR (%)Figures may not add due to rounding.
*The value of postal money orders was $29 billion in 2003 and $28 billion in 2006.2.2 ELECTRONIC PAYMENTSElectronic payments now comprise over two-thirds of all noncash payments by number, but lessthan half by value (exhibit 5). The number of electronic payments grew 12.4 percent per yearfrom 2003 to 2006. The proportion of electronic payments in noncash payments increased from54.2 percent to 67.2 percent over the same period. The value of electronic payments increased8.9 percent per year, growing from 39.1 percent of noncash payments in 2003 to 45.0 percent in2006.Payments made by debit, credit, or EBT cards were over half (51.6 percent) of all noncashpayments in 2006 but only 4.1 percent of the value. In contrast, ACH payments were only 15.6percent of noncash payments but 40.8 percent of value.Exhibit 5: Distribution of the Number and Value of Noncash Payments in 200627%33%Checks
(paid)Debit card23%Credit card16%ACH1%EBTNumber55%Checks
(paid)1%3%41%ACH0%EBTValueCredit cardDebit card2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System102.2.1 Debit Card PaymentsThe number of debit card payments now exceeds the number of credit card payments. Debitcard payments increased 17.5 percent per year from 2003 to 2006 (exhibit 6). PIN debitpayments increased more rapidly (20.6 percent per year) than signature debit payments (15.8percent per year). The total increase in signature debit payments per year (5.7 billion)exceeded the total increase in PIN debit payments (4.0 billion).Exhibit 6: Number of Debit Card Payments by Type10.316.05.39.415.6200325.32006PINSignature17.5%billionsDebit cardFigures may not add due to rounding.For both types of debit card payments, the average value per transaction decreased from 2003to 2006.9In constant dollars, the average value of signature debit payments decreased 4.3percent per year, while the average PIN debit payment decreased 3.9 percent. In 2006, 27.1percent of noncash payments were made using debit cards (1.3 percent by value).2.2.2 Credit Card PaymentsThe number of credit card payments increased at the lowest rate of any electronic paymentsinstrument (4.6 percent per year).10There were 21.7 billion credit card payments in 2006, 2.8billion more than in 2003. By value, credit card payments totaled $2.1 trillion in 2006. In 2006,23.3 percent of noncash payments were made using credit cards (2.8 percent by value).9 The estimate of the value of PIN debit card payments excludes a portion estimated to have been returned to the customer as
cash.
10 Credit cards include both general purpose and private-label cards.2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System112.2.3 ACH PaymentsThe number of ACH payments increased 18.6 percent per year from 2003 to 2006. In 2006,15.6 percent of noncash payments were ACH payments (40.8 percent by value). ACHpayments in 2006 exceeded those in 2003 by 5.8 billion.Of these additional payments, 38.4 percent were checks converted to ACH. The number ofconverted checks in 2006 (2.6 billion) was over eight times the number in 2003 (0.3 billion)(exhibit 7). Converted checks now represent 17.6 percent of ACH payments.Exhibit 7: Number of ACH Payments8.412.02.60.318.6%Converted checks200614.6Other ACH20038.8billionsACH paymentsFigures may not add due to rounding.ACH payments totaled $31.0 trillion dollars in 2006, accounting for 90.8 percent of the value ofall electronic payments. The value of ACH payments in 2006 was $6.9 trillion larger than in2003, while total value of noncash payments was $8.3 trillion larger in 2006 than in 2003. Thus,the increase in ACH payments was 83.1 percent of the overall increase. ACH values in 2006were 28.5 percent greater than in 2003 (exhibit 8).2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System12Exhibit 8: Value of Checks Paid and ACH Payments$41.7$41.1$31.0$24.120032006CheckACH28.5%trillions2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System132.3 ATM WITHDRAWALSThere were 5.8 billion ATM withdrawals in 2006, with a value of $578 billion. ATM withdrawalsdecreased 0.4 percent per year by number but increased 5.2 percent per year by dollar valuesince 2003. The average ATM withdrawal increased from $85 to $99. In constant dollars, theaverage value increased 2.4 percent per year.ATMs are not the only source for cash, and many factors may have contributed to the increasein the absolute value of cash withdrawn from ATMs. The number or value of cash withdrawalsare not necessarily proportional to the number or value of cash payments. Thus, theseestimates do not measure the number or value of cash payments.2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System143 ConclusionIn 2006, electronic payments comprised over two-thirds of all noncash payments in the UnitedStates. Debit card payments now exceed credit card payments. Card payments alonecomprised over half of all noncash payments. The number of check payments continued todecrease and did so at a more rapid rate than the previous three-year period. Moreover, checkclearing is increasingly electronic.The Federal Reserve System wishes to thank the hundreds of organizations andperhaps thousands of individuals who contributed to the estimates discussed inthis report. We recognize that studies such as these shift resources from otherimportant initiatives. We appreciate the commitment of time and energy by allwho were involved. Their efforts have provided tremendous benefit to theindustry.– Donald L. Kohn, Vice Chairman, Federal Reserve Board of Governors2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System154 Appendix4.1 ABOUT THE STUDYAs in the previous studies, the current study included two data collection efforts to estimate theannual number and value of significant types of noncash payments in the United States for2006. Estimates of check payments and ATM withdrawals were based on findings from theDepository Institutions Payments Study (2007 DI study). Electronic payments volume estimateswere based on findings from the Electronic Payments Study (2007 EP study) and supplementedby the 2007 DI study.The research methods used in 2007 are similar to those used in 2004 and 2001. Some 2003estimates have been revised to reflect new information and ensure consistency with the 2006estimates.Detailed reports of the methodology and findings of each study will be made available onwww.frbservices.org.4.1.1 Depository Institutions Payments StudyThe Depository Institutions Payments Study collected the number and value of different types ofpayments from deposit accounts at a representative, random sample of depository institutionsfor March and April of 2007. Global Concepts, a subsidiary of McKinsey & Company, and itssubcontractor, ICR, assisted the Federal Reserve with the study.A stratified random sample of 2,700 depository institutions in the United States was drawn. Thelargest depository institutions were sampled at a higher rate in an effort to count as manytransactions as possible and estimate as few as possible. The sample included commercialbanks, savings institutions, and credit unions. A total of 1,437 depository institutions provideddata for the survey.Although the survey period was March and April, 2007, unless otherwise noted, the estimateswere annualized and reported as 2006 estimates. This approach allowed for comparison to the2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System16data on electronic payments. Readers may wish to consult the more detailed report of findingsfor additional information on the study’s methods and results.4.1.2 Electronic Payments StudyThe Electronic Payments Study estimated the number and value of electronic payments in theUnited States for calendar year 2006. Data were collected by surveying payment networks andcard issuers. Of the 73 organizations asked to participate, 65 of the largest organizationsprovided data. Dove Consulting, a division of Hitachi Consulting, assisted the Federal Reservewith the study.Survey forms were distributed to the payment organizations that process, clear, and settleelectronic payments in the United States to collect data for the calendar year 2006. The surveydata were collected during February through September, 2007. Respondents to this studycollectively accounted for an estimated 99.8 percent of the electronic transactions and 99.9percent of the electronic payments value in the United States.2007 Federal Reserve Payments StudyDecember 2007© 2007, Federal Reserve System174.2 TABULAR RESULTSNumberValueAvg. NumberValueAvg. NumberValue NumberValueTotal noncash payments81.467.683093.375.881311.98.34.63.9Checks (paid)137.341.11,10430.641.71,366-6.70.6-6.40.5U.S. Treasury checks0.30.31,1540.20.21,203-0.1-0.1-10.4-9.1Postal money orders0.2*1460.2*1640.0*-4.8-1.2Commercial checks136.840.81,10830.241.51,373-6.60.7-6.40.5On-us8.212.11,4646.112.01,973-2.2-0.1-9.7-0.2Reserve Bank15.310.2-5.1-12.7Returns0.20.17310.20.21,1240.00.0-6.48.0Reserve Bank0.10.10.0-9.3Electronic payments44.126.459962.734.154418.67.712.48.9ACH8.824.12,75414.631.02,1225.86.918.68.7Debits4.211.92,8498.613.31,5354.51.427.53.8Credits4.612.22,6685.917.72,9741.45.59.113.1Debit card15.60.64025.31.0399.70.417.516.0Signature10.30.44216.00.6405.70.215.814.3PIN5.30.2389.40.3374.00.120.619.5Credit card19.01.78921.72.1982.80.44.68.2EBT0.8*261.1*270.3*10.011.1ATM cash withdrawals5.90.5855.80.699-0.10.1-0.45.2On-us3.50.3883.60.41060.10.10.66.9Checks (written)237.641.21,09633.142.41,280-4.51.2-4.11.0Checks converted to ACH0.30.11872.60.72672.20.698.7123.7Memo:3Real GDP10.311.3Real PCE7.38.0Population291.1299.8Relative Value of $1GDP implicit price deflator1.101.00CPI1.081.00Numbers in billions. Values in trillions of USD. Figures may not add due to rounding. CAGR is the compound annual growth rate.3These figures, provided for comparison, obtained from U.S. Department of Commerce, BEA as of October 31, 2007.-2.7-0.1
-0.18.71.020032006Total change(2003-2006)CAGR(%)* Too small to be displayed. The value of postal money orders was $29 billion in 2003 and $28 billion in 2006, a decrease of $1 billion.
The value of EBT payments was $22 billion in 2003 and $30 billion in 2006, an increase of $8 billion.-3.01Nominal values of checks (paid) and commercial checks increased (displayed in the table). However, in constant dollars the values of both checks(paid) and commercial checks showed a growth rate of -2.5 percent per year.3.21.00.72Includes the use of checks as source documents to initiate electronic payments.3.3

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