Evolution of US payments in the last 20 years

A useful summary by

Twenty years ago, little research and scant data were available on retail payments. As more retail payments were processed electronically, questions about access, competition, innovation, and payments security risks became more pronounced. Given this changing environment, in 1999 the Federal Reserve Bank of Kansas City established a Payments System Research group to analyze domestic and international payments systems and identify risks and trends. In 2001, the Federal Reserve System also conducted the first in a series of triennial studies to gain a better understanding of the dynamics of the retail payments system.

The 2001 Federal Reserve Payments Study revealed that the total number of noncash retail payments had nearly doubled over the last 20 years, from approximately 37 billion in 1979 to nearly 73 billion in 2000. While noncash payments were still dominated by paper, check share had declined from approximately 85 percent to about 60 percent during the same period. In 2000, credit cards represented 22 percent of noncash payments, debit cards 11 percent, and Automated Clearing House (ACH) payments less than 10 percent (Federal Reserve System 2004).

Two decades later, the composition of retail payments has changed significantly. The most recent Federal Reserve Payments Study revealed that among the 174 billion noncash payments made in 2018, more than three-quarters were card payments, including credit, debit, and prepaid cards (Federal Reserve System 2019). ACH payments represented 16 percent, about twice as much as check payments. In addition, the Federal Reserve Bank of Atlanta’s 2018 Diary of Consumer Payment Choice found that debit cards had replaced cash as the payment instrument used most frequently by consumers (Greene and Stavins 2019).

While consumer adoption and merchant acceptance of payment cards were significant drivers of the shift from paper-based to electronic payments, the evolution of retail payment methods also contributed to the shift. Nacha (formerly the National Automated Clearing House Association) introduced several electronic check Standard Entry Class Codes that used information from a check’s magnetic ink character recognition line to create an ACH transaction. The Check 21 Act provided additional options for processing image-based payments.1 More recently, a shift has also begun to speed up payments. Nacha implemented Same Day ACH in 2016, enabling ACH payments to be sent and processed on the same day.2 The Clearing House, a banking association and payments company owned by 24 of the largest U.S. banks, introduced the Real-Time Payments (RTP) network in 2017, and the Federal Reserve is currently developing a real-time clearing and settlement service called FedNow. Card networks such as Visa and Mastercard have also introduced services that facilitate faster funds transfers.

Lots more in the piece.

Some more useful research pieces by Payments System Research group are here.

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