Electronic Payments Continue to Rise, Fed Study Reveals

The Federal Reserve has commissioned a two-phased national study this year to gather information on retail payment volumes, attitudes and trends. In the first phase, the Fed hired Payment Technologies Inc. (PTI) to conduct a search of all existing studies and literature and prepare a report summarizing the findings. The full results of the first phase will be released later this summer, but preliminary results, released in May, show that all payment types are growing and that electronic payments of all forms are on the upswing.

PTI examined nearly all types of retail payments and found a number of trends. Following are summaries of some of the payment methods studied:

• Cash: Cash continues to be the dominant instrument for small-dollar purchases.
• Checks: Despite increases in electronic payment methods, checks continue to grow at an annual clip of about 2 percent.
• Credit Cards: Credit cards are expected to continue growing, but at a slower pace. They are one of the most costly forms of payment acceptance among retailers.
• Debit Cards: Both online and offline use of debit cards is growing, though offline debit (which entails linking to the Visa and MasterCard networks, rather than the user's checking or savings account) is cannibalizing the existing account base.
• Internet Payments: These types of payments are growing dramatically, and that growth is expected to continue. Of the 51.3 million consumers who routinely access the Internet, 21.5 million (42 percent) are comfortable providing their credit card information for online purchases.

The second phase of the study, a quantitative survey of consumers, businesses and financial institutions, will take place this fall. That phase will be designed to fill in the knowledge gaps and answer questions still pending about retail payments. The entire study was commissioned in the wake of the Fed's 1997 review, led by Vice Chair Alice Rivlin, of its role in the payments system.