President's Message: Checks Lose Market Share to Electronic Payments—and the Economy Gains

William Poole

Do you still think Americans are addicted to their checkbooks and have reservations about using electronic forms of payment? Think again. A new study by the Federal Reserve shows that e-payments in this country are growing at a rapid rate and at the expense of checks.

Replacing checks with electronic payments is good for the economy; electronic payments are just plain more efficient. E-payments are cheaper to process—mills vs. cents for checks. Moreover, some forms of e-payments, such as direct deposit and debit cards, clear almost instantly, whereas checks can still take a few days.

The study was the first comprehensive one since 1979. One of the more interesting findings is that the number of checks written in 2001 was estimated to total 49 billion—far below the estimate of 60-70 billion commonly used by those in the industry, including the Fed. This new figure was still much higher than the 32 billion of two decades ago. But compare that growth—55 percent—to the growth in electronic payments—more than 500 percent since 1979!

Granted, it's easier to achieve such growth when starting from a small base. Some forms of e-payments, such as debit cards, weren't even around in 1979. Others, such as direct deposit, were in their infancy. But, like a teen-ager hitting a growth spurt, the use of these new payment methods has shot up. More than 8 billion transactions are now conducted every year with debit cards, second only to the longtime king of e-payments, the credit card. Automated Clearing House (ACH) payments, such as direct deposit, rank third with 5.6 billion transactions. (When ranked by the dollar value of transactions, ACH leads, accounting for three-fourths of the $7 trillion in e-payments.)

With 30 billion transactions a year, e-payments are clearly more than a Gen X fad, and the switch to e-payments might be further accelerated by the recent scares involving the safety of U.S. mail.

Although the Fed has long encouraged the use of e-payments, we're not ready to predict that a checkless society is around the corner. We don't even know if the number of checks has stopped growing. Although the check share of all non-cash payments has fallen to 60 percent from 85 percent, the total number of non-cash payments has more than doubled since 1979 to 80 billion. The Fed will conduct another payments study in two or three years—not another 20—to get a better idea of where the various forms of payment are headed.

Meanwhile, we hope that all stakeholders in this issue can use this study to pick out the best form of payment to use in the future for themselves and for their clients. For those who want to stick with checks, rest assured that the option will not be taken away. Count me among those who can't imagine ever using a "smart card" to pay for Girl Scout cookies, although it may happen! In the end, we shouldn't fool ourselves about the popularity of e-payments: Even the nation's largest printer of checks long ago branched out into the electronic payments business.

For details on the retail payments study, go to


Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.

Subscription Options

Additional Fed Publications

Fed in Print: An index of the economic research conducted by the Fed.