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TECHNOLOGY |
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ELECTRONIC PAYMENTS
Over the past quarter-century, electronic alternatives to the traditional way of paying bills by check have revolutionized the payments infrastructure. By 2006, debit card payments—which include both personal identification number (PIN) and signature—surpassed credit card payments to become the most frequently used electronic payment type, according to the Federal Reserve. Other choices such as automated clearing house (ACH) payments and electronic benefits transfer (EBT) have grown rapidly as well. EBTs give consumers more flexible access to Social Security, veterans’ pensions and other benefits disbursed by the federal government.
Studies conducted by the Federal Reserve in 2004 and 2007 document the dramatic shift in payments away from paper-based checks and toward electronic payments. In 2003, there were 37.3 billion checks paid, compared with 44.2 billion electronic payments. By 2006, there were 30.6 billion checks paid, compared with 62.7 billion electronic payments. The number of checks paid fell an average of 6.4 percent per year between 2004 and 2006. The number of electronic payments rose 12.4 percent during the same period. In 2006, two-thirds of all noncash payments were made electronically compared with a little over half of all noncash payments in 2003.
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NUMBER OF NONCASH PAYMENTS, 2003 AND 2006
(billions)
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DISTRIBUTION OF THE NUMBER OF NONCASH PAYMENTS, 2003 AND 2006
(1) Electronic benefits transfer.
(2) Automated clearing house.
Source: Federal Reserve System.
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AUTOMATED CLEARING HOUSE NETWORK
Payments through the Automated Clearing House (ACH) Network, a nationwide electronic fund transfer system, include direct deposit of payroll, Social Security benefits and tax refunds, as well as direct payment of consumer bills, business-to-business payments and federal tax withholdings. Annual ACH payment volume has doubled in the last five years, spurred by consumers' use of the Internet for financial activities and direct deposit. Commercial banking institutions, with 15 billion transactions valued at $30.3 trillon in 2006, accounted for 94 percent of ACH payments. The federal government accounted for the remainder, with 1 billion transactions valued at $3.5 trillion.
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AUTOMATED CLEARINGHOUSE HOUSE ELECTRONIC PAYMENTS, 1996-2006
Year |
Volume (millions) |
Percent increase |
Transaction value ($ trillions) |
Percent increase |
| 1996 | 3,929 | 15.3% | $12.1 | 9.0% |
| 1997 | 4,549 | 15.8 | 14.0 | 15.7 |
| 1998 | 5,344 | 17.5 | 18.1 | 29.3 |
| 1999 | 6,122 | 14.6 | 19.1 | 5.5 |
| 2000 | 6,882 | 12.4 | 20.3 | 6.5 |
| 2001 | 7,994 | 16.2 | 22.1 | 9.2 |
| 2002 | 8,944 | 11.9 | 24.4 | 10.2 |
| 2003 | 10,017 | 12.0 | 27.4 | 12.3 |
| 2004 | 12,009 | 19.9 | 28.7 | 4.5 |
| 2005 | 13,957 | 16.2 | 31.0 | 9.2 |
| 2006 | 15,984 | 14.5 | 33.7 | 8.7 |
| Source: NACHA - The Electronic Payments Association. |
| - The number of ACH payments more than quadrupled from 3.9 billion in 1996 to nearly 16 billion in 2006. ACH transaction values more than doubled to $33.7 trillion during the same period.
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COMMERCIAL AND GOVERNMENT AUTOMATED CLEARING HOUSE ELECTRONIC PAYMENTS, 2005-2006
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2005 |
2006 |
Percent change |
| Transaction volume (millions) | | | |
| Commercial | 12,981 | 14,980 | 15.4% |
| Federal government | 976 | 1,004 | 2.8 |
| Total | 13,957 | 15,984 | 14.5 |
| Dollar value ($ trillions) | | | |
| Commercial | $27.9 | $30.3 | 8.5% |
| Government | 3.2 | 3.5 | 10.0 |
| Total | $31.0 | $33.7 | 8.7% |
| Source: NACHA - The Electronic Payments Association. |
| - Internet-initiated ACH payments grew by about 35 percent from the previous year to 1.8 billion transactions in 2006, according to NACHA, the electronic payments association.
- Direct Deposit is the most widely used type of ACH payment, averaging $1,325 per payment in 2006.
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