Electronic Payments Now Account for Majority of Consumer Payments

DALLAS - Oct. 6, 2008 - Consumers are increasingly using electronic payments at the expense of cash and checks, according to a new nationwide consumer payment preferences study conducted by BAI and Hitachi Consulting. The research was sponsored by First Data Corporation and its STAR® Network, Harland Clarke, MasterCard Worldwide, Metavante, and PULSE.

The 2008 Study of Consumer Payment Preferences found that 63 percent of all consumer purchases are made using electronic payment methods. Electronic payments now account for the majority of payments across all three major payment venues-including bill payment. Internet payments have always been predominantly electronic, almost by default. For in-store payments, the balance between paper and electronic payments shifted in 2003, leaving bill payment as the last bastion of paper-based payments. This is no longer the case, however, as paper-based payments' share of bill payments shrank from 55 percent in 2005 to 38 percent in 2008.

"Bill payment has historically been a stronghold for checks," said Ajay Nagarkatte, managing director of Syndicated Research at BAI. "But increases in the adoption and usage of online bill payment over the past three years have significantly eroded the number of paper checks being mailed to pay bills."

Retail store purchases account for the majority of consumer payments. For in-store purchases, the migration to electronic payments continues to be driven by the increasing popularity of card-based payments, particularly debit. PIN and signature debit now account for 37 percent of consumers' in-store purchases, up from 21 percent in 1999.

Checks and now cash are giving way to card-based payments at the point of sale. Checks' share of in-store purchases has declined from 18 percent in 1999 to 8 percent in 2008, and after holding relatively steady for the past several years, cash has dropped to 29 percent. Contrary to robust forecasts, gift/prepaid card's share of purchases has not increased significantly over the past three years.

Looking forward, electronic payments will likely continue to erode the share of payments made using paper-based methods. As one young consumer observed when answering the survey, "paper is old school!", and over the next two years, consumers expect to increase their use of debit and decrease their use of checks and gift/prepaid cards.

"I expect the shift from paper to electronic payments to continue as consumers increase their use of cards and new forms of electronic payments gain traction," said Chris Allen, director of consulting services in the Financial Services Practice at Hitachi Consulting. "Although the proliferation of payment methods increases the complexity of managing payments, it also creates opportunities for financial institutions and payment service providers. There are a lot of changes taking place, and it's an exciting time to be in the industry."

About the Study

The 2008 Study of Consumer Payment Preferences is the definitive guide to how consumers pay in different venues, why, and how their payment habits are likely to evolve going forward. The study provides insights into consumer behavior and preferences across three important payment venues: retail point-of-sale (in-stores), Internet purchases, and bill payments. Findings from the 2008 Study are based on an online survey administered by Harris Interactive, and completed by a nationally representative sample of 3,308 U.S. consumers in June 2008. The sampling error for the national sample was +/- 1.7 percent at a 95 percent confidence interval.

This study is the fifth in a series of studies tracking consumers' payment habits, preferences and their migration from paper to electronic payments, and is a follow on to studies conducted in 1999, 2001, 2003, and 2005 by Dove Consulting (which was acquired by Hitachi Consulting in 2005) in conjunction with the American Bankers Association. To inquire about purchasing the study, please call Chris Allen, director of consulting services, Payment Strategy Group, Hitachi Consulting, at 617-753-9250 or Ajay Nagarkatte, managing director, Syndicated Research, BAI, at 312-683-2486.

Nearly two thirds of all US consumer payments are now made electronically as Americans increasingly turn away from cash and cheques, according to research from BAI and Hitachi Consulting.

A poll of 3308 US consumers - sponsored by First Data, Harland Clarke, MasterCard, Metavante and Pulse - found electronic payments are now the majority across all three major venues - bill, Internet and in-store.

Until recently bill payments were the last bastion of cash and cheques - with the two forms of payment accounting for 55% of total bill payments in 2005 - but this has slipped to 38% in 2008.

"Bill payment has historically been a stronghold for cheques," says Ajay Nagarkatte, MD of syndicated research at BAI. "But increases in the adoption and usage of online bill payment over the past three years have significantly eroded the number of paper cheques being mailed to pay bills."

PIN and signature debit cards continue to gain in popularity for in-store payments, accounting for 37% of purchases in 2008, compared to 21% in 1999.

In contrast, the use of cheques to pay for in-store purchases has declined from 18% in 1999 to eight per cent in 2008. After holding relatively steady for the past few years, the use of cash has now dropped to 29%.

However, the survey shows that contrary to robust forecasts, gift and pre-paid cards have not seen a significant increase in take up over the last three years.

Chris Allen, director, consulting services, financial services practice, Hitachi Consulting, says: "I expect the shift from paper to electronic payments to continue as consumers increase their use of cards and new forms of electronic payments gain traction."

Earlier this year a US study released by TowerGroup forecasted a continuing decline in cheque volumes - from 22.1 billion items in 2006 to 17.9 billion by the end of 2009 - as consumers turn to electronic payments.

Figures from TowerGroup and the Federal Reserve show that cheques have lost their dominance in the US payments market, shrinking from a 46% share of total non-cash payment volume in 2003 to 31% in 2006.

TowerGroup says this fall has been driven by a desire among consumers to be able to pay bills and make purchases in faster and more convenient ways.