Article Summary “The 2010 Federal Reserve Payments Study”

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Sponsored by the Federal Reserve Payment (FRP), the article titled “The 2010 Federal Reserve Payments Study” aims to offer an empirical analysis of the noncash payments trends in the U.S. from 2006 to 2009.

Some of the noncash payment methods evaluated in the study include automated clearing house (ACH), check payments, debit card, automated teller machine (ATM) withdrawals, and credit card transactions, among others. Data for this evaluation is obtained from secondary sources, primarily the “2010 Depository Institutions Payments Study”, the “2010 Electronic Payments Study”, and the “2010 Check Sample Study.”

It is however important to note that the findings for this study are compared against the backdrop of a similar study done in 2006, implying that the FRP conducts these studies on a triennial basis, that is, after every three years to principally evaluate any observable changes in noncash payment trends and consumer financial behavior.

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One of the general findings that may offer a unified direction in this summary is that noncash payments in the U.S. continue to gain credence over cash payments by virtue of the fact that the number of noncash payments steadily increased at a ‘compounded rate of 4.6 percent’ from 95.2 billion recorded in 2006 to total 109.0 billion in 2009.

It is also worth noting that the estimated value for all noncash payments totaled $72.2 trillion. Figures for the 2006 value of noncash payments are missing in the study, thus it is difficult to evaluate the relative increase in value.

Another general finding that is of importance to this summary is that electronic payments, including debit cards, credit cards, ATM withdrawals and ACH, now collectively surpass three-quarters of all noncash payments in the U.S., while check payments continue to diminish and are now standing at less than one-quarter of all payments effected through noncash modalities. This implies that customers may be losing interest in making payments by check.

The researchers and consultants for this particular study are quick to point out that the increase in electronic payments witnessed in the market as well as the associated decline in the use of checks to make payments can be positively correlated to technological advances and financial innovations that continue to influence the payment modality choices of both consumers and businesses.

In addition, the researchers also note that other factors, such as the business cycle, shifts in the composition of economic activity, government and institutional regulatory frameworks, and demographic shifts, may also have a role to play in influencing the observed trends.

Going by individual noncash payment modalities, it is clear that since the last survey was done in 2006, the debit card has surpassed the check as the most utilized noncash apparatus, while ACH, credit cards, and prepaid cards, such as private label and EBT cards, continue to register impressive results as far as usage is concerned.

Prepaid cards, for instance, increased at the fastest rate from the last study in 2006 to record an impressive 6 billion transactions in 2009. However, the noted decrease in using checks and credit cards as a payment instruments was correlated to the effects of the 2008 economic meltdown rather than permanent shifts in the financial behavior of customers and businesses.

The migration from paper-based payments modalities to electronic instruments, in my view, is the right way to go for the banking and financial sector due to a number of reasons. First, electronic payment techniques allows for faster transactions while making sure that the money still remains in the bank, thus enabling institutions to use such funds to give loans and other services to individuals and businesses.

Second, it is safe to carry a debit card while making individual or organizational payments rather than carry cash. Issues of convenience and efficiency have also been well-catered for in electronic payment instruments since they allow faster interbank transactions as well as bank-customer transactions.

More importantly, customers and businesses need to be provided with instruments that meet a range of market needs, and electronic payment modalities afford such an opportunity. In consequence, these payment modalities should be perceived as critical drivers of economic development.



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