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A new payments study from the U.S. Federal Reserve shows that electronic payments have gained on card payments during the pandemic, while checks continue their double digit decline.
In its latest Payments Study, the Federal Reserve has found automated clearing house (ACH) payments grew at an accelerated pace during the pandemic, while card payments declined overall.
The study published in December discussed key changes in payment behavior between 2018 and 2020, providing a holistic view of the impact of the global pandemic on the U.S. payments landscape.
Online card payments up, overall card payments down
Similar to many other countries, the pandemic has changed how people pay in the U.S., as consumers shifted to digital channels.
Following years of continuous upward growth in the number and value of card payments, 2020 was notable in that the number of card payment transactions declined, albeit marginally by 0.4 percent.
Although this overall decline was perhaps expected given the impact on demand due to COVID-19, a breakdown of the numbers reveals a significant shift in payment habits.
In-person card payments fell 13 percent in 2020, or by 12bn transactions; however, remote card payments surged 24 percent in the same period, increasing by 9bn transactions.
This unprecedented shift in how people pay was also highlighted by the fact that in value terms, remote card payments overtook in-person payments for the first time in 2020 as consumers and businesses switched to digital channels.
Despite this overall drop in the number of card transactions in 2020, the Federal Reserve found that the total value of card payments continued to increase in 2020, albeit marginally and well below pre-pandemic levels. Given that revenue models for banks and card schemes are based on the value of the transaction, this is an important distinction.
Despite a challenging 2020, card payments still accounted for nearly three quarters of all non-cash payments made in the U.S.
ACH payments shift as checks decline
Americans are the largest users of checks globally, accounting for around two thirds, according to VIXIO research. Many workers in the U.S. still receive their salaries by check, and it is common to pay bills or for businesses to pay invoices using the paper instrument.
Usage of checks, however, has been declining for many years now. According to data released by the Bank for International Settlements (BIS), the total number of check transactions fell by a compound annual growth rate (CAGR) of 10 percent between 2016 and 2020, from 17bn to 11bn.
The rate of decline was accelerated in 2020, falling by 15 percent.
One of the key beneficiaries of this decline in check usage has been automated clearing house (ACH) payments, as both consumers and businesses have shifted their payments to online banking channels, supported by improved clearing and settlement times, such as Same Day ACH, as well as The Clearing House’s (TCH) instant payments service.
Throughout the pandemic the share of ACH payments to total non-cash payments has increased both in value and number terms.
In 2020, ACH transactions, which includes credit transfers and direct debits, increased from 17.9 percent of total non-cash payments to 19.2 percent.
According to Nacha, the National ACH Association, there were a record 26.8bn payments going through the ACH Network in 2020, representing an 8.2 percent increase compared with 2019.
This growth included a 12 percent increase in direct deposit payments, a 15 percent increase in Internet-initiated consumer bill pay payments, and a 10.7 percent increase in business-to-business payments.
“In 2020, many businesses and individuals turned to the ACH Network to send and receive payments because of pandemic-related disruptions. Americans received payments seamlessly through the ACH Network even as volumes substantially grew,” Nacha president and CEO Jane Larimer said in a statement.
Fintech adoption growing
The Federal Reserve study also revealed that Americans were adopting new payment technologies at an increasing pace in 2020.
The share of in-person card payments initiated with contactless technologies and with digital wallets grew significantly.
In 2020, the share of contactless card payments reached 4.6 percent of total in-person card payments, according to the Federal Reserve, representing a six-fold increase compared with 2018.
However, contactless in the U.S. remains a tiny proportion of card payments compared with many other leading markets around the world.
In the UK, for example, UK Finance claims contactless payments account for 27 percent of all card payments in 2020. As a major share of card payments in the UK are online, this suggests a significantly higher proportion of in-person card payments are contactless. A 2019 survey by Australia’s Reserve Bank found that more than 55 percent of all in-person payments (including cash and other non-card payments instruments) were made using tap and go contactless functionality.
Digital wallet payments are also increasing fast in the U.S., albeit from a low base. Digital wallet accounted for 2.6 percent credit and debit card payments in 2020, up from 0.5 percent in 2017.
Similarly, the adoption of person-to-person payments between bank accounts also increased in 2020. In particular, the Federal Reserve noted a surge in first-time use in the second quarter of 2020.
Although some of these changes were partly a continuation of longer-term trends, the Federal Reserve suggests that there could be stronger behavioural shifts that may persist even after the pandemic.
