PARADIGM: Members' changing payment habits won't change paradigm

WASHINGTON – Financial experts have been talking for years about the advent of the checkless society, but despite technological advances paper checks have remained a dominant form of consumer payment. Consumers still haven’t entirely gone checkless, but new data collected by the Federal Reserve System suggest that in their effort to be more efficient and cost-effective, consumers, businesses and financial institutions are steadily gravitating towards using electronic forms of payment. The first comprehensive studies of the retail payments system by the Fed in more than 20 years showed the paper check is accounting for a diminished share of the payment market. American consumers and businesses make 80 billion retail payments annually, including nearly 50 billion that are paid by check and 30 billion by electronic instruments such as credit cards, debit cards, and ACH. Approximately 1,300 financial institutions including banks, thrifts and credit unions, and 89 electronic payment processors responded to three surveys that looked at methods and volumes of retail payments. Results showed that Americans aren’t necessarily writing less checks, but they are using electronic alternatives more often. Study data indicated that checks have declined from 85% of non-cash payments since the last study in 1979 to about 60% now. The total non-cash retail payments have doubled from 37 billion to 80 billion in the last 22 years. The study not only looked at transaction volume but also at who is writing and receiving checks: consumers write the majority of checks (50.8%); businesses receive the majority of checks (50.2%); no single purpose dominates check volume. CUNA Assistant General Counsel Michelle Profit, who previously worked with the Fed and is considered by the association to be its expert on the payment system, gave the Fed’s study high marks. “Everyone has been guessing on just how many checks are being written,” said Profit. “For a long time we’ve suspected consumers were moving away from checks, now the Fed study documents this is actually happening.” Profit opined that this is a good thing. “After September 11′s terrorist attacks when air transportation was ordered down, there was a delay in transporting paper checks. This situation underscored the disadvantage of having to move items from one physical location to another.” Navy FCU’s Don Chapman, assistant vice president, comptroller division also thought the Fed’s study was “a good idea.” Navy FCU was one of 599 credit unions that were included in the study sample. Chapman said he had anecdotal evidence of the loss of market share of the paper check to electronic payment forms. He’d seen the decline in the number of Sharecheks-Navy’s checking account-written each month by the credit union’s members, the increase in the average monthly number of ACH debits and the success of the credit union’s Visa Check card, and he thought that was indicative of what was happening throughout the U.S. Chapman unabashingly admits, “I’ve been one of those people who for years have wanted to get rid of the paper check and encouraged the use of electronic payment forms. It’s too expensive to use paper.” He offered that what the U.S. is witnessing is a “generational shift toward using electronic forms of payment” – the younger generation is more comfortable using plastic or debit cards. “We are finally starting to see what everyone hoped would happen, that there would be consumer confidence in electronic transmissions,” said Chapman. Navy’s average number of Sharecheks written per account per month declined from 11.2 in 1998 to 8.2, as of October 2001; the average number of total Sharecheks paid per month declined from 9,536,015 in 1998 to 9,020,390 as of October 2001; and the average number of Sharechek accounts grew from 843,995 in 1998 to 1,102,177 as of October 2001. The credit union points to its Visa Check card as one of the many reasons there’s been a marked decline in the number of checks members are writing. Navy FCU, in fact, ranks among Visa’s top 20 credit card issuers. From June 2000 to 2001, Visa check card sales volume increased to 99.2% from 39,9%; sales transactions increased to 95.6% versus 37.3%; and accounts increased 113.9%. As of June 1, 2001, Navy had about 582,000 Visa check card accounts. Navy FCU spokesperson Loren Moeller noted that the average monthly transaction by members using the Visa check card is about $38. “They’re not using it for high end products. Many of our members on active duty are very transient. The Visa check card makes it very easy for them to make purchases anywhere they’re stationed.” Navy FCU currently does not push its Visa check card. Members have to request it, and Moeller said the penetration rate is only 38%. The activation rate though is a high 88.5%. The credit union does intend to begin offering it to all members soon. Despite the growing popularity of the Visa check card among Navy FCU’s 2 million members, Chapman accedes that, “The paper check won’t go away any time soon, some places will never have an electronic hook up. There will always be places that will only take paper checks, for their own convenience.” On that thought, Profit said, “The bottomline is consumers have held on to checks as familiar methods of payment. Checks will never completely go away, but consumers will have more payment options which credit unions will be able to capitalize on.” Will the increased use of electronic forms of payment change the paradigm credit unions have held to for many years that if a member has their share draft account at a credit union, they will consider it their primary financial institution? “Regardless if the member uses paper checks or makes electronic payments, it’s still a transaction account. Maybe we’ll have to start saying where the member has their transaction account will determine their PFI,” said Chapman. [email protected]