Electronic Payments, Benefits Increase
by Broderick Perkins
The number of electronic payments has surpassed the number of check payments for the first time in the nation and consumers -- along with trees -- are reaping benefits. The Federal Reserve says electronic payment transactions totaled 44.5 billion in 2003. The number of checks paid totaled 36.7 million. In 2000, the last time the Fed checked the numbers, checks were ahead totaling 41.9 billion, compared to 30.6 billion for electronic payments. The "2004 Federal Reserve Payments Study" also found: - Check payments, at $39.3 trillion, remained the leader in dollar amounts. Electronic payments equaled $27.4 trillion in 2003, but that's due to change in a few years.
- Electronic payments came in three forms -- debit cards (15.6 billion transactions, valued at $0.6 trillion); automated clearinghouse (ACH) transactions, i.e. direct debit (9.1 billion transactions, valued at $25.1 trillion); and credit cards (19 billion transactions valued at $1.7 trillion). The study did not include checks that were written and subsequently converted to electronic transactions for clearing.
- Check use is declining at the average annual rate of 4.3 percent while electronic payment use is increasing at the annual rate of 13.2 percent the Fed said. Debit card transactions, with an estimated annual growth rate of 23.5 percent, is the fastest growing type of electronic payment.
"The balance has shifted from check writing to electronic payments, and we expect this trend to continue," said Richard Oliver, senior vice president of the Federal Reserve Bank of Atlanta and the Federal Reserve Banks' product manager for retail payments. "Indeed, at current growth rates, credit cards and debit cards will both surpass checks in terms of total annual transactions in 2007," he added. Remember the hue and cry over security concerns years ago when consumers jumped into electronic payment systems, largely via online shopping? Ironically, one reason for the growing popularity of electronic payments is that the digital payment method has turned out to be a more secure transaction than the paper trail. That's because, one study says, viewing and paying bills and statements online eliminates the most common means of identity theft -- hard copy. Identity thieves are not unlike burglars or other personal property thieves in their methods of operation. They want an easy mark. It requires much more sophistication to break into online systems protected by encryption software than to snatch a piece of paper from mailboxes, trash bins or your desktop. "ID theft is typically done through a piece of paper. Forty-four percent of all ID fraud starts with a simple theft -- a wallet or a purse. In the case of new accounts being fraudulently set up, 14 percent is caused by the perpetrator taking things out of a mail box. Paper is where the crime is being committed. If you follow the paper trail, so to speak, it leads you back to a piece of paper," said James Van Dyke, founder and principal analyst of Javelin Strategy and Research, a Pleasanton, CA-based consultant for financial services, payments, and commerce sector companies. "The biggest sources of ID theft is friends and family and a paper shredder is not going to help you with that. By the time you shred the documents, someone has already seen it," Van Dyke said. Electronic payments are cutting into the "float time" consumers once enjoyed when writing checks, but that's a small perk to give up for the advantages of digital payments. Electronic mortgage payments, for example, can not only save the cost of postage, but perhaps also the cost of late fees and, ultimately, damage to your credit -- provided your lender or loan servicer is among the majority offering an automatic electronic payment option. In addition to removing the paper trail, electronic payments give you a clue much more quickly when trouble arises because you can see your account typically 24 hours a day. Javelin says paper-based customers typically see their accounts once a month and because of the nature of billing cycles, monthly statements can include activity that's more than a month old. Online banking and bill paying consumers, on the other hand, typically view their accounts four times as often as paper-based customers, Javelin found. Online customers often can set up their account with triggers that automatically e-mail them with bulletins when, say, payments are due, they initiate a charge or payment, they exceed their credit limit or perform other transactions. The vast majority of consumers who've used and rated electronic payment services on the Epinions.com website, give high ratings to the services. "If every consumer went out and did this tomorrow (paperless banking) the risk of identity theft would instantly drop by 10.4 percent," said Van Dyke. | 
