The expansion of mobile payment technologies is the latest development in a trend towards electronic payments that emerged in the 1970’s. While the growth of the ACH network and wire network services, and the proliferation of credit and debit cards, have come at the expense of non‐electronic payment forms, cash and check remain major, and vital, payment instruments in the U.S.

Cash: The most‐used payment instrument in the U.S.

Cash remains the most‐used payment instrument in the U.S., especially for low‐dollar transactions. The latest industry data shows that cash is used for 50% of all U.S. payments and 56% of consumer payments. Although widely used, cash accounts for only 2% of dollar flows in the country. Cash is even more prevalent at the point of sale where it accounts for 62% of consumer payments. Consumer surveys indicate that cash remains popular because it does not defer the payment and because it carries
no risk of fees or interest costs.

The Check: An increasingly electronic payment form

Checks account for only 11% of U.S. payments but are typically used for higher‐dollar transactions and represent 38% of dollar flows. Checking remains a very popular option for consumer bill payment, peer-to-peer payments, and for businesses.

The check, which is simply a promissory note that orders a payment of money from a bank account, has been present since the inception of the U.S. banking system. Throughout the 20th century new technologies, industry standards, and consumer laws and regulations facilitated the standardization of the check clearing process and a vast expansion of the use of the check. Check volumes peaked at the end of the 1980’s at almost 50 billion checks paid annually.

In the 1990’s the volume of checks paid began to fall as electronic alternatives to consumer check writing proliferated. At the same time, the check clearing process itself was becoming increasingly electronic. The Check Clearing for the 21st Century Act (Check 21) was enacted in 2003 to allow any bank at which a check is deposited to create a “substitute check” that it may then present to the paying bank in place of the original. In addition to substitute checks, banks increasingly accept a simple electronic image of the original check. By 2009, 97% of interbank checks cleared electronically, as opposed to only 43% in 2006.

The decline in the number of checks paid is also a result of a trend toward check conversion. Through check conversion, 12% of checks written in the U.S. are converted into an electronic funds transfer using the ACH system. The ACH system, along with wire services, will be the topic of the next Banking Brief.

The Clearing House is the nation’s oldest banking association and payments company established in 1853 to bring order to clearing and settlement between banks.