A Belated Christmas Gift: New Fed Payments Data

In prior cycles the Fed released its treasure trove of payments data over the Christmas holiday- an apt metaphor for a small niche of obsessives (myself included) who eagerly unwrapped this industry gift in search of insights.

This year’s Federal Reserve Payments Study arrived a few months later- I’m guessing because of the complexity of gathering data in the midst of a pandemic, as well as in validating the shifting patterns such a shock to the system inevitably created.

Bear in mind that during 2021- the period this data reflects- much of the US remained in COVID-related lockdowns. Vaccines began to roll out in late winter and brick-and-mortar venues gradually reopened in the year’s later months, but the economy continued to be marked by a heavy reliance on remote commerce.

Despite the unusual backdrop (is there ever a truly “normal” year?) this triennial batch of payments data includes a healthy share of key takeaways:

ACH’s remarkable continuing growth story– Fifty-year-old products that long ago achieved critical mass simply aren’t supposed to behave this way. The number of payments made by ACH grew at an 8.3% annual rate between 2018 and 2021- faster than either debit or credit cards. The dollars carried by those transactions grew even more rapidly- in fact, of the $30 trillion of additional value transmitted in 2021 through non-cash means ($128 trillion in total), 90 percent of the growth ran over the ACH rails.

Never count out credit cards– There are two important credit card trends to consider: their use as a payment vehicle, and cardholders’ behavior in carrying revolving balances on those cards. The Fed’s Payments Study only deals with the former; after ceding their lead to debit cards a few cycles ago, it seemed credit cards might be poised for gradual decline. Despite some recent soft periods, growth in credit card usage has returned to a solid, steady pace associated with a mature product. (The New York Fed provides ongoing data tracking revolving card balances- which took a highly unusual dip during the pandemic but have since recouped all the decline- for better or worse.)

Debit keeps rolling along– The debit card growth story is as impressive as ACH, on a product that only found its second gear after an extended period in market. More than two-thirds of card transactions- and over half of noncash transactions- ride the debit rails, although given the typical small-dollar use cases the value conveyed still trails all other instruments. Buried within this category is an even more impressive growth story around general purpose prepaid and EBT cards- each advancing from a significantly smaller base.

An unexpected twist in the check plot– The longstanding decline in check volumes continues, but there’s a surprise in the story. For starters, the value conveyed by remaining checks actually rose over the past three years (albeit slightly). As a result the value of a typical check skyrocketed by 27%, to $2,430. There are likely two main reasons behind this. The checks consumers continue to write tend to be for larger purchases. Perhaps more importantly, as the Fed’s related Check Sample Survey reveals, checks written by businesses are declining at a significantly slower pace than those by consumers. As a result, businesses now produce a slight majority of overall check volume. It’s often overlooked that checks continue to carry nearly three times the dollar value of credit and debit cards combined.

More detailed data from the Fed on noncash categories is forthcoming later this year. Until then, these reports provide plenty to chew on until Festivus.

Related links:

Payments – Then and Now BIGcast: https://www.big-fintech.com/Media?p=payments-then-and-now

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