How America pays: Fed study paints big picture of card trends


Debit cards have raced ahead of credit cards as a way to get through a checkout line -- but when it comes to spending the big bucks, Americans still reach for credit over other forms of plastic, according to a new analysis from the Federal Reserve released Thursday.

Fed payments study

The analysis is titled "Federal Payments Study Detailed Results," but it may as well have been titled "How America Pays," because it paints a statistical big picture of the way we use cards and, increasingly, microchips and radio transponders to make payments.

Based on data from 2012, the study found:

  • Credit cards, held by both consumers and businesses, are the most common form of plastic, with 334 million general purpose cards in use, compared to 283 million debit cards and 159 million prepaid cards. Of the credit card total, 305 million were held by consumers, and the rest by businesses.
  • Though credit cards outnumber debit cards, the latter are used to make more transactions. For general purpose cards, debit transactions, at 47 billion, were almost double credit at 23.8 billion. Their positions have reversed since 2000, when debit transactions were a fraction of credit volume.
  • Mobile wallets are a small fraction of total payments, but they're on the rise. They made up more than 250 million payments in 2012. The study counted payments via text message in the mobile category, as well as near-field radio transmissions from a mobile device.
  • ATM withdrawals are getting bigger -- and smarter. The average withdrawal grew to $118 in 2012, from $108 in 2009. But the fraction of not-your-bank withdrawals shrank -- from 38 percent in 2009 to 29 percent in 2012 -- indicating consumers are avoiding more ATM fees.
  • Credit cards are used for bigger purchases. The average value of general purpose credit card transactions was $93 in 2012, more than twice the $34 average for debit.
  • Prepaid cards were the fastest-growing form of general purpose card, with a compound average growth rate of 33.9 percent a year since 2009.

"Retailers and businesses more broadly accept debit cards," said James McKee, senior vice president of the Federal Reserve Bank of Atlanta, which sponsored the study. "Once that was done, there's a lot more ability to use prepaid cards ... for loyalty or convenience," he added

2012 data
The statistics on noncash payments released Thursday are an expansion of the Fed's triennial payments study, initially released in December 2013. The findings are based on 2012 data, so they were gathered before the series of retail store data breaches that hastened the shift to microchip-bearing EMV cards.

Credit card spending is held back by a high proportion of inactive cards, the Fed found. Of open credit card accounts, only 56 percent were actively in use, compared to 65 percent for debit. Prepaid card activity trailed far behind, at 18 percent.

The Fed's next triennial payments study in 2016 might include information on alternative, virtual currencies such as Bitcoin, McKee said. The study is based on census-type surveys of financial institutions and payment processors, and on a sample of check transactions.

Decline of checks continues
Cards and other noncash payments are generally on the rise as the use of cash and checks declines. Payments made via paper check are down from 41.9 billion in 2000 to 18.3 billion in 2012. Consumers held 287 million checking accounts in 2012, with an average value of $8,001.

Other than checks, private-label credit cards are the only form of noncash payments in decline, the Fed study said, down to 2.4 billion transactions in 2012 from 3.3 billion in 2000. However, the amounts charged on the cards are relatively high -- likely reflecting big-ticket purchases put on store cards. More than half of  private-label card transactions are greater than $50, compared to 35 percent for general-purpose credit card transactions and 20 percent for general-purpose debit.

McKee said the detailed look at noncash payments should support efforts by the Fed to update the nation's payments systems, the "rails" for moving money around including checks, the automated checks known as Automated Clearing House or ACH transactions, cards, and alternative payments such as mobile wallets.

Fast-rising transportation payments
The fastest-growing form of payment chronicled in the Fed report isn't from a card at all. You don't carry it in your wallet -- you slap it on your windshield or clip it to your visor. It's the toll road transponder that sends out a short-range radio signal from your vehicle to a counter in the toll road, automatically dinging your account each time you drive past an electronic toll booth.

The report includes the first effort to count these payments, and just by surveying only the largest known firms and payment processors, concludes that at least 5.2 billion such toll road payments were made in the U.S. by the devices in 2012.

When you add in payment cards sold by bus and rail lines, we used prepaid transportation devices 9.9 billion times in 2012. 

"That would be a cash replacement -- or a coin replacement," McKee said, as toll booths increasingly go high-tech. "Some of these pay lanes for traffic control read your sticker as you get into the lane, then charge accordingly," he said. "There are a lot of payments we don't think about."

See related: Fed triennial payments study shows fraud's rise

Published: July 24, 2014

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