Innovations and Payment Systems

Plastic payments displacing cash, checks


Credit cards continue to displace cash and checks as the preferred method of payment at businesses across the U.S.

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  • Credit cards continue to displace cash and checks as the preferred method of payment at businesses across the U.S.

Compare Low Interest Credit CardsAccording to the Federal Reserve Payments Study, released in December 2007, electronic payments (such as credit cards and debit cards) climbed to 47 billion in 2006, up from 34 billion in 2003 and 15 billion in 1995. In 2003, checks accounted for 46 percent of all payments. By 2006, that had dropped to 33 percent.

Experts say that over the last decade or so, there has been a major movement to credit card and especially debit card transactions, leaving cash and checks behind.

Credit card supporters tout plastic’s security as one of the main benefits to avoid cash and checks. Carrying plastic in your wallet is safer than having a wad of cash in your pocket, they say.

Meanwhile, while thieves can easy grab information off a paper check, credit card issuers generally have safeguards in place to protect cardholders in the event of unauthorized use.

While some critics say that the increasing use of electronic payments will boost the price of retail items as interchange fees get passed on to consumers, experts are not so sure. They say that any increase to retail prices is probably more than offset by the added convenience and protection that credit cards and debit cards provide.

Retailers themselves stand to benefit from greater credit card use. “The biggest single benefit has been that credit card transactions tend to be higher dollar transactions. People spend more using cards than with cash,” says Rob Drozdowski, senior director at the Electronic Transactions Association.

Drozdowski says, “Credit card transactions also provide a convenience factor for merchants, since they have to handle less cash,” citing the potential for theft when merchants keep large amounts of cash on hand.

And, electronic payments offer merchants more than just convenience and safety. In fact, the Federal Reserve says that processing credit cards costs about a fifth of what it costs to process checks, making credit card readers a good investment for stores.

Ongoing developments should continue to make plastic payment ever-more ubiquitous.

“The mag stripe has been around since the ’50s, and migration toward chip technology is going to provide new benefits security and protection for stored information,” Drozdowski explains.

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