Consumers choosing electronic options more than cash, checks

As consumers continue to embrace an expanding array of payment choices, traditional methods are fading, according to a new nationwide consumer-payment preferences study conducted by the American Bankers Association and Boston-based consulting group Dove Consulting, a division of Hitachi Consulting. The research was sponsored by ACI Worldwide, Citigroup, The Clearing House, and MasterCard.

The 2005/2006 Study of Consumer Payment Preferences found that each month consumers make 58 individual payment choices, whether by buying things in stores or over the Internet, or paying bills.

Increasingly, the payment method chosen is an electronic one.

Paying electronically

Cash and checks now account for only 45 percent of consumers’ monthly payments – down from 57 percent in 2001, and 49 percent in 2003.

“The consumer switch to electronic payments is increasing across the board– albeit at different rates,” said Jane Yao, ABA’s managing director of benchmarking and survey research, in an Oct. 25 news release. “We all know that consumer use of electronic payments for in-store purchases has increased steadily for years and much of the ‘easy’ migration has already occurred. This year’s survey results show that electronic bill pay is quickly catching up.”

Consumers’ migration to electronic payments for in-store payments has been driven largely by the increasingly popularity of debit, which achieved significant growth at the expense of checks. Six years ago, debit represented only 21 percent of in-store transactions; today consumers report that one-third, or 33 percent, of in-store purchases are made with debit cards.

Gift cards up, checks down

The biggest relative change is in the area of gift cards.

Gift cards now account for 4 percent of all in-store purchases, up from 2 percent in 2003. The percent of consumers who indicate using gift/prepaid cards to make at least one purchase per month in stores has increased from 12 percent in 2003, to 32 percent in 2005. Moreover, this growth looks likely to continue, with 12 percent of consumers planning to increase their use of gift/prepaid cards over the next two years.

Checks are quickly losing ground in the area of bill payment, as more and more consumers turn to automatic bill payment and online bill payment.

As consumers’ options for automatic payments (via checking account, credit card, or debit) and online bill payment (either through their financial institution or biller) proliferate, more and more consumers are finding an electronic bill payment method that suits their needs.

Today, 52 percent of consumers use automatic payment to pay at least one bill per month, and 39 percent of consumers use online bill payment – and many of them are using these methods to pay multiple bills.

Checks now account for less than half of consumers’ monthly bill payments – only 49 percent – down from 72 percent in 2001 and 60 percent in 2003.

Debit wins the race

Although consumer adoption of electronic payments varies across venues, one fact is evident.

“Across all payment venues, debit is emerging as the clear winner,” said Tony Hayes, vice president of the financial services group at Dove Consulting. “Debit is now tied with cash for the highest share of consumers’ in-store purchases … Consumer use of debit for online purchases and bill payments is also increasing – particularly if they receive rewards.”

The shift from paper to electronic payment methods will likely continue over the next few years as new electronic payment methods with benefits enter the mix.

Data for the 2005/2006 study was collected through a national paper and Web survey sent to consumers in the United States. A total of 3,008 completed surveys were received, and the data set is weighted to represent the overall population.

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