Checks Are Dying, Cash Is Dying

Checks Are Dying, Cash Is Dying

Credit and Debit Cards Have Already Replaced Them

Yes, you read that right. And if you doubt it for a moment, the statistics are now in that prove it.

Over the last five-plus years, more consumers are turning to credit and debit cards to pay for the items they buy. That has slowed the growth of check and cash transactions.  Slowed, but not reduced. Until now.

The recently released 2018 annual supplement to the Federal Reserve Payments Study shows a significant increase in card transactions in lieu of checks and cash. According to the report, credit and debit card transactions “continued to show robust growth from 2016 to 2017, collectively increasing 10.1 percent by number and 8.4 percent by value” over that time. Moreover, that represents “an acceleration in overall card payment growth compared with the previously reported 2015 to 2016 and 2012 to 2015 periods.” The trend in consumer payments has both sustainability and logic. Here’s why.

Reason #1: Competition

Why are cardholders using their plastic more now than before? Well, the most obvious reason is that competition between cards has skyrocketed in recent years. That means there are more options available to more consumers than ever before. 

Moreover, competition between issuers inexorably led to the introduction of cardholder benefits. You now can shop for the card that provides you with the benefits you most want to acquire. Free points for signing up, hotel and flight discounts, free travel insurance, you name it. None of those benefits are available if you pay with a check or in cash. So, the more you purchase using your card the more of those benefits you win.

Reason #2: Internet Commerce

The second factor is the ease of remote, or card-not-present transactions, resulting primarily, of course, from the explosion in internet commerce. “The number of remote payments increased 22.8 percent from 2016 to 2017, compared with in-person payments, which grew 7.2 percent,” the report states. Perhaps even more significantly, however, “the value of remote payments increased 14.8 percent, compared with in-person payments, which increased 4.4 percent.”

In simple terms, consumers are becoming more comfortable buying the goods and services they need online. They are also comfortable making larger purchases online as well. What this means is that the relative amount of card-not-present transactions as a percentage of the total is growing by leaps and bounds. That’s coming at the expense of traditional in-store transactions, which are shrinking in direct proportion.

Shopping over the internet is more convenient, since you can do it whenever it is convenient for you at any time of day or night. You don’t have to travel to a certain store, park and then waste time going store-to-store to compare prices. Because you can do all of that online in a matter of seconds, you know that you’re saving money by selecting item you’re searching for at the lowest price. Apart from the convenience, online shopping maximizes the value of your purchase.

As an aside, the growth in online commerce means that consumers are increasingly confident in the internet. While they may still be concerned somewhat about data breaches, they are willing to take the risk for the sake of convenience and value.

Banks Are Getting Ready for the Checkless and Cashless Future

It ought not to come as a surprise, therefore, that checks are taking a pounding. “Large-institution check payments showed an accelerated decline of 4.8 percent by number from 2016 to 2017,” the Fed report informs us. Nor is that a new development, since “the decline in the national total number of check payments was 3.0 percent per year from 2012 to 2015 compared with steeper declines from 2000 to 2012.”

And cash? “Data from the largest depository institutions showed a 2.8 percent decline in the number of ATM withdrawals from 2016 to 2017 and an increase of ATM withdrawals from 2016 to 2017 of only 0.5 percent, less than the rate of inflation over the period (roughly 2 percent).”

Knowing that credit and debit cards are now the invincible replacements for checks and cash, it’s no wonder why the banking industry is deploying additional processing infrastructure to manage this inevitable change.