Cards keep gaining ground, but
cash and checks are still king
The 1,700 teenagers who attend
Lake Park High School outside Chicago can use cash or a debit card
to pay for lunch.
The debit card system is only three weeks old, but already more
than 25 percent of the students have chosen it.
"I keep getting more checks (from parents) each day as more
and more students are participating," says food services manager
Carolyn Palmer. "Parents put money in the account, and it can
be used only for food. It's convenient because they don't have to
give them money for food every morning."
We may never get to the point of being a cashless or checkless
society, but credit, debit and other forms of electronic payments
are making big gains as people of all ages become more aware of,
and more willing to try, alternative payment options.
Fifty-one percent of in-store purchases are paid for with cash
or checks; 49 percent of our in-store purchases are paid for electronically
using credit cards, debit cards and prepaid cards, according to
a study by Dove Consulting for the American Bankers Association.
But tally up all payments and, according to the Federal Reserve,
checks are still hugely popular with the American public. We wrote
about 50 billion checks in 2000 -- compared with about 32 billion
checks in 1979. The total amount of those checks was $47.4 trillion
vs. $7.3 trillion in electronic payments.
Leon Majors, of ESP Consulting, has studied the payments industry
for years. He says there are two main reasons why we're writing
"There's an increase in the number of households and in communication
services. Communication services have exploded over the last five
years in terms of the number of bills we get. Bills for Internet,
long distance, local, cell phone -- what was one bill 10 years ago
is now five bills."
Most of those billions of checks we write are printed by Deluxe,
a Minnesota company that's been battling rumors of its demise for
"They've been predicting a checkless society
since the late '60s," says company spokesman Stu Alexander.
"Our take is the same as it's been for
30 years. The payment methods of the U.S. will change, but it will
be evolutionary, not revolutionary. The country started on an agricultural
barter system, and then went to currency, demand accounts, credit
cards, debit cards, now Internet payments -- and they all still
exist today. One doesn't replace another, they just become another
While multiple payment options are co-existing, some are taking
market share from others. Experts say that over time we'll see online
bill payment replacing a greater share of checks.
The TowerGroup predicts that electronic bill presentment and payment,
which equaled less than 1 percent of total bill volume in 2001,
will grow to 10 percent by 2005.
Debit card transactions at the cash register are reducing the
use of checks and cash.
Beth Robertson, senior analyst at TowerGroup, says debit cards
have become mainstream.
"More providers are offering debit cards
as a tool to their customers, where electronic bill presentment
and payment is a little more behind the curve."
Majors believes supermarkets, convenience stores and gas stations
have been the main drivers in the growing use of debit cards.
That, in turn, has spurred the use of cards for smaller transaction
amounts. People now use cards to buy fast food and movie tickets.
No requiem for cash and checks
Despite these gains, Majors says there is no big effort by the industry
to wipe out cash or checks.
"There are large segments of consumers
who won't give up cash or checks. You have to wait for them to die
or price them out of it. If the industry wanted to move that way,
they'd make debit transactions free, which they're not, and we're
still in a cycle where we have free checking. They could also decrease
the allowable float time for checks, but they're not doing that
For First Data, a global giant specializing in electronic commerce
and payment services, the change to less cash and checks and more
electronic payments can't happen fast enough.
Henry Tsuei, vice president of new product development, says convenience
will be a major factor in pushing consumers to use electronic payment
options. Slowly, but surely, there's a sea change taking place that
many consumers are hardly aware of but will grow to accept.
For instance, govOne Solutions, a First Data affiliate, is, among
other things, assisting federal, state and local governments with
"They're helping New York City process
parking tickets online," says Tsuei. "Instead of mailing
your ticket or going to a government agency and paying it, you can
go online and pay your parking ticket."
Tsuei says we can expect to see more uses for key fobs, such as
Mobil's Speed Pass, and transponders -- the garage opener-size devices
some states use to move motorists through tollbooths faster.
Electronic check acceptance -- or check truncation -- is something
Tsuei believes we'll be seeing a lot of in the next few years. Give
a check to the cashier, it gets swiped and converted to an electronic
payment on the spot and the check is handed back to you. Instead
of a slow-moving check winding its way through the mail, the information
from the check flies through the system electronically.
Some electronic forms of payment have become commonplace already.
Stored-value cards, such as phone cards, are everywhere, and prepaid
cards have replaced paper gift certificates at many retailers across
Tsuei says there will be major advancements in mobile commerce
as cell phones and PDAs are enabled for payment transactions.
"There will always be paper-based payments,"
Tsuei says. "I don't imagine they'd be completely displaced.
You'll continue to see the introduction of new payment methods that
will appeal to the consumer and give the convenience of paying anyone
anytime from any device."
Convenience is a selling point even the kids at Lake Park High
School appreciate -- that's why they're using debit cards to pay
"The students requested it," says
Carolyn Palmer. "We are so crowded at the schools, and it makes
the line move faster."