1. Payment Trends What the Future Might Look Like
Julius G. Weyman
Senior Vice President
Federal Reserve Bank of Atlanta
2011 Utility Payment Conference
September 21, 2011

2. Discussion Agenda
Changes in Payment Trends: Results of 2010 Federal Reserve Payments Study
Emerging Payments: Rules and Regulations
SOURCE: Federal Reserve Payments Study

3. 2010 Federal Reserve Payments Study Background
Fourth in a series of triennial studies to estimate and study trends in noncash payments in the US
Identifies changing trends in:
How payments are made
The dollar distribution of retail payments among the various options
How check writing and clearing has changed
Comprised of three separate studies
Depository Institution Payments Study
Estimates the number and value of various types of transactions from US deposit accounts in 2009
1,300 participants, including all of the 50 largest US depository institutions
Electronic Payments Study
Estimates the number and value of various types of electronic payments in the US in 2009
Respondent base included payment networks, processors, and card issuers
Respondents accounted for over 95 percent of US electronic payments
Check Sample Study
Estimates the distribution of checks by counterparty and purpose
SOURCE: Federal Reserve Payments Study

4. Payments Study Headlines
The number of noncash payments in the United States grew at approximately the same rate between 2006 and 2009 as it did between 2003 and 2006, and the value of noncash payments declined:
Noncash transactions grew 4.6% CAGR while dollar values fell over the same period
Check volume continues to fall at increasing rates from past surveys
Checks written from consumers to businesses fell precipitously
Check clearing has become increasingly electronic
Debit cards are now the most used non-cash payment instrument
Credit card usage shows no growth
Prepaid card usage, particularly open loop prepaid is growing rapidly
SOURCE: Federal Reserve Payments Study

5. Rates of Change in Number of Noncash Payments
ACH %
Debit %
Prepaid %
Check %
Credit %
Total number of noncash payments = +4.6%

6. Rates of Change in Value of Noncash Payments
ACH %
Debit %
Prepaid %
Check %
Credit %
Total value of noncash payments = -1.6%

7. Rates of Change in Average Value of Noncash Payments
Prepaid %
Check %
ACH %
Credit %
Debit %
Total value of noncash payments = -5.9%

8. d
In 2009, nearly 80% of noncash payments were electronic; the most used instrument was debit card, eclipsing check
Distribution of noncash payments in 2006 and 2009
2006
2009
paid
paid
Debit card
22%
26%
Debit card
32%
35%
Prepaid1 5% 4%
23%
18%
Prepaid1
15%
ACH
20%
Credit card
ACH
Credit card
1 Prepaid includes EBT.
SOURCE: Federal Reserve Payments Study

9. %
Cards were used for 60% of noncash transactions but only 5% by value; ACH and check were the dominant instruments by dollar value
Distribution of noncash payments in 2009
Number
Value
Debit
card
Credit
card
Checks paid 2%
Debit
card
22%
Checks paid 3%
35%
44%
Prepaid1 5%
51%
ACH
18%
ACH
20% 0%
Credit card
Prepaid1
1 Prepaid includes EBT.
SOURCE: Federal Reserve Payments Study

10. 8
Check writing continued to decline since the last study, but the growth of check conversion to ACH slowed dramatically
Number of checks written, paid, or converted to ACH
billions
CAGR
( )
CAGR
( )
37.6
0.3
(1%)
33.1
2.6
(8%)
-4.2%
-5.7%
97.9%
8.7%
-6.5%
-7.1%
27.8
Checks written
3.3
(12%)
Converted to ACH
37.3
(99%)
30.5
(92%)
24.5
(88%)
Paid as checks
2003
2006
2009
Figures may not add due to rounding.
SOURCE: Federal Reserve Payments Study

11. 9
Consumer-to-business checks are declining at a faster rate than business checks
Number of checks written by counterparty1
billions
Remittance
POS
Remittance / POS
Other
2006
(total = 33.1)
2009
(total = 27.8)
CAGR
( )
1.6
-10%
-2%
-3% 4%
C2B
10.7
4.4
1.9
17.0
8.6
12.3
2.0
1.8
1.2
B2B
5.4
8.3
6.0
7.9
1.1
0.6
B2C
C2C
Figures may not add due to rounding.
1 Estimates are based on a random sample of checks processed by the Viewpointe archive member banks. Data includes banks that participated in both the 2006 and 2009 Federal Reserve Check Sample Study. “C” refers to consumer. “B” refers to businesses, nonprofits, or government organizations. “P2P” refers to person-to-person.
SOURCE: Federal Reserve Payments Study

12. %
A slowdown in check conversion growth slowed overall ACH growth; other forms of ACH grew more quickly than check conversion
CAGR
( )
CAGR
( )
Number of ACH payments by type
billions
ACH
19.1
18.6%
9.4%
97.9%
8.7%
12.6%
9.5%
3.3
(17%)
Converted checks
14.6
2.6
(18%)
8.8
0.3
(4%)
15.8
(83%)
Other ACH
12.0
(82%)
8.4
(96%)
2003
2006
2009
Figures may not add due to rounding.
SOURCE: Federal Reserve Payments Study

13. Credit cards were the only electronic instrument to show usage decline and fell to 20% of total noncash payments
Number of credit card payments
vs. other noncash payments
billions
CAGR
( )
CAGR
( )
109.0
Noncash
4.5%2
4.6%
-0.2%
5.9%
95.2
21.6
(20%)
Credit card1
81.4
21.7
(23%)
19.0
(23%)
87.4
(80%)
payments
73.5
(77%)
62.5
(77%)
2003
2006
2009
Figures may not add due to rounding.
1 Credit card includes general purpose and private label credit card transactions.
2 The growth rate has been adjusted for comparability, because the 2004 study did not attempt to estimate all 2003 prepaid card transaction volume.
SOURCE: Federal Reserve Payments Study

14. Debit card use continued to grow at double-digit annual rates; PIN debit increased to nearly 40% of total debit transactions
CAGR
( )
CAGR
( )
Number of debit card payments by type
billions
17.1%
14.8%
20.6%
15.6%
15.1%
14.3%
Debit card1
37.9
14.5
(38%)
PIN
25.0
9.4
(37%)
15.6
5.3
(34%)
23.4
(62%)
Signature
15.7
(63%)
10.3
(66%)
2003
2006
2009
Figures may not add due to rounding.
1 Debit card includes transactions funded from demand deposit accounts and does not include “prepaid” debit.
SOURCE: Federal Reserve Payments Study

15. Use of prepaid debit cards, including EBT, grew faster than other noncash payments; open-loop card use grew most quickly
CAGR
( )
Number of “prepaid” debit payments by type
billions
21.5%
63.4%
11.8%
21.4%
Prepaid debit 1
6.0
1.3
(22%)
General purpose 2
3.3
0.3
(9%)
2.7
(45%)
Private label 2
1.9
(58%)
2.0
(33%)
EBT
1.1
(33%)
2006
2009
Figures may not add due to rounding.
1 Prepaid debit includes payments made by prepaid instruments purchased by households and payments by cards funded by US firms or government agencies to disburse payments or benefits to households (e.g., payroll cards, EBT); includes single-use and reloadable cards, but excludes transit cards, toll way systems and phone cards.
2 General purpose prepaid instruments are network branded by either credit card or PIN networks (e.g.,payroll or prepaid banking cards). Private label transactions are prepaid cards which are limited in usage to one or several merchants (e.g., gift cards).
SOURCE: Federal Reserve Payments Study

16. Online bill pay from financial institution websites and far field RFID (e.g., transit tollways) were the most used alternative applications
Other 2009 payments applications measured
billions; average in USD
Number
Value
Average
Online bill pay 1
2.37
$868
$366
Walk-in bill pay 2
0.25
$36
$144
Money transfer & P2P 3
0.15
$45
$309
Far field RFID
3.54 $6 $2
Total
6.30
$955
$152
Each of these applications leverages other payment types, the use of which is estimated by the 2010 Federal Reserve Payments Study
1 Online bill pay from FI or aggregator websites that are processed by online bill pay service providers. Does not include “biller direct” payments at billers’ sites.
2 Walk-in bill pay at third-party processor locations. Excludes walk-in payments at biller locations.
3 Money transfer & P2P originated in US for domestic or cross-border payments.

17. Other interesting findings
Year-over-year trends
The number of general purpose credit card transactions declined from 2006 to 2009, but increased every year except 2008 to 2009
The number of signature debit card transactions increased every year from 2006 to 2009, but the rate of growth slowed between 2008 to 2009
Cash back on debit
Americans received cash back on one billion debit card transactions in 2009 (1 out of every 38), for $35 billion (~5% the amount they withdrew from ATMs)
Credit union members averaged ~30% more cash than bank customers when they got cash back, and 55% of their ATM withdrawals were at “foreign” ATMs
Check payments
While check writing declined, the number of remotely created checks grew to ~550 million in 2009 (2% of checks written)
Nearly half (46%) of all checks written are ineligible for conversion to ACH
90% of credit unions and 73% of savings banks outsource check processing; this compares to only 38% for commercial banks
Card payments
Businesses made 12% of all general purpose credit card transactions (2.4 billion)
Contactless payments were twice as common for debit (34 million) than for credit (17 million) but remain extremely rare (0.2% of signature debit card payments)

18. Payments Vehicles: Regulated vs. Unregulated
Regulation generally follows widespread adoption of payment options. Regulated payments types are generally the “old-fashioned” options:
Check
ACH
Debit Cards
Credit Cards
Emerging payment options tend to be less regulated:
Reloadable debit cards (e.g. Starbucks, iTunes)
PayPal
Ebay
Facebook
Other Internet conduits for person-to-person payments
SOURCE: Federal Reserve Payments Study

19. What’s All the Fuss about Mobile Payments?
US payments system characterized by rapid change the past few decades, but is still changing more slowly than other industries
Smartphone technology holds promise to introduce disruptive change as to how consumers make payments, but progress has been slow in the US
Used primarily at this point as a browser, allowing access to internet-based banking and retail sites
Also used by some to pay bills (to cell phone carriers, etc)
Mobile payments at this time generally ride the ACH or card rails
Future of true mobile payments will rely on the use of near field communications or similar contactless technologies that are less prevalent in the US than in other countries
SOURCE: Federal Reserve Payments Study

20. Contact Information
Julius G. Weyman
Federal Reserve Bank of Atlanta
1000 Peachtree Street NE
Atlanta, GA 30309