Payments Evolution from Paper to Electronic: Bill Payments and Purchases 
Evidence shows that US consumers’ use of checks has declined sharply over time. They wrote 19.3 billion checks in 2000 and only 7.1 billion in 2018—a 63 percent drop—according to the Federal Reserve Payments Study. However, the literature contains little analysis of how changes in check use for bill payments and purchases relate to each other. This paper uses data from the Survey of Consumer Payment Choice to track individual respondents over a nine-year period and determine whether consumers tend to reduce their check use for bills and then reduce it for purchases, or vice versa.
Key Findings
- Consumers who reduced their check or cash use for bill payments in a given year were more likely to reduce their check or cash use for purchases in the following year; but a reduction in check or cash use for purchases was not followed by the use of fewer checks or less cash for bill payments.
- The average share of all consumer transactions paid with checks dropped from 18 percent in 2008 to 5 percent in 2018. The average share of bills paid with checks fell from 30 percent in 2008 to 10 percent in 2018.
- The drop in the check-use share for bill payments was offset by increases in the shares of other payment instruments: the share of electronic bill payments from a bank account rose from 14 percent in 2009 to 22 percent in 2018; the share of bill payments by credit card increased from 12 percent in 2008 to 16 percent in 2018, and the share of bill payments by debit card climbed from 19 percent in 2008 to 23 percent in 2018.
- During the sample period, older and middle-aged consumers’ check use declined more compared with other age groups’ check use; it remained low and relatively steady for the youngest (under 25) and second youngest (25 to 34) age groups
- The average share of payments by check decreased every year, with statistically significant drops from the years 2010 to 2014, from 2016 to 2017, and from 2017 to 2018.
Implications
This paper’s findings suggest that a change in bill payment behavior may be a precursor to payment behavior changes in general. Understanding that bill payments have led consumers’ switch from checks and cash to electronic methods may help predict changes in payment instrument use for various transaction types as new payment methods, such as faster payments or central bank digital currency, become available to consumers. Because checks are costly to process, facilitating a faster transition from checks to electronic payments for bills might help spread the transition to all types of transactions, including purchases.
Abstract
Consumer payments in the United States gradually have been shifting away from paper checks for the past several years. Cash use has declined as well, although at a much slower pace. As the number of check payments has decreased, those payments have been replaced with electronic and card payments. However, the transition from paper to electronic and card payments for bills has not proceeded in the same way as the transition for purchases. Using detailed consumer survey panel data collected over nine years, we track the same respondents over time and find that consumers who reduced their check or cash use for bill payments in a given year were more likely to reduce their check or cash use for purchases in the following year; but a reduction in check or cash use for purchases was not followed by the use of fewer checks or less cash for bill payments. The results suggest that a change in bill payment behavior may be a precursor to payment behavior changes in general. These results may help predict changes in payment instrument use for various transaction types as new payment methods, such as faster payments or central bank digital currency, become available to consumers in the future.