Payments in the US Undergoing Evolution, Not Revolution
There has been a considerable amount of attention to new ways to make and receive payments recently. This includes chip-equipped cards, contactless debit cards, mobile wallets, and two-dimensional barcodes carried on smartphones.
Based on the findings of Federal Reserve Bank of Cleveland policy advisor Daniel Littman, these new payments methods, while they are definitely innovative, are not technically revolutionary due to the fact that they use legacy payment networks for payments instructions and settlement.
Cash currently retains its place as the payment product used most frequently by consumers, representing 1/3 of all consumer transactions in 2015, again based on the Federal Reserve’s Diary of Consumer Payment Choice.
However, Littman contests that cash use is falling in relation to other payment types.
Based on the findings of the Federal Reserve Payments Study 2016, on an average day in the U.S. in 2015, consumers, businesses, and governments made nearly 400 million noncash payments with an overall value of $487 billion.
Littman notes that a number of countries around the world have implemented some version of a new payment network labeled “faster payments” or “real-time payments.” “These are networks that in their purest form allow payments to move in an instant from one party to any other party and, in several cases, operate 7 days a week, 24 hours a day,” says Littman.
While a revolution in payments doesn’t appear to be very likely, Littman says the United States is due for continuing evolution. “Faster payments will not drive any of the legacy payment products to extinction in the foreseeable future, but the experience in other countries with real-time payment systems suggests that faster payments will reduce the growth rate of ACH and accelerate the decline of checks and cash. Faster payments will also improve convenience, certainty of payment, and security for end users,” says Littman.