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•AUG 22 196
REStsRl
n o m i c
e v i e w
•j F PHILADELPHIA
EDERAL RESERVE BANK OF ATLANTA
AUGUST 1983
Special Issue: Displacing the Check
Special Issue:
Displacing the Check
Economic
Review
F E D E R A L R E S E R V E B A N K O F ATIRANTA
President:
William F. Ford
Sr. Vice President a n d
Director of Research:
Donald L. Koch
Vice President a n d
Associate Director of Research:
William N. Cox
Financial Structure:
B. Frank King, Research Officer
David D. Whitehead
Larry D. Wall
National Economics:
Robert E. Keleher, Research Officer
Mary S. Rosenbaum
J o s e p h A Whitt, Jr.
Regional E c o n o m i c s :
Gene D. Sullivan, Research Officer
Charlie Carter
William J. Kahley
Database M a n a g e m e n t :
Delores W. Steinhauser
Payments Research:
Paul F. Metzker
Visiting Scholars:
James R. Barth
George Washington University
James T. Bennett
George Mason University
George J. Benston
University of Rochester
PREFACE
PART ONE: F R A M E W O R K
FOR CHANGE
Why People Write Checks
How a New Technology
Spreads
1 9 7 9 As a Base Year
PART TWO: T H R E E P H A S E S OF
PERSONAL CHECK
DISPLACEMENT
P h a s e I: D i s p l a c e m e n t of
Personal Checks
Used to Acquire Cash
P h a s e II: D i s p l a c e m e n t of
Personal Checks
U s e d for Retail P u r c h a s e s
P h a s e III: D i s p l a c e m e n t of
Gerald P. Dwyer
Emory University
Personal Checks
Robert A Eisenbeis
University of North Carolina
U s e d f o r Bill
Payments
John Hekman
University of North Carolina
Paul M. Horvitz
University of Houston
Peter Merrill
Peter Merrill Associates
C o m m u n i c a t i o n s Officer:
Donald E. Bedwell
Public Information Representative:
Duane Kline
Editing:
Gary W. Tapp
Graphics:
Eddie W. Lee, Jr.
Cheryl D. Berry
The E c o n o m i c Review seeks to inform the public
about Federal Reserve policies a n d t h e e c o n o m i c
environment and, in particular, to narrow the gap
b e t w e e n specialists a n d c o n c e r n e d laymen. Views
expressed in the Economic Review aren't necessarily
those of this Bank or the Federal Reserve System.
Material may be reprinted or abstracted if the Review
a n d author are c r e d i t e d Please provide the Bank's
Research Department with a copy of any publication
containing reprinted material. Free subscriptions a n d
additional copies are available from the Information
Center, Federal Reserve Bank of Atlanta, P.O Box
1731, Atlanta, G a 3 0 3 0 1 (404/586-8788). Also contact the Information Center t o receive Southeastern
E c o n o m i c Insight a free newsletter on economic
trends published by t h e Atlanta Fed twice a month.
A U G U S T 1983 E C O N O M I C REVIEW •
V O L U M E LXVIII, N O . 8
PART T H R E E : E S T I M A T E S O F
PERSONAL
PAYMENTS,
1979-1994
Step 1: Household
Payments in 1979
Step 2: Personal Payment
Growth Rate,
1979 to 1994
Step 3: Potential Market
Share for Each Phase
of Displacement
Step 4: Specification of
the General
Penetration Curve
Step 5: Personal Payment
Trends, 1979-1994
PART FOUR: C O M M E R C I A L
CHECK VOLUME,
1979-1994
PART FIVE: S U M M A R Y AND
IMPLICATIONS
APPENDIX A SENSITIVITY
T E S T I N G O F THE M O D E L
A P P E N D I X B: T H E M O D E L
IN EQUATION F O R M
BIBLIOGRAPHY
PREFACE
The personal c h e c k i n g a c c o u n t c o n s t i t u t e s t h e backb o n e of t h e system w e use t o pay each o t h e r in t h e
A m e r i c a n e c o n o m y of 1 9 8 3 . S a n d w i c h e d b e t w e e n
t h e use of c u r r e n c y for " n i c k e l - d i m e purchases" a n d
t h e use of s o p h i s t i c a t e d w i r e transfers for f a s t highvalue transactions, t h e personal c h e c k i n g a c c o u n t is
t h e d e v i c e m o s t of us t h i n k of t o d a y w h e n it c o m e s t o
" p a y i n g for s o m e t h i n g "
C h e c k i n g a c c o u n t s t h e m s e l v e s are changing, of
course. N o t long ago, t h e t e r m " c h e c k i n g a c c o u n t '
meant a non-interest bearing deposit w i t h a commercial
bank, against w h i c h w e c o u l d w r i t e checks. T o d a y t h a t
a c c o u n t may w e l l be at a savings a n d loan association,
or w i t h a m o n e y m a r k e t m u t u a l fund. It m a y pay
interest, either a flat rate in t h e case of c h e c k a b l e
N O W accounts or a f l e x i b l e c l o s e - t o - t h e - m a r k e t rate
o n m o n e y market deposit accounts or the n e w Super
NOWs.
D e s p i t e such changes, t h e basic a p p e a l of t h e
checking account remains constant and i m p o r t a n t a
c h e c k i n g a c c o u n t lets y o u transfer f u n d s t o s o m e o n e
else, a n d t o d o it q u i c k l y a n d easily. In o u r e c o n o m y ,
such transfers are almost always a c c o m p l i s h e d w i t h a
personal c h e c k : a p i e c e of
p a p e r t h a t instructs o n e person's" b a n k " t o pay an o t h e r
p e r s o n a certain a m o u n t f r o m a
c h e c k i n g a c c o u n t It is an easy
a n d c o m f o r t a b l e w a y t o pay for
_
In t h e years ahead, d e b i t cards a n d b i l l - p a y m e n t
devices also w i l l displace personal checks t o s o m e
e x t e n t But t h e " c h e c k l e s s society" so o f t e n p r e d i c t e d
in t h e past has n e v e r materialized, a n d e v e n t h e " lessc h e c k society" has p r o v e n m u c h slower t o arrive t h a n
many admirers of technology for its o w n sake e x p e c t e d
C h e c k d i s p l a c e m e n t is t h e s u b j e c t of this special issue
of o u r Economic Review. H o w m a n y personal checks
w i l l be displaced by higher technology alternatives?
H o w quickly? T o w h a t extent? By what? Why? This
issue aims t o organize t h e best e v i d e n c e o n these
questions a n d arrange t h e m i n t o clear, q u a n t i t a t i v e
answers.
The transition f r o m paper t o e l e c t r o n i c payments
will have important implications reaching far b e y o n d
b a n k i n g a n d t h e c h e c k - p r o c e s s i n g business. 3 Such a
transition w i l l be significant for t h e c o n d u c t of monetary policy, for o n e t h i n g because t h e relationship
b e t w e e n s p e n d i n g a n d transfer a b l e balances in c h e c k i n g
accounts constitutes a key relationship for policymaking.
T h e a d o p t i o n of electronic
check substitutes similarly could
"The key to diffusion is
not technological
capability but market
acceptance."
things.
M o r e t h a n f o u r o u t of f i v e
American households maintain
c h e c k i n g accounts; m a n y have
m o r e t h a n o n e A t y p i c a l househ o l d writes 20 checks a m o n t h
a m o u n t i n g t o m o r e t h a n 55 p e r c e n t of t h e checks
f l o w i n g t h r o u g h o u r e c o n o m y . 1 W h e n w e include
paychecks w r i t t e n by businesses a n d g o v e r n m e n t s t o
individuals a n d d e p o s i t e d i n t o c h e c k i n g accounts,
h o u s e h o l d s p r o b a b l y a c c o u n t for m o r e t h a n t w o thirds of all c h e c k i n g activity in this country. So t h e
personal c h e c k u n q u e s t i o n a b l y ranks as t h e w o r k horse of t h e A m e r i c a n Payments system. 2
But just as t h e c h e c k i n g a c c o u n t itself has b e e n
changing, so have t h e devices w e use t o transfer f u n d s
i n t o a n d o u t of o u r c h e c k i n g accounts. Payments t h a t
o n c e w o u l d have b e e n a c c o m p l i s h e d by personal
c h e c k are b e g i n n i n g t o m o v e t h r o u g h alternative
• C h e c k i n g Account U s a g e in t h e United States, A Research Literature Survey (Park Ridge Illinois Bank Administration Institute, September
1979), p. 10.
2 j h e term "payment" is used liberally in this issue to include all activities
that subtract from the balances in a c c o u n t s containing checkable
deposits. Therefore, the term " p a y m e n t ' includes not only payments to
retailers at the cash register a n d bills paid t h r o u g h the mail, but the term
also includes withdrawals of cash traditionally m a d e by c h e c k or, more
recently, with A T M s Technically, cash withdrawals are substitutions of
means instead. T h e most popular and widespread
e x a m p l e is t h e a u t o m a t e d teller m a c h i n e ( A T M )
o p e r a t e d by banks or savings a n d loan associations. By
using a plastic card in an A T M , w e can c o n v e r t t h e
funds in a checking account directly into cash, whereas
b e f o r e w e w o u l d have w r i t t e n a c h e c k a n d " c a s h e d " it
over t h e counter. That c h e c k has b e e n d i s p l a c e d by
t h e A T M transaction.
be crucial t o a n y o n e o f f e r i n g
financial services t o households,
since today's customers v i e w the
checking account as the essential
product w i t h i n the array of financial services. If t h e c h e c k i n g
a c c o u n t or t h e w a y w e access t h e f u n d s in t h e acc o u n t is going t o change, it w i l l i n t r o d u c e i m p o r t a n t
o p p o r t u n i t i e s a n d p r o b l e m s for institutions o f f e r i n g
retail financial services.
T o address these t i m e l y questions, w e approach
personal c h e c k d i s p l a c e m e n t as o n e e x a m p l e of h o w
t e c h n o l o g y spreads t h r o u g h a culture. Technological
diffusion, w h i c h d e p e n d s o n t h e a c c e p t a n c e of n e w
applications by large groups of people, generally
exhibits surprisingly regular a n d stable patterns. The
key t o d i f f u s i o n is n o t t e c h n o l o g i c a l c a p a b i l i t y but
m a r k e t acceptance. The history of t e c h n o l o g y is
l i t t e r e d w i t h u n a c c e p t e d inventions.
cash for the value stored in checkable d e p o s i t s Unless otherwise
specified, these substitutions are considered to be a type of payment in
this i s s u e
3
T h e published proceedings of conferences sponsored by the Federal
Reserve Bank of Atlanta document many of these c o n c e r n s For more
detailed coverage, please see the following conference p r o c e e d i n g s
T h e Future of t h e Financial Services Industry, J u n e 3-4 1 9 8 1 ,
Federal Reserve Bankof Atlanta; and T h e Future of t h e U. S. Payments
System, J u n e 23-25, 1981, Federal Reserve Bank of A t l a n t a
Surprisingly, researchers have t e n d e d t o gloss over
this p o i n t They have emphasized instead the wonders
of t e c h n o l o g y and its p o t e n t i a l cost-savings, failing t o
explain w h y just a f e w electronic payment technologies
are gaining w i d e s p r e a d a c c e p t a n c e w h i l e m o s t others
are n o t C o n s u m e r s have a d o p t e d a u t o m a t e d teller
machines, for instance, but generally have s h u n n e d
t e l e p h o n e bill payments.
W h y d o p e o p l e w r i t e personal checks? W e f i n d that
they w r i t e t h e m mainly (1) t o acquire cash, (2) t o m a k e
purchases over t h e counter, a n d (3) t o pay bills. If
technological alternatives are t o replace t h e personal
check, t h e n t h e y must o f f e r t h e c u s t o m e r a m o r e
appealing means of a c c o m p l i s h i n g o n e of these three
functions.
Evidently t h e A T M offers a viable alternative t o t h e
check for a c q u i r i n g cash, for w e have seen it f o l l o w t h e
classic patterns of successful t e c h n o l o g i c a l diffusion.
In time, t h e d e b i t card w i l l also displace significant
numbers of checks w r i t t e n for over-the-counter purchases, b u t t h a t d i s p l a c e m e n t o b v i o u s l y has not
occurred y e t In t h e still m o r e distant future, a significant n u m b e r of customers will accept some alternative
means of p a y i n g bills—over t e l e p h o n e , across cable
TV networks, or at special counters at grocery stores
and s h o p p i n g centers. The specifics are not clear. But
w e can b e confident that such d i s p l a c e m e n t too, will
follow typical diffusion patterns,
and w e can use this insight t o
clear s o m e of the murkiness
from our crystal ball.
That is w h a t w e have t r i e d
to d o in this issue. W e start w i t h
"Between 1989 and
1994, personal check
volume should decline
sharply...."
an
initial
projection
of
the n u m b e r of p a y m e n t s m a d e
annually
through
personal
checking accounts b e t w e e n
1979 a n d 1 9 9 4 .
Next w e apply our k n o w l e d g e
of w h y p e o p l e w r i t e checks a n d general patterns of
technological diffusion. This permits us t o examine, in
Part Two, t h e e x t e n t a n d s p e e d of t h r e e vehicles for
displacing personal checks: t h e A T M , t h e d e b i t card,
and t h e b i l l - p a y m e n t device.
These principles, a s s e m b l e d in t h e c o n t e x t of w h a t
w e k n o w in 1 9 8 3 a b o u t p a y m e n t s f r o m c h e c k i n g
accounts, lead us in Part Three t o the general conclusion
that the v o l u m e of personal c h e c k w r i t i n g has s t o p p e d
growing a n d w i l l begin t o d e c l i n e sharply at t h e e n d of
this decade. Fully 97 p e r c e n t of t h e transfers o u t of
personal c h e c k i n g accounts w e r e a c c o m p l i s h e d by
check in 1 9 7 9 , b u t w e b e l i e v e t h a t percentage has
begun t o s h r i n k By 1 9 9 4 , o u r research suggests, t h e
personal check's share w i l l d e c l i n e further t o 60
p e r c e n t — m e a n i n g t h a t if w e are c o r r e c t alternative
payment devices t h a t d i s p l a c e d only 3 p e r c e n t of all
Helpful comments were provided by Don BedweU Robert
Berkowitz,
Damon Douglas, Carl Gambs, David Humphrey, Peter Merrill,
Brown
Rawlings, Gary Tapp James Trotter, George White and Linda Fenner
Zimmer.
personal c h e c k activity in 1 9 7 9 w i l l displace fully 4 0
p e r c e n t by 1994.
Here's a m o r e d e t a i l e d look at o u r projections:
1. G r o w t h in t h e n u m b e r of personal checks
w r i t t e n , w h i c h averaged b e t w e e n 5 a n d 6 p e r c e n t a
year f r o m 1 9 7 4 t h r o u g h 1 9 7 9 , a p p a r e n t l y has
d e c e l e r a t e d t o a rate of a b o u t 2 p e r c e n t a year in
t h e 1 9 7 9 - 1 9 8 4 period. That deceleration reflects a
s l o w d o w n in t h e u n d e r l y i n g p a y m e n t s growth.
2. B e t w e e n 1 9 8 5 a n d 1 9 8 9 , personal c h e c k use
is likely t o go f l a t a n d m a v even fall slightly. G r o w t h
s h o u l d d e c l i n e t o z e r o w h e n fees o n c h e c k - w r i t i n g
i n d u c e significant use of a l t e r n a t i v e s such as t h e
d e b i t card for retail purchases.
3. W e foresee an e x p a n d i n g role for t h e d e b i t
card, a plastic card t h a t can d e b i t a c o n s u m e r s
c h e c k a b l e a c c o u n t d i r e c t l y a n d transfer f u n d s t o a
retailer, for instance.
4. B e t w e e n 1 9 8 9 a n d 1 9 9 4 , personal c h e c k
v o l u m e s h o u l d d e c l i n e sharply, d r o p p i n g at least
25 p e r c e n t b e l o w t h e plateau t h a t w e e x p e c t it t o
reach in t h e late 1980s. This d e c l i n e w i l l begin
w h e n customers a c c e p t an alternative d e v i c e for
paying bills.
5. Extending o u r forecasting a p p r o a c h t o i n c l u d e
business a n d g o v e r n m e n t c h e c k v o l u m e suggests,
in Part Four, t h e same general pattern: d e c e l e r a t i n g
g r o w t h in 1 9 7 9 - 1 9 8 4 , z e r o
g r o w t h in 1 9 8 4 - 1 9 8 9 , a n d a
sharp d e c l i n e in 1 9 8 9 - 1 9 9 4 .
A c o n c l u d i n g part of this
issue draws i m p l i c a t i o n s f r o m
these q u a n t i t a t i v e results. In
t h e A p p e n d i x , d e t a i l e d "significance tests" i n d i c a t e t h a t t h e
general t r e n d s w e forecast
s h o u l d persist even in t h e face
of c h a n g i n g assumptions a b o u t
t h e t i m i n g of d i s p l a c e m e n t
W e feel that this special issue represents a logical
successor t o t h e w a t e r s h e d A t l a n t a Fed C h e c k Study
of 1 9 7 9 , c o n d u c t e d in c o o p e r a t i o n w i t h t h e A m e r i c a n
Bankers Association a n d t h e Bank A d m i n i s t r a t i o n
I n s t i t u t e In 1 9 7 9 , though, A t l a n t a Fed researchers
w e r e able t o c o u n t t h e n u m b e r of checks in t h e system
d i r e c t l y by soliciting t h e data f r o m c o m m e r c i a l banks.
Because of t h e p r o l i f e r a t i o n of institutions o f f e r i n g
checkable deposits, however, that is impossible today.
Instead, w e have sought t o calculate t h e n u m b e r of
h o u s e h o l d checks by creating an analytical m o d e l t h a t
w e b e l i e v e provides a fascinating g l i m p s e i n t o t h e
future of America's p a y m e n t s system.
This special issue was d e v e l o p e d by W i l l i a m N. Cox
a n d Paul F. Metzker.* Charles R. H a y w o o d of t h e
Atlanta Federal Reserve Bank's p a y m e n t s research
t e a m c o n t r i b u t e d i m p o r t a n t l y , as d i d Peggy Simons.
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A U G U S T 1983, E C O N O M I C REVIEW
>
?
PART ONE
FRAMEWORK FOR CHANGE
payments for cash).5 BAI included all checks
payable to "cash," regardless of where they
were negotiated. Thus it appears that the
actual volume of checks written for cash is
understated by an unknown number of checks
made payable to merchants or individuals
partially or completely to obtain cash.
From the perspective of personal check
displacement the
ATMs can displace not
only checks for cash but checks now written
for retail purchases. For example, it is likely
that cash may be substituted for checks more
Why People Write Checks
People write checks for three general purposes,
according to the Bank Administration Institute's
1979 study (Chart 1):
1. To acquire cash. In that study, payments for
cash represented just over 8 percent of all
transfers out of checking accounts. 4 Only two
means of obtaining cash appeared significant
personal checks (which accounted for more
than 85 percent of all payments for cash) and
ATM cash withdrawals (14 percent of all
^ ^
•Consumer C h e c k i n g Accounts: Debits, Credits, a n d Balances,
Rolling Meadows, Illinois: Bank Administration Institute (1981), p 8.
5
C o n s u m e r C h e c k i n g Accounts: Debits, Credits, and
(1981), p. 13.
W e can e x p e c t d i s p l a c e m e n t of t h e p e r s o n a l c h e c k to
f o l l o w a p r e d i c t a b l e pattern.
M
FEDERAL RESERVE BANK O F A T L A N T A 7
Balances
month is approximately equivalent to an ATM
handling 8,000 transactions per month." 6 In
May 1982, Zimmer again confirmed this relationship by stating that " t w o ATM transactions are, generally speaking, equivalent to
one routine human teller transaction." 7
2. To make retail purchases. In 1979, retail
payments constituted more than 32 percent
of all payments made from checking accounts.8
In BAI's research, virtually all of these payments were made by writing personal checks.9
BAI found that (a) about 57 percent of these
checks were payable to non-food retail stores,
including gasoline purchases at the point of
sale and (b) 43 percent were paid for immediate
consumption items at grocery stores, liquor
stores, or dairy stores.10
Since some of the checks for retail purchases
also were written to acquire cash (especially
among checks written for groceries), the 32
percent probably is overstated to some extent
On the other hand, the 32 percent is understated
because it fails to include payments for personal services such as medical and dental
services, beauty and barbershops, dry cleaners,
motels, and restaurants. Such payments functionally are retail purchases paid for at the
point of sale.
3. To pay bills. Bill payments accounted for
just over half of all checking account debits in
1979. 11 BAI said people paid three kinds of
bills from checking accounts: 19 percent of
the total represented recurring payments for
utilities, financial institutions and insurance
premiums; about 16 percent paid for products
or services purchased earlier; and 1 5 percent
underwrote nonrecurring payments, such as
government bills or magazine subscriptions. 12
Virtually all bill payments were m a d e b y check
except for loan payments and insurance premiums, the only types of bills that generated a
substantial number of noncheck transfers such
as preauthorized drafts or ACH transfers. 13 Bill
payments to financial institutions (excluding
payments on bank credit cards) were the first
exception. Just over 93 percent of these
Chart 1. Distribution of Payments by Category
Retail Purchases
32%
BAI Study
(1979)
Cash Acquisition
Other Individuals
9%
Retail Purchases
31%
SRI Study
(1976)
Cash Acquisition
12%
Other Individuals
Retail Purchases
A.D. Little Study
(1974)
Cash Acquisition
11%
Other Individuals
13%
Bill Payment
48%
Sources: BAI (1979), SRI (1976), A D . L i t t l e ( 1 9 7 4 )
frequently as ATMs become available in shopping malls, supermarkets, gasoline stations, convenience stores and other nonbank sites.
Other research shows that it takes about
t w o ATM withdrawals to replace one check
written for cash. In a 1979 survey, Linda
Fenner Zimmer concluded that " A teller handling 4,000 routine financial transactions per
6
L i n d a Fenner Zimmer, "ATM A c c e p t a n c e G r o w s " T h e M a g a z i n e of
Bank Administration, Volume 57 (May 1981), pp. 31-32.
L i n d a Fenner Zimmer, "ATMs: Time to Fine Tune a n d to Plan," T h e
M a g a z i n e of Bank Administration, Volume 58 (May 1982), p. 21.
8
C o n s u m e r C h e c k i n g Accounts: Debits, Credits, a n d Balances,
(1981), pi 9.
' C o n s u m e r C h e c k i n g Accounts: Debits, Credits, a n d B a l a n c e s
(1981), p. 13.
7
10
Calculated from data on pages 8 a n d 9 in C o n s u m e r C h e c k i n g
Accounts: Debits, Credits, a n d B a l a n c e (1981).
" C o n s u m e r C h e c k i n g Accounts: Debits, Credits, a n d B a l a n c e s
(1981), p 9.
12
C o n s u m e r C h e c k i n g Accounts: Debits, Credits, a n d B a l a n c e s
(1981), p. 9.
" C o n s u m e r C h e c k i n g Accounts: Debits, Credits, and B a l a n c e s
(1981), ppL 7-8.
A U G U S T 1983, E C O N O M I C REVIEW
>?
_
f
payments were made by personal check The
other 7 percent were made with preauthorized
drafts (almost 5 percent) or through t h e A C H
(about 2 percent). The second exception was
insurance premiums where 86 percent were
paid by check, 13 percent by preauthorized
draft, and 1 percent through the ACH. The
third exception "other," is an unknow mixture
of bill payments where about95 percent were
made by personal check, 3 percent by preauthorized draft 2 percent through the ACH and
a tiny 0.1 percent via ATMs 14
The inroads t o the personal check—limited
as they were—suggest that people are more
likely to adopt check substitutes to pay recurring bills for fixed amounts than for variable
amounts.
4. To pay other individuals. More than 9 percent of the personal checks in the BAI survey
were categorized as individual payments. 15
This is a residual category and it is unclear
what payments are included, but they probably
include some combination of all the uses outlined previsously.
Overall, fully 97 percent of all transfers out of
checking accounts were made with personal
checks in the BAI survey. Another 1 percent were
made with paper documents, such as preauthorized
drafts. Therefore, less than 2 percent of all
consumer payments drawn on checkable deposits
relied on electronic systems. The displacement
of personal checks by electronic alternatives was
barely perceptible in 1979. The check was indeed
king
Diffusion of New Products
Several points emerge from the general literature on technological diffusion that are particularly
importantto this study. An expanded discussion
is contained in the accompanying box; further
references are cited in the bibliography at the
end of this issue.
First, experience tell us that it takes a long time
for a society to accept a new product widely.
Looking back, there is a tendency to think that
the television set or the electric diswasher— or the
checking account, for the matter—materialized
overnight In fact, diffusion takes many years. We
"Consumer C h e c k i n g Accounts:
(1981), p. 13.
«»
FEDERAL RESERVE B A N K O F A T L A N T A
-i
<
Debits, Credits, and
Balances
Chart 2. Speed of Diffusion of Major
C o n s u m e r Products
I n c r e a s e in P e n e t r a t i o n from 10% t o 5 0 %
of U. S. H o u s e h o l d s
(Years)
30
20
•••mill
10
-X-
o
A* /^
f *
°
« /
/
4
Source: Table C-1, Video: A N e w Era, R e s e a c h Report 6 2 1 , ( M e n l o
Park, California SRI International, N o v e m b e r 1979), p. 10.
can look to a 1979 report on the potential for
home video systems that stated:
When compared with other consumer products that were introduced in the last 30
years, sales of home video systems will rise
faster than all others except black and white
and color TV sets. The time it takes for a new
product to move from adoption by a small
minority of households (10 percent) to penetration of half of all households is a measure of
the speed of adoption. It took 15 to 20 years
for most new consumer products after World
War II to rise from 10 percent to 50 percent
penetration of all U.S. households.
In contrast it only took three years for black
and white TV sets, and six years for color TV
sets to increase their penetration of all households from 10 percent to 50 percent W h e n
home video systems reach 50 percent penetration of all households in about 10 years
(from about 1983 to 1993), adoption of home
' 5 C o n s u m e r C h e c k i n g Accounts: Debits, Credits, and
(1981), p. 13.
Balances
How a New T e c h n o l o g y S p r e a d s
Adoption of check substitutes represents an example
of the technological innovation process We expect that
the adoption of check alternatives will follow the same
pattern as the adoption of other technologies ranging
from hybrid corn to color television.
Consumer acceptance or rejection clearly determines
any p r o d u c t s success—or failure. Technology itself is
virtually never the primary determinant We feel that the
adoption process of technology, regardless of product
involves a similar set of consumer responses Collectively,
individual consumer decisions produce a diffusion process that research has shown to be c o n s i s t e n t 3
An i n n o v a t i o n is an idea perceived as new by an
individual. b The "newness" of the discovery underlying
the innovation is not crucial; its "newness" to the individual is the critical consideration. Thus, w h e n w e look
at innovations such as electronic payment products w e
must look beyond the products themselves to the
perceptions that individuals hold about them. The definition suggests that the product alone cannot be the
innovation.
According to marketing expert Everett M. R o g e r s
who took a broad look at the implications of diffusion,
" t h e essence of the diffusion process is the human
interaction in which one person communicates a new
idea t o another person." 0 The product itself is not the
critical factor. Communication of the idea is the significant element in analyzing the diffusion of innovations
The adoption or rejection of electronic payment products probably will begin with individual opinion leaders
Many people will defer their adoption of an electronic
product until enough others are also willing to accept it
Rogers makes an important distinction between adoption and diffusion, saying:
.. .the adoption process deals with adoption of a new
idea by one individual while the diffusion process
deals with the spread of new ideas in a social system,
or with the spread of innovations between social
systems or societies' 3
Throughout this special issue, we intend to maintain
the distinction between the diffusion process and the
five classes in t h e a d o p t i o n process.
In the adoption process an individual passes through
five stages: " a w a r e n e s s interest evaluation, trial, and
adoption." e Many people may hear of an idea at about
the same time. However, some will complete the adoption
process sooner than others Five "adopter categories"
classify individuals according to the length of time it
takes them to adopt an innovation: innovators early
adopters early majority, late majority, and laggards'
Of course, not everyone w h o hears of a new idea
adopts it People may reject it at the conceptual level if
they never try it or they may reject it after a trial. 9
Similarly, we can anticipate that some people will reject
electronic payment alternatives at various stages within
and after the adoption process
One practical application of the diffusion process the
product life cycle c o n c e p t has evolved for use in
marketing Market researchers identify five stages through
which a product typically passes: pioneering, market
acceptance, turbulence, saturation and obsolescence.
Those five stages in the product life cycle parallel the
five classes in the adoption process
Rogers also emphasizes a distinction between the
invention and the innovation, saying that economists
have stressed the distinction on the grounds that an
invention has little or no economic significance until it is
applied 1 An innovation, then, represents application of
an invention.
Usually there is a distinct time lag between invention
and innovation. According to Rogers the lag., "seems to
vary considerably and is commonly 10 years or more for
major inventions"'
In reality, a gray area exists between invention and
wide-scale innovation because:
most inventions are very crude and inefficient at the
date w h e n they are recognized as constituting a new
invention. They are, of necessity, badly adapted to
many of the ultimate uses to which they will eventually
be put; therefore, they may offer only very small
advantages or perhaps none at all, over previously
existing techniques'^
By trying to identify a specific time lag between a
"crude" invention and its diffusion as an innovation, w e
sometimes engage in a sort of conceptual foreshortening
which distorts our view of later events We are led to
treat the period after the conventional dating of an
invention as one where a fairly well-established technique
is awaiting adoption when, in f a c t major adaptations
typically are waiting to be made. It is this same foreshortening of perspective that greatly increases our
general impression of the slowness of diffusion.'
Where, then,do w e draw the line between invention and
innovation? We will proceed on the assumption that
invention status continues beyond the initial "discovery"
while a product evolves a marketable configuration. We
will start referring to the product as an innovation when
it becomes available, beyond test marketing
Implicit in the distinction is some degree of consumer
acceptance, a pivotal concept in our personal check
displacement model. An invention does not seek or
does not win consumer acceptance. An innovation has
some consumer acceptance. We expect that each of
our check-displacement phases will be preceded by an
extensive period of "tinkering" with the invention leading
to the requisite innovation.
a
Everett M. Rogers, Diffusion of I n n o v a t i o n s (The F r e e Press, 1962),
pp. 12-13. This d i s c u s s i o n relies o n Rogers' d e s c r i p t i o n of t h e d i f f u s i o n
of i n n o v a t i o n s For a m o r e traditional " e c o n o m i c s - b a s e d " t r e a t m e n t ,
s e e " H o w t h e E c o n o m i c System G e n e r a t e s Evolution," in J o s e p h
S c h u m p e t e r ' s Business Cycles, Vol. I.
b
Rogers, p. 13.
c
Rogers, p. 1 3.
d
Rogers, p. 17-18.
® Rogers, p. 17.
' Rogers, p. 19.
9 Rogers, p. 18-19.
T h o m a s A S t a u d t a n d D o n a l d A Taylor, A M a n a g e r i a l I n t r o d u c t i o n
t o M a r k e t i n g (Prentice-Hall, Inc., 1965). p. 144.
' Edwin Mansfield, M i c r o e c o n o m i c s T h e o r y a n d A p p l i c a t i o n (W W.
N o r t o n a n d Company, Inc. 1970), pp. 4 5 6 - 5 7 .
I Mansfield, p. 4 5 7 .
k
N a t h a n Rosenberg, " F a c t o r s A f f e c t i n g D i f f u s i o n of Technology,"
E x p l o r a t i o n s in E c o n o m i c History ( A c a d e m i c Press, 1972), p. 10.
' Rosenberg, p. 9.
h
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
video systems will have outpaced all the other
new products shown...(in Chart 2)—except
for two types of TV sets.16
Given such long adoption periods, any electronic payment system that can mount a serious
challenge to the personal check by the mid1990s must rely on technology already invented
and very likely incorporated into products now
nearing pilot testing. It seems unlikely that the
consumer payment market will be transformed
overnight by an unforeseen technological breakthrough.
Second, we find that the proportion of individuals or households adopting an innovation
•4 each year follows a distinct slow-fast-slow pattern.
In the early stages, when innovations are relatively
unknown and the details still being perfected,
acceptance is slow. Then, characteristically, acceptance passes a threshold in the neighborhood of 10 to 1 5 percent of possible users and
the product "catches fire." ATMs and personal
computers are presently in this stage. The prot*
duct becomes a topic of conversation, and stones
about it may abound in the press.
Then the rate of adoption slows again, simply
because most people who are going to accept
the innovation already have done so. What's
i« more, competing innovations may be cutting
into its market Obviously, we believe check
i
writing is in such a phase. Quantitatively, if one
plots the number of new adopters per time
1
period, the normal or "bell-shaped" curve is
;
what results. If attention is shifted from the
number of new adopters per period to the
number of new and old adopters per period, a
. cumulation or integration of the first curve, a
familiar S-shaped curve, results.
The proportion of individuals or households
accepting an innovation at any particular time
tends to grow slowly at first, then grows rapidly
g and finally slows again as the market approaches
saturation. This S-curve is characteristic of tech* nological diffusion, from new industrial processes
to home computers. As we shall see, the A T M is
* tracking an S-curve so far, just as w e would
expect W e expect debit cards and devices for
f*j
v
p
M
f
,6
J William Waters, Video: A N e w Era, Research Report 6 2 1 ( M e n l o
Park, California SRI International, November 1979), p. 10.
" . Some would argue that telephone bill payment is being a c c e p t e d In
1979 such transactions a m o u n t e d to less t h a n 0.1 % of personal debitsf A
Quantitative Description of t h e C h e c k Collection System, V o l u m e I,
Washington: American Bankers Association a n d Bank Administration
Institute, November 1981, p 24). Seventy percent of the financial
institutions offerina telephone bill payment services introduced their
product b e t w e e n 1 9 7 7 a n d 1982. Only 16% s t a r t e d after 1 980. ( M o o r e
1982). On t o p of this slower a d o p t i o n trend, s o m e financial institutions are
terminating telephone bill payment p r o g r a m s A recent cancellation was
FEDERAL RESERVE B A N K O F A T L A N T A
remote bil^payment to trace out similar S-curves,
staggered in time.
Even for a successful p r o d u c t ownership will
never reach 100 percent Checking accounts, for
instance, appear to have saturated their market
at about 85 percent of the nation's households.
Bank credit cards apparently hit saturation at
about 50 percent Similarly, we should not expect
check substitutes to be universally adopted. Therefore, we employ a 65 percent saturation level
below.
One question transcends all others in determining when and whether an invention becomes
an innovation accepted by consumers: does it
offer genuine consumer benefits? Bank credit
cards enable consumers to carry less cash, avoid
check cashing difficulties, consolidate the payment for several retail purchases, and reduce the
number of proprietary cards carried. Direct deposit of Social Security payments provides protection against theft of mailed checks, certainty
that funds are available, and a way to make
deposits when homebound or hospitalized. ATMs'
cash-dispensing function allows consumers to
acquire cash regardless of "banking hours" and
at locations far from home. The successful technological innovations fill unmet needs or better
serve existing needs—and do so at a reasonable
cost to the consumer.
One reason forthe limited success of telephone
bill payment products to date is that consumers
see them as little more than higher technology
substitutes for personal checks. In addition, the
way many of these products are priced and other
handicaps probably cause some consumers to
perceive them as actually inferior. 17
John Naisbitt in his book, Megatrends, observes
that"whenever new technology is introduced in
society, there must be a counterbalancing human
response—that is, high touch—orthe technology is
rejected." 18 Perceptive A T M marketers early on
gave many of theirterminals human names, such
as "Tillie the All-Time Teller," to add a "high
touch" element to a technological innovation.
This human touch reduced apprehension over
using a machine instead of a human teller.
the First National Bank of Chicago. The December 1982 issue (number
297) of T h e Nilson Report stated on p 6: "As of October 1 st (1982), First
National Bank of Chicago ended its Payby^Phone banking service
initiated in 1 9 7 8 Participants in the service w e r e paying e i t h e r S I .50 per
month or 15 cents per t r a n s a c t i o a However, only 8% of the bank's
c u s t o m e r s subscribed to P a ^ b ^ P h o n e banking with 50% to 60% of
these(2,000) being active users The low participation rate w a s a t t r i b u t e d
to concerns on the part of bank patrons that they w o u l d be losing control
of their bill paying" Damon Douglas has s h o w n us how the expected Sshape can be verified by fitting a quadratic function graphically t o " Pearl's
Law."
11
This diffusion process, involving consumer acceptance of technological innovations through a
consistent and fairly predictable adoption process,
is basic to our study. We will argue, in subsequent
chapters, that displacement of the personal check
between 1979 and 1994 can be partitioned into
three distinct phases, each corresponding to a
primary use of the personal check first acquiring
cash; second, making retail purchases and, third,
paying bills. Further, we shall contend that the
rate of consumer acceptance in all three phases
will be similar and will follow the familiar Sshaped curve.
1979 As a Base Year for Analysis
In many respects, 1979 was a watershed year
for payments system research. The Atlanta Fed
Check Study collected nationwide data about
the check collection system in 1979, and the
description of the system developed from that
data remains the most recent of its type. The
study's estimate of 32 billion checks written on
accounts at commercial banks in 1979 is the
latest available based on field research. The
same study concluded t h a t between 1974 and
1979, the number of checks written annually
grew about 5 to 6 percent, a slowing from the 7
percent annually that took place between 1970
and 1974. 19
The Bank Administration Institute conducted
a companion study in 1979 that focused on
debits, credits, and balances of consumer checking
accounts. The contents provide extensive quantitative data about consumer use of checking
accounts in that year.
Virtually all of the checkable deposits in the
U n i t e d States in 1979 (Chart 3) were d e m a n d
deposits. Thus the year marked the end of an era
when commercial banks were the dominant
suppliers of consumer checking accounts. Money
market mutual funds were just beginning their
dramatic deposit growth. In 1979, the New
England experiment with N O W accounts spread
to New York and, in 1981, to the rest of the
nation. The advent of checkable deposits yielding
Chart 3. Checkable Deposit
Trends: 1 / 7 9 - 3 / 8 3
$ biL
400
200
79
B r o w n R Rawlings, " F u t u r e of t h e C h e c k System," text of a speech
published in the proceedings of a c o n f e r e n c e sponsored by the Federal
Reserve Bank of A t l a n t a T h e Future of t h e U. S. Payments System,
J u n e 23-25, 1981, p 67, His sources were:
12
1
L_
82
83
money market rates was still three years away.
Clearly, the 1979 surveys were the last to describe
consumer use of checks adequately. Any future
research t o count transfers out of checking accounts must obtain data from a wider variety of
financial institutions and near-banks to describe
consumer check use.
Research in the 1970s variously estimated that
80 percent to 90 percent of the nation's households held a checking account 2 0 Since that
penetration rate stayed in this range throughout
the decade, personal checking accounts appear
to have reached saturation. During the late
1970s, research showed repeatedly that consumers
wrote about 20 checks each month for all purposes.21 Since the check then was the dominant
means for transferring funds out of checking
accounts, that stability suggests checking account
usage per household had reached a plateau. If
so, future growth in checking account activity
would have to come from an increase in the
number of households or in the number of
economic transactions per household.
Percentage
Penetration
Rate
Source
1974
1977
92%
81%
1977
93%
1977
81%
1979
86%
18
20
I
81
Source: C o m p o n e n t s of M o n e y Stock Measures a n d Liquid Assets,
Board of Governors, Federal Reserve System
Year
John Naisbitt, M e g a t r e n d s ( N e w York" Warner Books, 1982), p. 39.
19
. See A Quantitative Description of t h e C h e c k Collection System,
V o l u m e I, ( 1 9 8 1 ) a n d Powers, (1976). D i f f e r e n c e s in the c o v e r a g e a n d
m e t h o d o l o g y of p r e c e d i n g field s t u d i e s m a k e it i m p o s s i b l e t o be m o r e
specific.
J
80
"Checking" T h e Unidex Report; System 1974.
Thomas A Durkin a n d Gregory E Elliehousen,
1 9 7 7 C o n s u m e r Credit Survey, Board of Governors of the Federal Reserve System Washington,
D C , December 1978.
"Customer Service Usage—Part I," The Unidex
Report, May 1977.
Payment Systems Perspectives '78, Payment
Systems, Inc, 1978.
Payment Systems Perspectives '80, Payment
Systems, Inc, 1980.
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
The Diffusion of T e c h n o l o g i c a l Innovations:
The A T M as an E x a m p l e
I
Our c h e c k d i s p l a c e m e n t model is national in scope and, therefore, the data represent an amalgam of regional and
regional and local t r e n d s We caution those concerned about regional and local markets to be careful in replicating our
results on a regional or local basis
The a c c o m p a n y i n g map illustrates our p o i n t The l e g e n d s h o w s w i d e ranges b e t w e e n ATMs installed in each state.
The shading of each state reflects the state's base of A T M s Even c o n s i d e r i n g t h e n u m b e r of households, the map
suggests that ATMs are m o r e accessible in s o m e states than in others and that national diffusion represents an array
of varying d e g r e e s of diffusion in the 50 s t a t e s
This map was first published in The Nilson Report, issue 303, M a r c h 1983, p. 5.
Cash and the bank credit card offered the only
real alternatives to personal checks in 1979. Very
little quantitative information exists concerning
the use of cash as a check-displacing payment
alternative. But it is difficult to conceive of cash
displacing personal checks significantly in 1979,
when the surge in ATMs was just beginning.
Bank credit cards definitely displaced personal
checks to some degree as they gained consumer
acceptance. But 1979 probably was the year
when the bank credit card reached the saturation
point As the Atlanta Fed Check Study pointed
out
''Rawlings, " F u t u r e of the C h e c k System," p. 67.
" A Quantitative Description of the Check Collection System, V o l u m e I,
pp. 18-19. Comparison of the growth patterns of active cards a n d credit
FEDERAL RESERVE BANK O F A T L A N T A
1
W i t h total bank credit card penetration now
at about 50 percent of the adult population, it
seems likely that the market for this payment
mechanism is approaching the saturation point
Unless card issuers decide to assume greater
risks, it seems doubtful that many of the
remaining noncardholders could qualify to
own a Visa or MasterCard account 2 2
If so, increased use of bank credit cards by
cardholders and growth in the number of creditworthy households offered about the only avenues
for credit cards to displace personal check volume
card transactions with the "penetration curve" pattern of growth suggests
that the credit card e n t e r e d its third or slow-growth period in 1979.
13
from 1979 onward. Although w e lack data describing the kinds of retail payments (cash or
check) that bank credit card purchases displace,
there is no indication that transactions per bank
card account or the number of new accounts are
growing or declining rapidly. Whatever impact
bank credit cards have had on personal check
writing, the relationship is stable and, therefore,
we can ignore displacement of personal checks
by these cards for purposes of our study.
Linda FennerZimmer points o u t t h a t l 979 was
a watershed year for the ATM, too. She observes
that from the e q u i p m e n t s advent in the early
1970s and up through 1979, ATM networks were
a rarity. From 1980 forward, networking concepts
came to the forefront of the ATM m o v e m e n t 2 3
" Z i m m e r , "ATM Acceptance Grows," T h e M a g a z i n e of Bank Administration, Volume 5 7 (May 1981), px 31.
" C o n s u m e r C h e c k i n g Accounts: Debits, Credits, a n d B a l a n c e s
On a national level, electronic payments in
1979 were miniscule compared to consumer
payments made with cash, credit cards and
personal checks. For example, BAI's1979 survey
sampled 11,437 personal checking accounts at
314 commercial banks. 24 Of the 238,000 debits
(to these accounts), 231,000 were checks, 4,200
preauthorized payments (3,100 paper drafts and
1,100 automated clearing house debits), and
2,800 ATM debits." 25
From all perspectives, then, 1979 serves as an
excellent year on which to base our study of
check displacement
(1981), p. 12.
" C o n s u m e r C h e c k i n g Accounts: Debits, Credits, a n d
(1981), p. 5.
Balances
14
A U G U S T 1983, E C O N O M I C
REVIEW
it
PART TWO: THREE
P H A S E S OF
P E R S O N A L CHECK
DISPLACEMENT
We can identify three likely phases of check
displacement corresponding to the three general
uses of checks outlined in the previous chapter.
The rapid growth in ATM installations since 1979
suggests that the first personal checks to experience significant displacement are those used to
acquire cash.
Two other major categories of check payments
are susceptible to displacement between now
and 1994: payments for retail purchase and
payments for bills. Payments for retail purchases
will form the second phase, since the technologies
(plastic card and electronic) are closer to the
mass-marketing stage than those for bill payments. Bill payments will provide the third phase
Phase I: Displacement of Personal Checks
Used to Acquire Cash
Consumers will accept debit
cards and electronic bill
payment devices when those
methods do the job better and
cheaper than checks
Ten years ago consumers had to use checks
when they wanted to acquire cash. But since
then, the ATM innovation has become a significant alternative to the personal check for consumers needing cash. Chart 4 tracks the growth
in the number of ATMs installed in this country
and Chart 5 tracks the average number of ATM
transactions per month (excluding balance inquiries). By either measurement, growth has
been impressive. So far, ATMs represent one of
the few success stories in the electronic payments
arena
The ATM's acceptance contains several valuable
lessons about customer response for a host of
electronic payment system inventions struggling
to become innovations:
1. The cash-dispensing function has keyed
ATM acceptance. Chart 6 provides an indication
of consumers' relative use of the various
functions available on ATMs. Throughout the
ATM's history, 75 percent of the transactions
(excluding balance inquiries) have been cash
withdrawals. No other function has been able
to make an inroad on this percentage.
Historically, the ATM evolved from the cash
dispenser. The original one-function machine
gave way to fancier and fancier machines with
a multitude of "bells and whistles." Now,
demand is again growing for machines that
dispense only cash, perform two or three
times faster than full-function ATMs, and cost
about half as much. 26
26
M FEDERAL RESERVE BANK O F A T L A N T A
"The C o m i n g Boom in Cash Dispensers," Bank N e t w o r k News, Volume 1
(July 21, 1982), p 1.
15
Chart 4.
N u m b e r of A T M s in Use,
C h a r t 5 . A v e r a g e N u m b e r of
1973-1981
Thousands
Transactions per
Percent
H 50
Monthly
ATM*
1974-1981
25
45
20
6,000 r
Thousands
5,000
40
4,000
15
35
10
3,000
2,000
30
1,000
5
J
0
1973
1975
1977
L
1979
0
25
1981
A v e r a g e A n n u a l G r o w t h Rate, 1 9 7 3 - 1 9 8 1
34.78%
- • • I
1974
1976
1979
1981
»Does not include balance inquiries, includes only years for which
estimates based on field research are available
Source: Linda Fenner Zimmer, articles in T h e M a g a z i n e of
Bank Administration.
And why are cash dispensers becoming more
attractive? Zimmer indicates:
The most important reason is the growing
popularity of ATMs, which is leading to long
lines at machines and encouraging banks to
turn increasingly to two-machine locations....
In such locations, a cash dispenser gives the
cash-only majority a faster service alternative,
one with a line that moves at a predictable
pace w i t h o u t unexpected slowdowns from
customers performing more than one function.27
Robert T. Barone, vice president and general
manager of Automated Systems for Diebold
Inc, notes:
The full-function ATM was needed to educate
the consumer and to get them into automated
banking.... Now that we have done that, the
only problem left to deal with is that of
dispensing cash, because you can't afford to
put full-function ATMs in enough places to
satisfy the consumers' need for cash. Cash
dispensers are going to have to be installed all
over the place. 28
Clearly, cash dispensing has been the center
ring attraction for full-function ATMs.^
2. The cash-dispensing function provides the
consumer "value added." Through the ATM s
cash-dispensing function, the consumer can
do things never possible before: acquire cash
at any hour of the day or night whether the
bank is open or closed, and at many locations
other than a banking office, when or where it
may be impossible to obtain cash with a
personal check. Consumers have shown that
they value these conveniences of time and
place. In most instances, the consumer pays
nothing to use an ATM t o obtain cash. The
advantage is appealing enough to overpower
consumers' concerns about dealing with mysterious and somewhat intimidating electronic
technology. The ATM is a classic example of
Naisbitfs principle that, to be successful,
"high tech" must have an important element
of "high touch."
Compare this innovation's success with other
electronic payment products such as preauthorized payments through the ACH, direct
deposit of paychecks, and telephone bill payments. The rapid growth often predicted for
them has not materialized. Invariably, proponents attribute the unimpressive market
penetration to shortcomings in marketing,
pricing, distribution, and quality control. Usually
the explanations imply that, once these details
are solved, optimistic projections will become
reality.
W e can find a much simpler explanation for
the lethargic acceptance: the consumer is
ignoring the other products because all they
offer are new ways to do something the
consumer already does quite well with payroll
and personal checks. Whereas the consumer
28
27"The Coming Boom in Cash Dispensers," px 4.
16
"The Coming Boom in Cash Dispensers," p 1.
A U G U S T 1983, E C O N O M I C REVIEW>?
Chart 6. Relative Use of ATM Functions*
Chart 7. Use of ATMs During Bank H o u r s *
1974-1981
30
1974-1981
' Percent of ATM transactions
occurring during banking hours
25
Cash Withdrawals
75%
20
1974
15
10
Balance Transfers
4%
Cash Withdrawals
74%
5
1974
1976
1979
1981
* I n c l u d e s only the y e a r s for w h i c h e s t i m a t e s
b a s e d on f i e l d r e s e a r c h are available.
Source: Linda F e n n e r Zimmer, articles in T h e M a g a z i n e of
Bank Administration
1976
Deposits
21%
Balance Transfers
3%
Balance Transfers
4%
* Excluding Balance Inquiries. I n c l u d e s only years for w h i c h
estimates b a s e d o n field r e s e a r c h are available.
Source: Linda F e n n e r Zimmer, articles in T h e M a g a z i n e of
Bank A d m i n i s t r a t i o n .
perceives the cash dispenser as a superior
product, the other electronic products come
across as either the same as, or sometimes
even less desirable than, checks.
The comparative success of ATMs and their
cash-dispensing function adds credence to
the idea that displacement of personal checks
is indeed a special case of the consumerdriven diffusion process described in the previous chapter.
3. An interesting parallel exists between ATM and
personal check uses. Several studies of the
reasons for personal check writing (Chart 1)
yielded similar findings. Consumers show stable
usage patterns for both checks and ATMs. This
M FEDERAL RESERVE BANK O F A T L A N T A
is encouraging, because it demonstrates strongly ingrained and purposeful behavior patterns (Chart 6).Such stable patterns
can be analyzed and projected more successfully than more fickle behavior.
4. A growing number of consumers are willing
to bank with ATMs instead of human tellers.
Chart 7 shows that the usage of ATMs during
banking hours has increased throughout their
history. A growing number of consumers obviously are willing to use ATMs in lieu of
visiting the teller line.
Acceptance of ATMs also implies that the
self-service concepts used so successfully in
many other lines of retailing can work for
routine banking functions. More importantly,
the use of plastic access cards and keypads
connected to electronic computers defuses
one of the principal arguments against electronic banking products: that consumers will
not bank at home or use point-of-sale devices
because they are afraid of computers and
other electronic gadgetry. The ATM experience
indicates that consumers will adopt such products, and the self- service concepts underlying
them, when the new products offer superior
features.
Before we proceed to the second stage of
displacement the concept of "transition products" warrants mention, for the ATM has farreaching bridging ramifications. Let's begin with
the analogy of residential use of electricity,
17
w h i c h began because consumers wanted incandescent lighting. But until utility companies provided an electric line to the house, incandescent
lighting wasn't feasible. O n c e the wiring came to
the home, lighting was possible, and so were
many other products p o w e r e d by electricity.
Radios, televisions, refrigerators, record players,
and washing machines then used t h e same
electricity that the light bulb brought in.
In the same fashion, t h e A T M is a primary
vehicle by w h i c h the electronic n e t w o r k and the
plastic card spread to retail outlets. O n c e the
A T M reaches t h e store or service station, t h e
electronic highway connects financial institutions
and merchants.
But the A T M also helps t h e customer make the
transition from cash acquisition to retail purposes.
The A T M access card is probably t h e same card
that many consumers will use to make electronic
payments at the retail outlet The personal identification techniques for ATMs are probably the
same ones to be used for paying t h e retailer and
for making electronic bill payments from the
home. As customers b e c o m e more familiar and
confident with ATMs, they become more amenable
to using plastic cards rather than checks for retail
and bill payments.
Further, the A T M conditions consumers to
concepts of immediate credit and debit so foreign
after a lifetime of dealing with checks. Consumers
k n o w that checks d o not always produce usable
funds immediately u p o n deposit nor d o they reduce account balances for days after they are
written. Finally, the connection of ATMs into
shared networks, regional and national, is providing
the on-line, real-time network that many contend
is necessary before e q u i p m e n t vendors will invest to produce and market inexpensive terminals
for retailers and households. 2 9
Recently announced plans to install ATMs in
supermarkets, convenience stores, and gasoline
stations provide a clear indication of t h e importance that retailers are beginning to place on
the A T M as a transition p r o d u c t For a variety of
reasons, retailers in some areas are planning to
o w n the ATMs and to operate the "switches"
linking them. Innovative retailers are sending a
clear signal that they need electronic payment
products n o w and are w i l l i n g t o perform banking
" G r a n t e d not all ATMs or all s h a r e d ATM networks are operating in a realtime on-line environment today. But many of those that are not operated
on overweight debiting principles that are still taster than c h e c k clearing
would be if a check for cash acquisition was used on a retailer's premises.
18
and telecommunications functions if necessary
to offer t h e m throughout their chains of outlets.
In this first phase of check displacement the
A T M and its cash-dispensing function have made
the first dent in the consumer's long-standing
reliance on personal checks. In accepting th?
ATM, consumers are demonstrating that they
will adopt electronic payment systems if they
offer clearly recognized benefits. In using ATMs,
consumers are learning about electronic payment concepts and merchants are preparing for
t h e second stage w h e n payments for retail purchases b e c o m e the focus of personal check
displacement
Phase 11: Displacement of Personal Checks
Used for Retail Purchases
In Phase I, w e saw h o w the customer has
accepted the A T M as an electronic alternative to
writing a personal check to acquire cash. There is
no successful electronic check substitute to use
as a role model for Phase II. So w e tackled the
second phase by asking: (a) h o w d o consumers
make retail payments at the point of sale today?
(b) W h a t problems does the consumer face in
paying for retail purchases? (c) W h a t are the
electronic payment options for payments at the
point of sale? and therefore (d) W h a t trends are
most likely to emerge as the retail phase of check
displacement materializes?
H o w Payments for Purchases
Are M a d e Today
Consumers rely on three payment s y s t e m s cash, checks, and credit cards—to make most
retail purchases As Table 1 confirms, consumers
vary their use of these alternatives d e p e n d i n g o n
the type of merchant being paid, the goods being
purchased, and whether purchases are made
near home or out-of-town. Consumers also distinguish b e t w e e n the kind of credit card used in
different purchase settihgs (bank credit card,
proprietary credit card, or travel and entertainm e n t card). Some consumers use several paym e n t systems to make purchases from one type
of retailer (for example, some use both cash and
checks at f o o d supermarkets).
S e e V e r o n i c a M. B e n n e t t a n d Don S a b b a r e s e , " S h a r e d A T M Networks:
The Nation a n d the Southeast," E c o n o m i c R e v i e w ( F e d e r a l Reserve
B a n k of A t l a n t a D e c e m b e r 1982), pp. 32-42.
A U G U S T 1 9 8 3 , E C O N O M I C REVIEW>?
*
A
Table 1 . Ways of Making Personal Purchases, November-December 1981.
Bank
Credit
Cash
Check
Card
Type of Retailer
Food supermarkets
Major department store
Furniture/appliance store
Discount department store
Men's or women's clothing store
Gasoline service station
Restaurant (out of town)
Restaurant (at home)
Airline tickets
Hotels/motels
47.8
33.8
36.5
28.4
35.6
8.9
3.1
7.3
20.3
12.8
65.3
50.9
32.1
62.0
51.9
64.4
72.2
85.4
32.2
46.2
13.2
14.1
9.4
15.0
4.0
16.7
8.5
16.3
23.8
Other
Credit
Card
Do Not
Purchase
26.8
25.5
6.1
18.1
10.7
7.7
7.6
9.0
5.1
30.4
18.5
• M u l t i p l e responses w e r e a l l o w e d in the survey. Therefore, totals may e x c e e d 100%.
Source: Table 5, W a y s of M a k i n g Personal Purchases by Region a n d M a r k e t P a y m e n t Systems Perspective 8 2 , A t l a n t a G e o r g i a Payments
Systems, Inc, January, pp. 13 a n d 14.
National statistics about relative use of payment systems for retail purchases mask some
significant differences in consumer preferences
by region, by size of the consumer's financial
institution, and by residence in metropolitan
areas (SMSA) versus rural areas (non-SMSA). W e
will not pursue these differences in this issue,
since we are not concentrating on regional or
financial institutional size behavior patterns here
Foranyone interested in such emphases, though,
these differences are significant and relevant 3 0
Overall statistics concerning bank credit card
use conceal two distinct groups of credit card
users:
Over 60 percent of the bank credit card
holders report paying their bills in full each
month; the remainder make installment payments. Those who pay in full tend to be the
heaviest users of the cards: nearly o n e t h i r d of
this group make at least six transactions per
month.... In contrast nearly two-thirds of those
who pay in installments make two or fewer
transactions per month....
Consistent with the observations regarding
number of transactions, bank card holders
who pay their monthly bills in full charge
greater dollar volume on their cards (an average
of nearly $90 per month) than do those w h o
30
The regional data and commentary in both C o n s u m e r C h e c k i n g
Accounts: Debits, Credits, and Balances, published in 1981 a n d
Payment Systems Perspectives '82, published by Payment Systems,
Inc, in January 1982, provide a good indication of the diversity that
M FEDERAL RESERVE BANK O F A T L A N T A
pay in installments (just over $50 per month)
....more than one-quarter of those who pay in
full charge more than $100 on their bank
credit cards in a typical month. 3 1
Thus, one group of consumers uses the bank
credit card as a convenient alternative t o checks
and cash, while the other uses it for its revolving
credit feature The first group would probably
adopt attractive alternatives to credit cards while
the latter would be more difficult to persuade.
One other payment system, still insignificant,
is used by a few consumers to pay merchants.
This is the paper-based debit card—paper-based
because transaction information is recorded by
the sales clerk on a multi-part form similar to, and
sometimes identical to, the forms used with credit
cards. The product came about (a) to provide
convenience users of credit cards an alternative,
(b) to offer check writers an alternative that is
also a prelude to a likely electronic payment
product and ( 0 to reduce the expense to card
issuers by replacing an interest-free grace period
with an immediate reduction in checking account
balances.
Consumers, then rely on several options to pay
retailers today. The above summary should convey the explicit message that consumers rely
strongly on three payment systems and the
implicit message that some lines of retailing
3
modeling below the national level should recognize.
' Market In Turmoil: B a n k C r e d i t Cards in 1 9 8 0 ( P h i l a d e l p h i a A J. W o o d
Research Corporation, S e p t e m b e r 1980), p p 6-7.
19
Problems With Existing Ways
of Paying for Purchases
With both costs and interest rates rising, financial
institutions are losing the profits they used to
derive from consumer checking deposits. To
recoup these profits, many are beginning to
charge substantial fees for writing checks.
The 1982 Annual Report of First Interstate
Bancorp, the nation's eighth largest bank holding
company, has this to say about service charges:
Non-interest income equalled 25.7 percent of
net interest and fees generated from earning
assets.... Non-interest income of $380.9 million
was 25.8 percent higher than the $302.8
million earned in 1981, which represents a
33.9 percent gain over1980's $226.7 million....
Deposit service charges of $169.4 million, a
38.4 percent gain, were the largest contributor
to non-interest income, and, in fact, were the
second most important source of income.
Such fees increased 22.9 percent in 1981 and
25.1 percent in 1980....
Interest is being paid on forms of demand
deposits. Deposit service fees are an important
source of revenue offsetting these increased
interest costs, and continued management
attention will be devoted to repricing as a
means of recovering the costs of new accounts. 32
Financial institutions are being forced from
their traditional loss-leader pricing strategies toward seeking to break even or even achieve a
profit on pricing their payment system products.
N O W accounts moved customers' deposits from
non-interest bearing demand deposit accounts
to more expensive interest-bearing checking
accounts. The introduction of M M D A and Super
N O W accounts is beginning to move deposits
from N O W accounts to even more expensive
accounts paying close to market interest rates.
Although financial institutions want to keep customers' deposits in lower cost accounts, they can
expect competition to force yields up to market
rates.
Meanwhile, in the "back room" the cost of
check processing continues to rise along with the
costs of labor, air transportation, Federal Reserve
processing, Fed float, and other factors. Technology does not, at this time, promise another
major breakthrough like high speed reader-sorters
to contain per-item processing costs.
Consumers are just beginning to encounter
these more realistic service charges because
many financial institutions opted for a gradual
transition to more representative pricing. As the
transition occurs, consumers will become much
more aware of the true cost of writing checks.
The float value that consumers associate with the
checks they write will pale in contrast to the
service charges for interest-bearing checking accounts. 33
Further, financial institutions are not alone in
their growing disenchantment with personal checks.
Many supermarkets now levy a fee for checks
cashed without a purchase. Others restrict the
amount of cash for which a check can be written,
even with a purchase. Some make it inconvenient
to cash checks by establishing rigid, time-consuming and arduous approval procedures. A few
merchants even refuse to accept checks either
because of collection problems or even because
they prefer cash to keep some sales receipts off
the books.
appear to offer greater potential for displacing
personal checks than do others.
32
1 9 8 2 Annual Report, First Interstate B a n c o r p February 1983, p. 41
" T a b l e 11, page 20, in Consumer Checking Accounts: Debits, Credits,
and Balances, shows that in 1979, a c h e c k written for a retail purchase
averaged five days of float a n d a check written for c o n s u m a b l e s
20
averaged four d a y s The median value of such checks w a s $ 18.56 for the
former a n d S 1 9 . 3 2 f o r t h e latter. At a 15% interest rate, t h e f l o a t " e a r n i n g s "
w e r e SO.38 a n d $ 0 . 3 2 p e r check, respectively. N e i t h e r of t h e s e c o u l d
be d e s c r i b e d as w i n d f a l l p r o f i t s
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
Forthe consumer, cash and credit cards are the
current alternatives. But consumers do not use
credit cards at grocery stores, perhaps saying
something about the kinds of goods they are
willing to purchase with credit cards. Besides,
issuers of bank credit cards, as well as issuers of
proprietary department store and gasoline station
credit cards, are experiencing cost pressures just
as are check processors. Financial institutions are
seeking ways to return their credit card operations
to profitability.
Until recent years, the bank credit card holder
who used his card solely for the convenience of
lumping many bills together and settling them
with one payment paid nothing for the service.
Merchant discounts and finance charges paid by
installment credit users subsidized this free service.34 Recently, card issuers have employed
several strategies to try to improve credit card
profitability:
Some banks introduced a fixed annual service
charge; the amounts varied: $10, $12, $15,
$18; some were invoiced annually, some
monthly. Other banks introduced a transaction
fee every time the card was used. Still others
increased the interest rates charged, reduced
or eliminated the grace period before which
interest charges begin to accumulate and/or
changed the base on which interest charges
were calculated. 35
Many merchants (acting on their own or in
concert with their card issuers) have lowered
floor limits to increase the number of transactions
that must be authorized. Many merchants now
require customers to put their telephone number
on tickets when signing them. Some even require
other identification. Other merchants require
credit card customers to use separate checkout
lanes. Some oil companies have dropped their
proprietary credit cards altogether. Others still
accept credit cards but offer discounts to cash
customers.
Thus, credit card customers are being confronted
with increasing costs and inconvenience when
making payments just as are checkwriters.
Paper-based debit cards, another check substitute, are handled just like credit cards: a sales
ticket must be filled out by the sales clerk, an
34
Philip S. Hayman. "The N e e d for Equitable Pricing of Card Services,"
Journal of Bank Retailing Volume 3 ( M a r c h 1981), pp. 8-9.
" M a r k e t in Turmoil: Bank Credit Cards 1980. p 1
FEDERAL RESERVE BANK O F A T L A N T A
authorization must be obtained, and the customer
must sign the ticket Therefore, the process is too
slow for merchants such as chain supermarkets.
Not only does a debit card based on a paper
document seem unwieldy, but consumers have
been unreceptive. In fact, atthe end of 1981, less
than 5 percent of the nation's households possessed debit cards.36 This low penetration rate is
not surprising since financial institutions charge
the same fee for a check ora debit card transaction.
On top of this, Visa and MasterCard charge
merchants an identical discount for debit and
credit card transactions, a practice resented by
retailers w h o believe that debit card transactions
are more economical for card issuers and for
financial institutions whose checks debit card
transactions replace. 37
Even if the paper-based debit card catches on,
it is difficult to conceive of it replacing all check
transactions. First, it is too slow for some merchants. Second, because of the risk of fraud
losses, most financial institutions issue debit
cards only to customers w h o can qualify for
credit cards. If the penetration rate for bank
credit cards is an accurate measure of the creditworthy population, then about half of the nation's
households will never receive debit cards.
Among the traditional payment systems, cash
has its problems, too. For gasoline stations, for
example:
Cash handling adds more to accounting costs than credit-card paper. There is more financial
risk in allowing employees to control cash than
credit-card paper, and losses from mistakes
and employee collusion are tremendous. The cost
of handling cash at service stations is about 4
percent compared to 3 percent or less for
bank cards. Cash sales require stations to carry
a lot more cash and that invites robberies...
service-station robberies increased 5.4 percent
in 1981, the third increase in four years.
Robberies have increased 8 percent since
1977 although there has been a 15 percent
drop in the number of stations. In 1981 there
were22,934 station robberies with an average
loss of $372 foratotal loss of over$8.5 million.
One out of eight of the nation's 191,000
stations was held up...In California one out of
36
37
Paul F. Metzker, "The Debit Card at the Crossroads," E c o n o m i c Review
(Federal Reserve Bank of Atlanta), March 1983, p 35.
Metzker, "The Debit Card at the Crossroads," p p 43-44.
21
three stations was hit at least once during the
year.38
Clearly, cash presents risk for gasoline stations.
Cash also presents problems for convenience
stores. High crime rates, for instance, raise insurance rates.
On top of these merchant problems, cash is
dangerous to carry in large amounts. It does not
offer proof of payment It has less potential for
recourse in disputed transactions. There are
times and places, even with the wide availability
of ATMs, where cash may not be available when
a purchase is contemplated.
This, then, is the environment an electronic
payment system must enter. Consumers, merchants, and financial institutions are seeking
relief from rising costs. Yet consumers must perceive value a d d e d or meaningful cost savings
before they accept alternatives to traditional
ways of making payments.
Potential Electronic Options for
Consumer Payments to Retailers
The debit card is the electronic heir apparent
to the personal check at the cash register, according
to Edwin B. Cox.
The debit card may well be the next successful
chapter in the history of the evolution toward
an electronic payment system....
The signs are more positive now than at any
time in the past, and the motives stronger for
those whose participation is essential....
The debit card chapter will be a more difficult
one to write than earlier chapters, but the
payoff in efficiency and economy in the nation's
system can be immense. 39
The debit card's lack of success to date would
seem to contradict this positive forecast Today's
debit card penetration rate is comparable to that
of the ATM in 1978. The low acceptance rate
suggests that consumers perceive the debit card
as just another way t o do something that checks,
cash and credit cards already do quite acceptably.
At today's prices and features, the debit card may
even be perceived as inferior to these traditional
payment systems.40
But tomorrow's economics portend significant
changes, since the cost of using checks and
credit cards is expected to rise. The cost per
transaction for an electronic debit card is already
lower than the cost of a check for many high
volume retailers and financial institutions. 41 This
cost advantage is expected to increase over the
years, because the electronic debit card is not
labor or transportation intensive. Instead it is
computer, terminal, and telecommunications
intensive, and all of these have been declining
cost commodities.
In spite of these cost advantages, many commentaries suggest that consumers will resist
electronic payments because of the loss of float
or interest foregone on balances in N O W or
Super N O W accounts.
Discounts and other incentives offer merchants
a way to encourage customers to use one payment method in lieu of other methods. If the
electronic debit card can be offered at a significantly lower price than its alternatives, then
pricing incentives might persuade reluctant consumers to modify their payment behavior.
Some might argue that check truncation (which
converts checks from paper to electronic form)
or check image processing will reduce or eliminate the electronic debit card's cost advantage.
But truncating or imaging probably would be
handled at a central facility rather than at retail
outlets. If in-store truncation proves impossible,
merchants would still have to separate and then
consolidate checks from their receipts and then
pay for their shipment to a central facility for
truncation. The expenses of the truncating facility
would have to be added to these merchant
expenses. Because electronic debit card transactions require none of these conversion steps,
they would retain a distinct cost advantage. 42
Credit card transactions will be handled electronically, too. Their electronic processing costs
should be identical to t h o s e o f t h e debit card. But
the total cost to consumers will be larger for
38
"Cash Versus Credit—Why Cash Discounts for Majors Don't W o r k " T h e
Nilson Report December 1982 (Issue 298), pp. 6-7.
Edwin B C o x , " l s T h e r e a Futurefor the Debit Card?" A m e r i c a n Banker
December 17, I982, p 21.
40
Metzker, "The Debit Card at the Crossroads," p 42.
41
Metzker, "The Debit Card at the Crossroads," pp. 42-43.
42
There are some terminal products now in development that allow a
customer to use a debit card, credit card, or a check to pay for
m e r c h a n d i s e However, w h e n a customer uses a c h e c k with these
39
22
products, a print head in the device prints out information on the c h e c k to
serve as a receipt for the customer. The c h e c k is not given to the
merchants Instead the merchant relies solely on an electronic transaction
as he w o u l d if the debit or credit card feature of the device was used. The
legality of such an approach for c h e c k s has not been t e s t e d yet as these
products are not in use in the United S t a t e s S e e " T w o Formidable French
Terminals for Banks, S t o r e s the House," in Data Communication, April
1983. pp. 46-48 for an example of such a p r o d u c t
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
credit card than for debit card transactions because
bank credit card issuers face increasing pressure
to charge consumers more realistically for convenience rather than as a source of credit Besides,
some consumers are averse to using credit cards
in some retail settings, notably the supermarket
Consumers will have to use either checks or
check substitutes to make payments on credit
card balances. Accordingly, the electronic credit
card would not be universally acceptable as a
debit card substitute.
A third force to reckon with in electronic debit
card pricing is check guarantee and credit card
authorization services. Firms offering these services provide products that help maintain, if not
improve, the acceptability of checks and credit
cards. But they are not free services. They are
paid for in some fashion by consumers, merchants,
and financial institutions. Granted, for some companies the services can be piggy-backed on
others to minimize costs. But they still add
expense compared to the cost structure enjoyed
by the electronic debit card.
The check guarantee product could also lead
to a system where purchases made by check are
effected at the point of sale, electronically, with
the check paper following later in a slower,
lower-cost workflow. W e would argue that such
a system is almost indistinguishable from an
electronic debit card system. If checks progress
to this state functionally, they will become debit
card transactions, regardless of what they are
called.
Just as ATMs extend the electronic network to
merchants, so do the electronic check guarantee
and credit card authorization terminals now
being installed. Therefore, the guarantee and
authorization networks increase the probability
that an electronic network of some sort will
materialize on a large scale to facilitate Phase 11 of
our forecast—the displacement of personal checks
for retail purchases.
However they occur and whatever they are
called, electronic payments to merchants by
consumers, using balances in what are now
called checking accounts, seem inevitable. That
appears certain as the price of checks goes up,
as credit cards lose their underpriced convenience
feature, and as consumers become further conditioned to electronic ATMs. The pace of these
" E d w i n B Cox, "Is There a Future for the Debit Carcf?" p. 21.
FEDERAL RESERVE BANK O F A T L A N T A
trends will determine when the displacement of
personal checks for retail purchases begins to
accelerate.
In our forecasts, we specify 1985 as the year
when Phase 11 displacement will begin and 1987 as
the year rapid displacement will begin. By then, the
gradual penetration of interest-bearing checking
accounts with their additional expenses will be
reflected meaningfully in consumer service charges.
Merchants will become even more aggressive in
seeking relief from the growing expenses of
handling puchases made with checks. They will
have many more electronic cash registers through
which debit card transactions can be facilitated.
By then, we think financial institutions will recognize that a participatory role in electronic networks, although not the same as their dominant
role in paper-based payment systems, is better
than having no role at all in networks o w n e d and
operated by third parties such as national retailers.43
Aside from watching the progress of Super
NOWs and the anticipated rise in service charges,
how can we track the onset of Phase I? A T M
installation patterns provide a good reference
p o i n t Large-scale ATM installations and concentrations have tended to occur first in large urban
centers and then in less densely populated areas.
Financial institutions initiated this first round of
"through-the-wall" A T M installations. Now, however, w e are seeing a second round of offpremise A T M and cash dispenser installations,
often in high-traffic retail outlets such as supermarkets, convenience stores, and service stations.
In order to accept electronic debit card payments, merchants must obtain terminals or electronic cash registers that connect to an electronic
network. The "up-front" expenses of these facilities suggest that chain retail operations in
large metropolitan areas will be the first to offer
electronic debit cards. As outlets in large metropolitan areas begin handling significant volumes
of electronic payments, they will drive unit costs
of electronic payments downward and the unit
costs of handling the remaining checks upward.
In the process, the threshold volume at which
merchants can justify electronic payments by
merchants should decline. More and more retailers
will find it cost-justifiable to offer their customers
electronic payments. Further, as electronic systems
saturate large metropolitan markets, suppliers
will seek new outlets in smaller urban centers
and rural areas. These trends are not unique to
the electronic point of sale; many retailing trends
have followed this growth pattern.
23
A close tracking of major chain stores in large
metropolitan areas, therefore, appears to offer an
excellent way of determining when the electronic
debit card should begin to grow. In order to
appear progressive and up-to-date, some low
volume specialty stores probably will offer paper
debit card transactions until the unit cost threshold for electronic debit card transactions comes
down. Hence, for a time both paper and electronic
debit card payments may grow simultaneously—
but for payments at completely different types
and locations of merchants.
George C. W h i t e suggests that not all such
electronic payments need be immediate Instead
he suggests t h a t via the ACH, these payments
could be made less expensively on a"store and
forward basis" the next day.44 Such an alternative
is indeed feasible. The alternative suggested by
W h i t e does not detract from the rationale used
here for a move toward electronic payments.
In summary, the displacement of personal
checks for retail purchases seems to be inevitable.
But adoption will be a gradual process, not an
overnight switch. W e see 1987 as the year when
strong penetration begins.
As our sensitivity tests (shown in the Appendix)
indicate, an earlier or later penetration date
would not materially alter the overall personal
check displacement trend forecast here.
W e are seeing a convergence in the payment
systems offered to consumers. An electronic
debit card and an electronic credit card can
share terminals and networks. A single card
combining the debiting feature of a debit card
with the line of credit provided by a credit card
and ATM access could replace separate payment
systems with a multi-purpose piece of plastic
Thus it is quite likely that, as this phase progresses, transactions cards will evolve that combine check, credit card, and debit card characteristics for use primarily to obtain cash and pay
for retail purchases, while paving the way for
Phase III—the displacement of personal checks
for bill payments.
Extensive use of electronic debit cards, then, is
a must before consumers will be receptive to
substituting electronic alternatives in paying bills.
Thus, the Phase III detailed in the next section
assumes that consumers have b e c o m e accustomed to immediate debits through ATM,
" G e o r g e C White, "Designing Flexibility Into POS,." ICP Interface Banking
Industry, Spring 1983, pp. 8-9.
24
cash dispenser, and debit card purchase transactions. Without such conditioning it is difficult
to conceive of electronic bill payment systems
succeeding
i
Phase III: Displacement of
Personal Checks for Bill Payments
What does all of this suggest for transition
products to electronic bill paying? First, the
rising costs of personal checking accounts described earlier for retail purchases are equally
applicable to paying bills. Second, Phase III
electronic alternatives will share the favorable
cost trends enjoyed by Phase II electronic products. Third, it is expensive for businesses to mail
out bills and to handle remittances. They could
gain significant economies if these functions
were streamlined with more automated billing
and payment cycles. Businesses can be expected
to focus their attention on reducing expenses by
encouraging consumers to use electronic payments. Fourth, in the face of less expensive
electronic bill payment methods, consumers will
find it less and less sensible-to spend time writing
out checks for bills and paying more and more to
mail remittances.
One application may be home buying services
that supply standard household commodities
and accept debit card payments.
Another interesting possibility is bill-paying
services at financial institutions and shopping
centers. Zimmer suggests that such a service
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
could be performed on specially configured
ATMs situated in private stalls or booths. 45 Customers would give payment instructions through
ATM and use debit cards to pay their bills. The
services could either consolidate these payments
to specific vendors and make payments to vendors
once a day via an electronic network or deliver
transient payments to vendors as customers
make them. The cost of alternatives will dictate
how the payments are made. Vendors will save
the expense of handling paper-based remittances.
For all of these reasons, we expect some form
of electronic bill payment to become an accepted
alternative to personal checks. But it is far from
clear what products or devices will fill this role.
How Consumers M a k e Bill Payments
Consumers pay bills through personal checks,
money orders, cash, credit cards, preauthorized
drafts, preauthorized ACH debits, bill-check concepts, telephone bill payments and, on a pilot
test basis, videotex two-way computer or television
hookups. Yet it appears that personal checks
remain the overwhelming favorite for making bill
payments.
The majority of these bill payments involve the
receipt of bills by consumers via mail and return
of their check payments to bill collectors by mail.
Therefore, in addition to the costs of check
processing billing organizations and consumers
also incur postage expenses to effect bill payments.
These costs are significant. If only 50 percent of
the bills paid by consumers required first class
postage, these bills cost over$870 million dollars
in stamps in 1982. Each one cent increase in the
first class postal rate above the current 20 cents
will add about $43 million to this postage bill. Bill
collectors paid a similar amount in 1982 to mail
bills to consumers.
BAI data for 1979 indicate that 50 percent of
the checks written by consumers are for bill
payments. BAI divided these check payments
into three subsets: (a) recurring bills such as
45
46
Telephone interview with Linda Fenner Zimmer, April 14. 1983.
For a summary of several h o m e banking experiments, see J o h n F.
M FEDERAL RESERVE BANK O F A T L A N T A
utility payments, payments to financial institutions,
and insurance premiums; (b) point-of-sale related
such as payments for services rendered, and
payments on credit cards; and (c) nonrecurring
payments such as payments to the government,
to publishers for subscriptions, and to a catch-all
"other" category.
The BAI findings did not separately identify bill
payments for fixed or variable amounts. But the
few situations where preauthorized drafts and
debits accounted for a portion of the payments
offer clear indications of where recurring, fixed
amount payments occured: insurance premiums
and payments to financial institutions. Other
than personal checks for cash, these two categories
were the only ones where personal checks did
not account for 95 percent or more of the debits
to checking accounts.
But the greatest impact mustered by preauthorized payments—paper debits or A C H
debits—was about 13 percent of insurance premiums. So, although preauthorized payments
are sizable, they are far from formidable.
At today's prices, then, consumers have shown
little willingness to adopt preauthorized payments,
any more than they have rushed to accept such
innovations as telephone bill payments. Although
the future promises electronic options including
home banking through videotex or personal
computers, such home banking products have
yet to begin a national rollout for a true test of the
market 4 6 It home banking falters, then the socalled "smart card"—a debit/credit instrument
with self-contained information processing capability—could offer a potential alternative.
As we have emphasized, it is the consumer,
not technology w h o will determine what check
substitutes will gain popularity, not only for bill
paying but for securing cash and making retail
purchases as well.
With the consumer's role in mind, lef s turn to
our forecasts of how alternate payment vehicles
appear likely to displace checks through 1994.
Fisher. " I n - H o m e Banking Today a n d Tomorrow," Journal of Retail
Banking Volume 4 (June 1982), p p 23-30.
25
PART THREE: ESTIMATES OF
PERSONAL PAYMENTS,
1 9 7 9 - 1 9 9 4
}
P e r s o n a l c h e c k v o l u m e will r e a c h its
zenith s o m e t i m e b e t w e e n 1 9 8 7 and 1989.
Our estimates of the volume of personal checks
written and personal checks displaced from
1979 to 1994 are generated in the five-step
process summarized in Table 2. Step 1 estimates
the volume of household payments made in the
base year, 1979. Step 2 estimates annual household payments from 1980 to 1994. Step 3
specifies the share of the household payments
market potentially associated with each phase of
the three-phase displacement model. Step 4
provides the volume of personal checks displaced
by each of the three phases. Finally, Step 5
indicates the actual volume of personal checks
remaining in a given year after displacements are
subtracted.
The following sections examine each of these
five steps in detail.
Step 1: Household Payments in 1979
The Atlanta Fed Check Study estimated that
32 billion checks were drawn on commercial
banks and other financial institutions in 19 7 9.47
Three different studies during the 1970s found
that individuals wrote at least 50 percent of all
checks (Table 3). We estimate that individuals
wrote about 55 percent of the 32 billion checks
written in 1979. Therefore, our model begins
with a base of 17.6 billion undisplaced personal
checks written in 1979.
We noted earlier that BAI's 1979 research
showed that personal checks represented 97
percent of the transfers out of personal checking
accounts in 1979. The other 3 percent were
made up of preauthorized paper drafts (1.3
percent), preauthorized payments through ACHs
(0.4 percent), and ATM cash withdrawals (1.1
percent). In order to develop our base of 1979
transfers by households out of checkingaccounts,
therefore, we divide the 17.6 billion personal
checks by .97 to get 18.1 billion payments. 48 If
so, the 3 percent of payments made without
personal checks represents.5 billion payments.
-J
•
*
?
'
I
A
'
H
47
A Quantitative Description of t h e C h e c k Collection S y s t e m Volume
1, p. 35.
48
Let x = the hypothetical number of personal payments in 1979. 17.6
billion - the number of personal c h e c k s written in 1979. a n d 3 % = percent
26
of personal p a y m e n t s in 1 9 7 9 that w e r e not made with personal c h e c k s
THEN: 1 7 . 6 + . 0 3 x = x a n d x = 18.1 billion personal payments in 1 9 7 9 and
.03 x = .5 billion payments m a d e without personal c h e c k s
AUGUST
1983, E C O N O M I C REVIEW
BOX: A T M s and C h e c k s for Cash
Table 2. Summary
Estimation Procedure
Procedure
1983 Example
1. Volume of
Personal C h e c k
"Equivalents" in
1979
( 1 9 7 9 Commercial
C h e c k Volume)
X (Household Share)
(Proportion of
Undisplaced Checks)
32.0 biL
X .55
X .97
2. Volume of
Household
Transactions,
1980-1994
( 1 9 7 9 Personal Check
"Equivalents")
X (1.04)' l y ' 9
18.0 b i l
X (1.04)"
= 21.1 bit Personal
C h e c k "Equivalents"
in 1983
3. Potential Market
for Each of
Three Phases
For Each Phase:
(Estimated Share)
X (Volume of Personal
Check "Equivalents")
Step
4. Volume of
For Each Phase:
Personal C h e c k s (Potential Market)
X (Estimated
Displaced by
Each Phase
Penetration in the
Particular Year)
5. Volume of
(Overall Market Size)
Personal C h e c k s - (Checks Displaced
After Subtraction
(by Phase I)
of Displacements + (Checks Displaced
in Phase II)
The two-for-one relationship between ATM cash withdrawals and personal checks written for cash mentioned
in Part I relies on consumer behavior in lobby teller lines
and at ATMs Linda Fenner Zimmer indicated that the
actual displacement ratio is probably somewhere between 1:1 and 2:1 because checks written for cash at
merchant locations, such as grocery s t o r e s are often
limited by merchant check-cashing policies. Therefore,
consumers cannot obtain as much cash from a retailer
for one personal check as they could in a lobby teller
line. In fact, the proceeds from a personal c h e c k f o r c a s h
at a store are probably about the same, perhaps even
less, than from an ATM cash withdrawal.*
= 18.1 bil. Payments or
18.0 bil. Personal
C h e c k "Equivalents"
Since no field data is available, w e opted for an
arbitrary 1.5:1 relationship, meaning that 1.5 ATM cash
withdrawals equal one personal check written for cash.
If 0.2 billion ATM cash withdrawals occurred in 1979,
then these withdrawals replaced 0.13 billion personal
checks formerly written for cash acquisition. O n this
basis w e contend that the .2 billion ATM cash withdrawals have a personal check "equivalency" of .13
billion personal checks written for cash acquisition.
Phase I: 12% X 21.1
bil. = 2.5 bil.
Phase II: 3 3 % X 21.1
bil. = 7.0 bil.
Phase III: 4 5 % X 21.1
biL = 9.5 bil.
Phase I: 2.5 b i l X
.41 X 1.0 bil.
Phase II: 7.0 bil. X
.00 = 0
Phase III: 9.5 bil. X
.04 = .4 bit
(21.1 bit)
- (1.0 bil.)
- (0 bit)
- (.4 bil)
= 19.7 biL
- (Checks Displaced
in Phase III)
Note: Phase I: Cash Acquistion: Phase II: Retail Purchases: Phase III: Bill Payments
Preauthorized payments, paper or electronic,
are assumed to be one-for-one replacements for
personal check payments. In other words, one
personal check would have been written to
make one of these payments if these preauthorized
payment products were not available. If 18.1
billion personal payments were made in 1979,
then 0.3 billion payments (1.7 percent of 18.1
billion payments) were made with preauthorized
payments. The other 0.2 billion (1.1 percent of
the 18.1 billion personal payments) not made
with personal checks were ATM cash withdrawals.
But, it seemed unrealistic to assume that one
ATM cash withdrawal replaces one personal
check written for cash. So to place these ATM
cash withdrawals in proper perspective as personal check displacers, we applied a ratio of 1.5
ATM cash withdrawals to one personal check
•Telephone interviews with Linda Fenner Zimmer, April a n d J u n e 1983.
that would have been written for cash (see
accompanying box).
With the adjustment the hypothetical personal
payments volume of 18.1 billion payments was
lowered to 18 billion to establish a personal
check "equivalency" for our model. Step 1 in
Tabie 2 summarizes these adjustments and indicates that an estimated 18 billion personal
checks would have been written in 1979 had
there been no access to preauthorized drafts,
ACH debits, or ATMs.
Step 2: Personal Payments Growth,
1979 to 1994
What would personal check growth be from
1979 to 1994 if there were no displacement by
other payment media? The rate established here
is an indication of basic consumer payment
demand that must be met somehow by the
personal check or its alternatives. In the early
1970s, the volume of checks written grew about
7 percent annually, slowing in the last half of the
1970s to about 5-6 percent annually. 49 The
simplest estimate would be to continue this
deceleration trend until 1994 and settle for an
"average" of 4 percent annual growth. Other
49
A Quantitative Description of t h e C h e c k Collection S y s t e m Volume I
p. 44.
FEDERAL RESERVE BANK O F ATLANTA
27
Payments In The
Financial Services Industry
OF The I9SOS
September 22 & 23 1983
Atlanta Hilton
A thought-provoking, comprehensive two-day conference
on the future of the American payments system.
Realistic assessments of major questions confronting
the industry.
Expert speakers, with sessions designed for senior
executives who have a stake in the answers.
REGISTRATION FORM
Space is limited;
please register early!
M a k e c h e c k s p a y a b l e to
Payments System Conference
and m a i l to:
C h a r g e to m y
•
MasterCard
Account
P L E A S E
FEE:
PRINT
O R
account
•
No.
Joel Parker
Visa
Exp. Date
Federal Reserve B a n k of Atlanta
P.O. B o x 1 7 3 1
Atlanta, G A 30301-1731
(Telephone 4 0 4 / 5 8 6 - 8 8 6 5 )
T Y P E
$395
Name
Title
Firm
Address
City
State
ZIP
P a y m e n t m u s t a c c o m p a n y r e g i s t r a t i o n form. A l l others w i l l be returned. R e g i s t r a t i o n fee w i l l not be refunded for c a n c e l l a t i o n s a f t e r S e p t e m b e r 1
Registrations limited.
Payments in the Financial Services
Industry of the 1980s
Speakers Include:
Rep. D o u g l a s B a r n a r d , Jr.
U. S. House of Representatives
George Benston
Retail Payments
• How can the Usefulness and Appeal of ATMs be
Extended?
• How Fast Will Debit Cards Take Hold, and
Why?
• How Can We Offer a Full Range of Retail
Financial Services?
University of Rochester
M Alan Bishop
D B A Systems, Inc
Edwin B. C o x
Arthur D. Little, Inc.
J o h n C. Elliott
Automated Data Processing, Inc.
W i l l i a m F. Ford
Business Payments
• What Changes Can We Expect in Bank Cash
Management Services?
• How Fast Will Smaller Businesses be Able to
Take Advantage of Sophisticated Collection,
Disbursement and Management Techniques?
• Who Will be the Winners and Losers in the
Competition for Corporate Financial Services?
Federal Reserve Bank of Atlanta
Paul M. Horvitz
University of Houston
D a v i d B. H u m p h r e y
Federal Reserve Board
J a c k M. Meckler
Wachovia Bank & Trust Company, N. A
Peter Merrill
Networks
• Can Competing Financial Institutions Successfully Cooperate With Their Card and ACH
Networks?
• How Will Domestic Payment Systems Interact
With International Ones?
• What is the Outlook for Nonbank Network
Services?
• What Role Will the Federal Reserve System
Play Among the Networks?
Peter Merrill Associates
R o b e r t W. Price
Trans Data Corp.
W i l l i a m M. R a n d l e
Florida Interchange G r o u p
John L Schaumann
D B A Systems, Inc
Bernell K S t o n e
Mills B. L a n e Professor,
Georgia Tech.
Fred A. Tarpley, Jr.
Obstacles and Risks
• Will Adequate Electronic Standards Emerge?
Advanced Technology Development Center
Georgia Tech.
• Which Services Will Consumers Embrace and
Reject?
D a v i d V a n L Taylor
Bank Administration Institute
Dimitri Vittas
• Will Regulations Inhibit the Transition to
Electronic Payments?
Committee of L o n d o n
Future Payments Technology
• Will the Technology be Adequate?
George Warfel, Jr.
SRI International
• Are There Cutting-Edge Technologies With
Payments System Implications?
Clearing Bankers
George C. White
White Papers, Inc.
Linda Fenner Z i m m e r
• Will Current Technology be Rendered Obsolete?
Payments Services Correspondent
T a b l e 3. C h e c k Writer/Receiver Interrelationships
(Percent of total c h e c k s written)
Receivers
Individuals
Business
Government
Initiators
BAI
ADL
KC
BAI
ADL
KC
Individuals
14.7
3.0
13.3
35.9
46.0
Business
27.0
26.0
25.5
18.7
1.1
5.0
1.6
42.8
34.0
40.4
Government
TOTALS
Totals
BAI
ADL
44.2
1.0
1.0
1.7
51.7
50.0
59.2
16.0
13.0
0.9
1.0
0.5
46.6
43.0
39.0
0.4
1.0
0.1
1.7
7.0
1.8
55.0
63.0
57.4
100.0
100.0
100.0
0.2
2.2
1.0
3.0
KC
—
2.2
BAI
ADL
KC
Sources: BAI column: T h e C h e c k C o l l e c t i o n S y s t e m : A Q u a n t i t a t i v e D e s c r i p t i o n (Park Ridge, Illinois: B a n k A d m i n i s t r a i t o n Institute, 1970),
Table 5, p. 7.
A D L c o l u m n : T h e C o n s e q u e n c e s of E l e c t r o n i c F u n d s Transfer: A T e c h n o l o g y A s s e s s m e n t of M o v e m e n t T o w a r d a Less
C a s h / L e s s C h e c k S o c i e t y (Washington: U.S. G o v e r n m e n t Printing Office, J u n e 1975), Table 4-2, p. 51
KC column: G r e a t e r Kansas City Area Debit C h a r a c t e r i s t i c S t u d y ( K a n s a s City, Missouri: The G r e a t e r K a n s a s City C l e a r i n g
H o u s e Association, February 1974). Please s e e f o o t n o t e 9 in t h e text of this t h e s i s for an e x p l a n a t o r y note.
structural factors—checking account penetration
rates, household formation rates, and household
real consumption growth rates—suggest a 3 to 5
percent growth range, with the midpoint of 4
percent the most likely.
Growth in the number of households will
probably decelerate by one-half percent from
the second half of the 1970s to the 1980s,
despite strong growth in the 25-to-44 year age
group (based on heads of households). 50 Even
so, over 80 percent of the nation's households
had personal checking accounts by the end of
the 1970s. 51 It is probably unreasonable to
expect significant additional penetration in the
1980s, after a decade in which penetration may
have reached as much as Vi percent annually.
Even though many households have more than
one checking account, check writing tends to be
concentrated in a single account Throughout
the last half of the 1970s, about 20 checks were
written each month per account 5 2 These two
elements—the plateau in the penetration rate
and a slower rate of household f o r m a t i o n suggest a deceleration of Vi to 1 percent from the
5-6 percent annual growth rate in checks written
during the late 1970s.
Payments research indicates that check writing
increases as real household income increases.53
Households' real c o n s u m p t i o n is what dictates
the number of personal checks written. Our
estimate is that real c o n s u m p t i o n will decline
1
/2 t o 1 percent as households are encouraged
to increase their savings. Such a trend is quite
likely later in the 1980s as savings and investment
receive higher priority than consumption in national economic policy. 54
>
50
See Bureau of Census' Current Population Reports
'Rawlings, " F u t u r e of the C h e c k System," p. 67.
" R a w l i n g s , " F u t u r e of the C h e c k S y s t e m " A more recent estimate is
available in Payment Systems Perspectives'82, a report on the consumer
research findings sponsored by Payment Systems, Inc However, PSI
made a significant c h a n g e in their methodology for this study versus their
earlier Payment Systems Perspectives ' 7 8 and Payment Systems Perspectives '80. Essentially, the data in their earlier studies " w e r e representative of adult users of financial services institutions The s a m p l e for
5
Perspectives '82 is representative of the usage of financial services
institutions by households w h i c h may reflect the collective usage
patterns of several adults in one household." (P. 119 of the 1982 report)
The methodology in the earlier vesions more closely parallels that in the
BAI 1979 study on w h i c h this paper is b a s e d
" 1 9 7 7 Consumer Credit Survey by the Board of Governors of the Federal
Reserve System a n d Payment Systems Perspectives '80.
" T h r o u g h 1982, the rate of saving had not dropped.
'
j
30
A U G U S T 1983, E C O N O M I C
REVIEW
On a c o m b i n e d basis, we expect all of these
trends t o generate an overall deceleration,
between Vi and 2V2 percent, in the 5-6 percent
annual check-writing growth rate of the late
1970s. Therefore, if there were no personal
check displacement, w e w o u l d expect personal
checks to grow about 4 percent annually from
1979 to 1994. Accordingly, w e expect our
personal c h e c k " e q u i v a l e n c y " v o l u m e t o grow
from 18 billion in 1979 t o 2 1 . 1 billion in 1983
(as shown in Table 2, and 32.4 billion in 1994.
Since our m o d e l is q u i t e sensitive to the magnitude of this base annual growth rate, w e have
generated alternative estimates shown in Table
A-1 (See Appendix A) to illustrate the significant
impact of a slightly higher or lower annual
growth rate.
Step 3: Potential M a r k e t Share for
Each Phase of Displacement
To gauge the potential for displacement in
each phase, it is first necessary to determinethe
size of each market. The potential market for
each type of personal check was d e t e r m i n e d
by adjusting the proportion of the household
p a y m e n t " e q u i v a l e n c y " by the respective percentage for the type of payment f o u n d in the
1979 BAI research (Table 4).
BAI's data showed that about 8 percent of
personal payments were made to acquire cash.
Of this, 1 percent represented cash acquisition
already being made w i t h ATMs. Since w e also
concluded that one and a half A T M cash
withdrawals were equivalent t o one personal
check written for cash, the A T M alternative is
not treated as a one-for-one check substitute
in this model.
Two conclusions in our research convinced
us to increase BAI's 8 percent estimate to 12
percent in our model. First, other surveys of
personal check usage duringthe 1970s reported
11 percent and 12 percent for this category
(see Chart 1). Second, only those personal
checks payable t o " c a s h " were included by BAI
in this category. Therefore, personal checks
written to merchants partially or completely
for cash were not reported in the "cash" data.
BAI estimated that 32 percent of personal
payments from checkable deposits paid for
retail purchases in 1 979. Personal checks were
used for virtually 100 percent of these payM FEDERAL RESERVE BANK O F ATLANTA
ments. 55 From this 32 percent, we subtracted
the 4 percent added above for payments to
acquire cash. W e then a d d e d back another 5
percent, for a net gain in Phase 11 of 1 percent,
because (1) about 10 percent of bill payments
in the BAI data apparently reflect payments for
retail purchases, and (2) about 50 percent of
the credit card bills are paid in full each month.
On these premises, w e estimate that 33 percent of the personal payments could be displaced if personal checks were no longer used
to pay for retail purchases.
The third major phase of our model concerns
bill payments. BAI data indicates that 50 percent
of personal payments were made for this purpose. From this percentage, w e subtracted the
5 percent transferred to Phase II in the preceding paragraph. This Ieaves45 percentas the
proportion of payments used t o pay bills.
Of this 45 percent, 1.3 percent constituted
preauthorized paper debits and .4 percent
constituted preauthorized ACH payments. Our
m o d e l does not a t t e m p t to track each of these
payment media separately. Instead we combine
t h e m into preauthorized payments and show
them as a constant rate of personal check
displacement from 1979 until 1989, when
Phase III begins in earnest. Remember, too,
that these alternatives are one-for-one replacements of personal checks and are treated as
such in this model. Finally, in our judgement,
telephone bill payment volume will not become
significant in the 1980s; therefore, our m o d e l
does not include it as a displacement product.
BAI data in 1979 included, as have other
studies, a fourth major category of personal
payments, those to " o t h e r individuals."
In
reality, this 9.2 percent of personal payments
probably includes some payments for Phase I,
II, or III purposes and some u n k n o w n and
miscellaneous categories, as well as payments
to individuals. However, to build a conservative
model, w e allocated none of this category to
the first three phases.
Table 4 summarizes the adjustments w e
made to the 1979 BAI percentages for this
model. Please note that this table shows payments to other individuals as 10 percent, not
9.2 percent This was done to allow the four
55
. C o n s u m e r C h e c k i n g Accounts: Debits, Credits, a n d B a l a n c e s
(1981), p. 13.
31
T a b l e 4 . Potential Market Share for Each Displacement Phase
Percentage
of Payments
Found by
BAI Study, (1979)
Adjustments
to BAI
Percentages
Phase I: Cash Acquisition
8%
+ 4%
Phase II: Retail Purchase
32%
Phase III: Bill Payment
50%
Payments Category
Adjusted
Percentage
Employed
In This Study
Comments
1
Cash d i s p e n s e r will also
displace c h e c k s used for
retail purchases and checks
written to acquire cash but
not payable to cash.
-4% + 5% = + 11
33%
Subtract d e f l e c t i o n in
Phase I, plus d i s p l a c e m e n t
of c h e c k s used to pay retail
credit card bills.
- 5%
45%
Subtract d i s p l a c e m e n t of
bill payment c h e c k s in
Phase II.
+
10%
Not allocated. Includes
+ 1 % t o allow total t o equal
100%.
Payments to Other Individuals
99%
1'
100%
Source: BAI (1 979).
components t o sum t o 100 percent instead of a
percentage slightly under 100 percent Nothing
else is implicit in the 1 percent increase.
Step 4: Specification of the
General Penetration Curve
Theoretically, 100 percent of the personal
checks written for cash acquisition, retail purchases, or bill payments could be displaced by
alternatives. Perhaps some day they will. But our
model does not anticipate 100 percent displacement tor any one of the three major uses of
personal checks by 1994.
Specification of the penetration curve is, in
many ways, the linchpin for the entire model. In
selecting our penetration curve, we looked at
penetration curves for other banking products.
The penetration of N O W accounts in Massachusetts and New Hampshire reached 80 percent in
six years.56 Bank credit cards are close to saturation
at 50 percent of their market As Chart 8 illustrates,
32
direct deposit of Social Security checks moved
from 11 percent of all such payments in 1978 to
33 percent in 1982. As mentioned earlier, checking
account penetration is in the 80 to 90 percent
range after decades of growth. W e also looked at
penetration growth rates for several nonbanking
consumer products in Chart 2.
W e selected an S-shaped penetration curve
that includes nine years of significant penetration
in a 5-10-15-25-35-45-55-60-65 pattern, culminating in a 65 percent saturation point in the
ninth year. The sensitivity tests highlighted in
Table 6 and A-6 (See Appendix A) indicate that
our projections are fairly sensitive to the saturation
point but insensitive to the particular shape of
the curve. W e adopted the 65 percent saturation
as a conservative estimate compared with other
successful consumer financial products.
" W i l l i a m N. Cox, " N O W A c c o u n t s Applying the Northeast's Experience to
t h e Southeast," E c o n o m i c Review (Federal Reserve Bank of Atlanta),
Volume 6 5 ( S e p t e m b e r / O c t o b e r 1980), pp 4-10.
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
Chart 8. Penetration of Direct Deposit
Social Security Payments
500 f
Mil
'
Pa
vments
Chart 9. Penetration Curve for
Check Alternatives
100
% of M a r k e t
Penetrated
80
60
40
20
1978
1979
1980
1981
1982
77
78
79
80
81
82
83
84
85
86
S o u r c e : D i r e c t D e p o s i t M a r k e t i n g U.S. Treasury,
W a s h i n g t o n , D.C.
The first three years in the process represent
an acceptance period when penetration should
grow about 5 percent annually. The second four
years encompass rapid growth, about 10 percent
annually, as mass markets accept the new alternative. The final t w o years depict the slower
growth as saturation looms on the horizons.
Chart 9 presents a graph of these penetration
rates and a plot of the years in which A T M cash
withdrawals will proceed through the penetration
curve's various stages.
We estimate that in 1979 approximately 6.1
percent of personal payments for cash acquisition
were made w i t h ATMs. 57 O n this basis, we
assume t h a t in 1979, the A T M cash withdrawal
function was in the second year of the nine-year
curve and will reach the saturation point in 1987.
As discussed in Part Two, we expect electronic
5r
This is o u r c o n s e r v a t i v e e s t i m a t e b a s e d o n BAI's 1 9 7 9 d a t a Earlier w e
indicated t h a t 1 2 % of all p a y m e n t s w e r e for c a s h a c q u i s i t i o a W e a l s o
n o t e d t h a t BAI r e p o r t e d 1.1% of p a y m e n t s w e r e m a d e w i t h A T M s W e
r e d u c e d t h e 1.1% t o . 7 3 % t o a d j u s t for p e r s o n a l c h e c k " e q u i v a l e n c e . "
Accordingly, . 7 3 % / 1 2 % y i e l d s a p e n e t r a t i o n rate of 6 . 1 % in 1 9 7 9 .
W e say t h i s is a c o n s e r v a t i v e e s t i m a t e b e c a u s e a c a s e c o u l d b e m a d e
using d a t a r e p o r t e d by L i n d a F e n n e r Z i m m e r t h a t . 4 3 8 billion A T M c a s h
w i t h d r a w a l s w e r e m a d e in 1 9 7 9 . O n t h i s basis, if 1 2 . 1 6 billion p e r s o n a l
c h e c k " e q u i v a l e n c i e s " o c c u r r e d in 1 9 7 9 t o a c q u i r e c a s h a n d if, at a ratio of
1.5 t o 1, . 2 9 2 billion p e r s o n a l c h e c k s f o r c a s h w e r e d i s p l a c d by ATMs, t h e n
ATMs p e n e t r a t e d 13.5% of t h e c a s h a c q u i s i t i o n m a r k e t
It is difficult t o r a t i o n a l i z e s u c h a l a r g e d i s c r e p a n c y b e t w e e n t h e t w o
e s t i m a t e s H o w e v e r , w e feel t h a t t h e d i f f e r e n c e a r i s e s f r o m u n d e r s t a t e ment a n d o v e r s t a t e m e n t in t h e t w o d i f f e r e n t s e t s of d a t a
1 T h e BAI d a t a a r e n o t d r a w n f r o m a c o m p l e t e l y r a n d o m s a m p l e of b a n k s
offering A T M services. T h e y w e r e d r a w n f r o m a s a m p l e d e s i g n e d t o
e s t i m a t e t h e n u m b e r of c h e c k s w r i t t e n in t h e U n i t e d S t a t e s
M FEDERAL R E S E R V E B A N K O F A T L A N T A
payment for retail purchases to reach the first
year of its nine-year penetration in 1985 and to
reach the 65 percent saturation point in 1993.
Finally, we anticipate that bill payment will begin
the nine-year penetration in 1989 and reach the
saturation point in 1997, three years after the
end of our forecasting range.
Step 5: Personal Payment Trends, 19791994
In this step, we subtracted estimated displacements from their respective potential markets to
obtain the volume of personal checks remaining
over the three phases of displacement in each
year between now and 1994. Chart 10 presents
these results graphically. W e project that personal
2. T h e BAI d a t a report o n l y A T M a c t i v i t y at c o m m e r c i a l b a n k s w h i l e t h e
Z i m m e r d a t a i n c l u d e c o m m e r c i a l b a n k s a n d thrift i n s t i t u t i o n s
3. BAI d a t a w e r e c o l l e c t e d in J u n e 1 9 7 9 a n d t h e Z i m m e r d a t a w e r e
c o l l e c t e d in late 1 9 7 9 . In a rapidly g r o w i n g p a y m e n t s y s t e m , y e a r e n d
v o l u m e s if a n n u a l i z e d o v e r s t a t e a c t u a l a n n u a l v o l u m e s
4. T h e d a t a for A T M c a s h w i t h d r a w a l s i n c l u d e d e m a n d g e n e r a t e d not just
by p e r s o n a l c h e c k d i s p l a c e m e n t , b u t a l s o f r o m s u c h c o n s u m e r b e h a v i o r s
a s u s i n g r e a d i l y a c c e s s i b l e A T M s t o o b t a i n c a s h a s a s u b s t i t u t e for d e b i t
and credit card transactions
5. S o m e f i n a n c i a l i n s t i t u t i o n s r e p o r t i n g v o l u m e t o Z i m m e r late in 1 9 7 9
m a y n o t h a v e e v e n h a d A T M s in o p e r a t i o n earlier in t h e y e a r w h e n BAI
surveyed banks
For all of t h e s e r e a s o n s w e f e e l t h a t t h e a c t u a l p e n e t r a t i o n rate w a s
s o m e w h e r e b e t w e e n 6 a n d 13.5%. W e o p t e d for t h e c o n s e r v a t i v e e s t i m a t e
d e r i v e d f r o m BAI d a t a H o w e v e r , w e d i d f e e l t h a t it w a s a c c e p t a b l e t o l o o k at
y e a r - t o - y e a r c h a n g e s in v o l u m e u s i n g t h e Z i m m e r d a t a b e c a u s e h e r f i g u r e s
w e r e c o l l e c t e d w i t h a c o n s i s t e n t m e t h o d o l o g y over t h e y e a r s
33
i
(
)
)
>
checks will grow only 16.7 percent between
1979 and 1985, less than a 3 percent average
annual rate in contrast to 5.6 percent in the late
1970s. This slowdown reflects both a deceleration
in the growth of household payments and the
displacement of personal checks by ATM cash
withdrawals, where penetration will reach 56
percent by 1985.
Between 1987 and 1989, we expect personal
check writing to reach its historic plateau for the
58
If other displacement factors do not materialize b e t w e e n now and 1997,
check volume w o u l d begin growing again b e c a u s e all three phases had
reached their saturation p o i n t s However, return to such growth rates
w o u l d seem to be unrealistic in light of the payment system cost trends
that should yield personal c h e c k substitutes not envisioned today a n d
34
twentieth century. 58 From then until 1994, we
anticipate declining rates leading to only 16.37
billion personal checks in 1994 and 1 6.07 billion
alternative payments, on a personal check"equivalency" basis. In other words, we believe that
fully half of the nation's personal payments from
checking accounts will be made with check
substitutes by 1994.
e n c o u r a g e penetration rates in the Phase I, II. and III products t o exceed
65%.
However, if such alternatives d o not materialize, a return to a 4 % annual
g r o w t h rate w o u l d allow the volume plateau of the late 1 9 8 0 s to be
r e a c h e d again late in the first d e c a d e of the next century.
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
J
4
*
#
,
PART FOUR: COMMERCIAL CHECK VOLUME,
1 9 7 9 - 1 9 9 4
Business check volume should decline slower than personal check volume,
but expanding cash management systems could speed up the procesa When we
add business check forecasts to our forecasts for personal checks, we get
estimates of total commercial volume from 1979 through 1994.
Our research suggests that
the volume of commercial
checks, like the volume of personal checks, appears to be approaching a plateau and should begin to decline by the first half of the 1990s. W e
believe, based on tentative but fairly conservative assumptions, that commercial check
growth already is beginning to slow. Yet the
timing of the slowdown could be distorted by
corporate cash management practices. Our tentative estimates suggest for instance, that business and government check volume should
decline somewhat more slowly than will personal
check writing. But if cash management systems
displace checks more rapidly than we expect
the plateau and decline of commercial checks
could occur even more quickly than for personal
checks.
FEDERAL RESERVE B A N K O F ATLANTA
35
In applying our overall
approach to the question of
commercial check volume, we
generally duplicated the assumptions employed earlier in projecting
personal check volume—that is, a nine
year growth to a65 percent saturation level
in each phase, with the three phases achieving
15 percent penetration in 1981,1987 and1991,
respectively. W e assumed an underlying 4 percent growth in the payments base, and we used
as our base the 32 billion check volume estimated
in the Atlanta Fed's 1979 check study.
Our results are shown in the first column of
Table 5, beside our earlier projections of personal check volume in the second column. Both
columns show the same patterns of growth,
plateau and decline. The basic similarity is not
surprising, since the same factors are impacting
Table 5. Tentative Projections of Total Commerical Bank Checks Written, 1 9 7 9 - 1 9 9 4
Total C o m m e r c i a l Bank
Personal Checks Written
C h e c k s W r i t t e n A n n u a l l y (billions)1
A n n u a l l y (billions)2
1979
32.03
% Change, 1979-1984
1984
18.0
+ 15%
36.8
% Change, 1984-1989
1989
+ 9%
40.1
% Change. 1989-1994
1994
+
+
3%
20.9
-
36.0
12%
20.2
10%
-
22%
16.4
' B a s e d on potential market shares s h o w n in Table 6, a n d a nine year, s-shaped penetration curve, (5-10-15-25-34-45-55-60-65).
Incorporates baseline assumptions of this study, notably 55% personal c h e c k share, 4 % base growth in payments before displacement,
a n d 6 5 % saturation level for each phase of displacement
'»Field research estimate based on the Atlanta Fed C h e c k Study.
2
both commercial and personal check volume.
In forecastingthe commercial checkvolume—
corresponding to the Atlanta Fed's 1979 estimate or the Federal Deposit Insurance Corporation's 24.3 billion estimate for 19 7 4 5 9 —we
needed to adjust the potential market share
percentages for the three displacement phases
from a denominator using personal checks to a
denominator using commercial checks. Those
adjustments are summarized in the personal
payments portion of Table 6. First we assumed
that personal payments—the personal checks
addressed in this article—comprise 55 percent
of all commercial bank checks written. Earlier
surveys have placed this percentage closer to 50
percent, but the payroll checks component incorporated in those estimates appears unreasonably high in relation to the number of employees
and findings concerning deposits made by consumers to personal checking accounts. 60 Multiplying by 55 the 12 percent 33 percent and 45
percent potential market shares used earlier for
personal checks yields the 7 percent, 18 percent
and 25 percent allocations in Table 6. These
three percentages are allocated amongthe three
phases as shown in the table.
smaller share than earlier studies have shown,
again, because of the unreasonably high number
of payroll checks those earlier studies imply. Of
the 40 percent, about 10 percent represent
payments to payrolls (compared with 1 5 percent
in the 1970 BAI Study, for instance), about 10
percent to individuals, and about 20 percent to
other businesses.
Business to Individual (Payroll) Payments
Looking at payroll checks in the light of our
earlier analysis of personal checks, we believe
that the acceptance of a noncheck bill-paying
system in Phase III (when added to the earlier
displacement Phases I and II) will stimulate more
interest in direct deposit Consumers will become
much more aware of the difference between
collected and uncollected funds in their checking
accounts. Specifically, a consumer accustomed
to making immediate electronic payments (realtime cash withdrawals, on-line retail purchases
and bill payments) will not be satisfied if credits
to his account are delayed. As electronic payment
technologies spread, we anticipate that direct
deposit of payrolls will replace checks as the principal means of paying employees.
Business payments, we estimate, include about
40 percent of total commercial checks, a bit
The role of payroll checks in check displacement is significant in light of the rates of product
penetration in all three phases of our model. We
estimate that, in 1982, over 96 percent of all
« W i l l i a m R. Powers," A Survey of Bank C h e c k Volumes," Journal of Bank
Research, (Winter 1976), pp. 245-246.
«"Consumer C h e c k i n g Accounts: Debits, Credits, and Balances,
(1981) f o u n d 2 deposits per active account per month. The 15% payroll
c h e c k implies almost four paychecks per month.
Business Payments
36
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
Table 6. Potential M a r k e t - S h a r e Allocations a n d D i s p l a c e m e n t T i m e f r a m e s U s e d For
Tentative Projections of Total Commercial Bank Checks Written, 1 9 7 9 - 1 9 9 4
Payment C a t e g o r y
Personal Payments:
Estimated
Percentage
of Commercial
Checks
Potential
P e r c e n t a g e of
Checks Displaced
D u r i n g Phase I,
1979-1987
55%
Cash Acquisition
7%
Retail Purchases
18%
Bill Payments
25%
Potential
P e r c e n t a g e of
Checks Displaced
D u r i n g Phase II,
1985-1993
Potential
P e r c e n t a g e of
Checks Displaced
D u r i n g Phase III,
1989-1997
18%
25%
Unallocated
Percentage
7%
18%
25%
Other
Business Payments:
5%
40%
10%
Other Payments &
Individuals
Business-to-Business
10%
Government
(excluding US Treasury)
TOTALS
5%
5%
2%
7%
payroll payments were made with checks, representing some 95.5 million items. An additional 1
percent of such payments were made in cash.
Direct deposit was responsible for only about 3
percent of all payroll payments for 1982. How
quickly, then, can w e expect direct deposit to
achieve innovation status? To address this question,
we constructed a model depicting the potential
for payroll check displacement by direct deposit
This model assumes our same 4 percent annual
growth rate in overall commercial check volume.
The volume of business checks issued in the
base year was derived using BAI's estimate of 40
percent of commercial check volume for 1979.
In 1970, BAI estimated that 18 percent of commercial check volume represented payroll payments by businesses. W e adjusted this figure
downward to 10.5 percent in 1979 to reflect the
slowdown in U. S. labor force growth vis-a-vis
overall commercial check volume growth. The
labor force growth rate since 1977 has slowed to
6,
See Max L Carey, " O c c u p a t i o n a l Employment Growth Through 1990,
Monthly Labor Review, August 1981, p p 42-55.
M FEDERAL RESERVE BANK O F A T L A N T A
15%
10%
20%
100%
20%
5%
Payrolls
25%
5%
3%
20%
an average of 1 to 2 percent a year, and even
declined in absolute terms from 1981 to 1982.
This adjustment also reflects the fact that the
labor force is changing. The Bureau of Labor
Statistics (BLS) estimates that because of structural
changes in the economy, white collar jobs in the
United States will increase at a greater rate than
blue collar jobs throughout the 1980s. 61 A large
proportion of blue collar workers in manufacturing
industries (77 percent) receive paychecks weekly.62
W e expect that the growing proportion of white
collar workers, the majority of whom receive
paychecks every two weeks or twice monthly,
will result in fewer paychecks being issued.
For the purposes of this model, we adopted a
conservative, yet optimistic, rate for employment growth. An annual growth rate of 1.6
percent was applied for the period 1980-1985.
For the duration of the model, the rate of
employment growth was slowed to 1.4 percent
to reflect the slowdown in the labor force growth
62
" Personnel Policies Forum: W a g e a n d Salary Administration." PPF
Survey No. 1 3 1 , Bureau ot National Affairs, Ine, (Washington, D. C.), p. 9
37
projected by the BLS63. These projected growth
rates were applied algebraically to our potential
payroll payments estimate to adjust for predicted
growth in the labor force.
Describing the penetration curve presented
some difficult problems. Since data describing
direct deposit participation were not obtainable
for private payrolls, w e used the same S-shaped
penetration cuive used for consumer acceptance
of other payments media This assumes that
acceptance of direct deposit like other electronic
payments technologies, will be consumer driven.
Penetration of direct deposit will accelerate
after penetration in all three phases of the
general model reaches the point where the
consumer is increasingly faced with potential
solvency problems. W h e n the purchase of groceries means an immediate debit to checking
balances, and when preauthorized payment of
utility bills likewise means automatic debits on
designated days of the month, the consumer
must be assured that sufficient balances are
available for instant d e b i t Carryinga paycheck to
the financial institution, depositing it, and then
waiting for collection creates float for the employer
and the financial institution, while at the same
time it may expose the employee to the possibility of damaged credit and embarrassment for
coming up short
In the consumer driven marketplace, corrections
will necessarily amend this situation. Somewhere
around 1987 or 1988 , perhaps, employees will
demand that employers provide a more timely
way of making payroll payments. It might be
argued that as float is reduced and check collection
through the Federal Reserve's check collection
system is speeded up, the time lag in crediting of
employees' accounts will be reduced. However,
even a one or two-day lag may present many
employees with difficulty. Therefore, it seems
likely that direct deposit will be adopted for the
first time by some employers, and expanded by
many others, t o accomodate the changing needs
of their employees. The critical period for direct
deposit penetration, accordingto our model, will
be 1988-1990. In this period, retail payments
penetration by debit cards will begin a rapid 10
percent annual penetration rate, and bill payment
penetration will begin to gain consumers' ac-
" B u r e a u of Labor Statistics, " E c o n o m i c Projections to 1990," U. S.
Department of Labor, March 1982.
38
ceptance. Automated clearing houses (ACHs)
are one vehicle employers will use to make
direct deposit payments.
The most likely participants in direct deposit
programs are employees aged 30 to 45, with
incomes in the $25,000 to $40,000 range. While
the total U. S. population will grow approximately
10 percent over the next decade, this age group
will grow by 45 percent W e may conclude, then,
thatthe consumers most likely to accept and use
direct deposit, and electronic financial services
in general, will be a fast-growing group that will
offer a substantial market for the new services.
The appeal of direct deposit, it should be
noted, is not limited to this segment of the
population. The success of direct-deposit Social
Security payments indicates that this concept
appeals to elderly consumers too. Chart 8 shows
the growth in the number of Social Security
payments made through direct deposit from 1978
to 1982, now accounting for about a third of all
such payments. It has also been estimated that
about 25 percent of all government payments
were being made by direct deposit in 1982.
Much of the governments success with direct
deposit is attributable to the strong promotional
effort made to sell the concept to recipients of
federal payments. A similar marketing effort in
the private sector may speed acceptance of
direct deposit by consumers and businesses,
accelerating the displacement of payroll checks.
Social Security recipients are otherwise dependent on the mail and are especially concerned
with fraud and robbery, however, whereas these
considerations are unimportant in the case of
regular payrolls. So direct deposit of Social Security
checks may not be a good barometer of general
acceptance.
Just the same, the benefits of direct deposit
have been borne out empirically. Direct deposit
of payrolls has proven safe and economical.
Therefore, in our consumer-driven, price-sensitive
scenario for acceptance of check displacing
technologies, direct deposjt will probably experience the same rapid growth as the ATM.
Whereas direct deposit is offered today as a
convenience or benefit to employees, it probably
will become a standard as employees demand
immediate credit of their pay to offset immediate
" T h e Check Collection System: A Quantitative Description, (1970.
A U G U S T 1983, E C O N O M I C
REVIEW
debits to their checking accounts for purchases
and bill payments.
10 percent to Phase III, and left 10 percent
unallocated. These business payment allocations
aresummarized in the second portion of Table 6.
Other Business Payments to Individuals
Other business payments to individuals represent another 10 percent share in our framework.
The 1970 BAI survey found 9 percent 6 4 Many of
these checks involve remote disbursement practices, so w e cannot say with any assurance that
increased adoption of cash management services
by businesses will displace any of them. It could
even add volume to this category. So we elected
not to incorporate any of these "non-payroll
checks to individuals" into our model.
Business to Business Payments
Business-to-business checks, accordingto past
surveys, comprise another 20 percent of commercial checks. Potentially, this traffic can be
displaced by the spread of electronic casbmanagement services and trade payments, particularly to smaller businesses. Quite subjectively,
we allocated 5 percent of this share to Phase II.
M FEDERAL RESERVE BANK O F A T L A N T A
Government Payments
Government checks, the last group described
in Table 6, include about 5 percent of commercial bank checks written. (Commercial bank
checks do not include checks drawn on the U.S.
Treasury.) This percentage was increased from
what we believe to be an underestimated 1.7
percent share reported in the 1970 BAI Survey.
W e estimate that non-federal government employment represents more than 5 percent of
overall e m p l o y m e n t W e allocated 2 percent of
these government checks to our Phase II time
interval when the spread of routine cash management practices will be adopted widely by state
and local governments. W e allocated the other3
percent to the Phase III time intevals, following
the same rationale we used for business payroll
checks.
39
PART FIVE:
SUMMARY
A N D IMPLICATIONS
People s h o u l d be w r i t i n g
f e w e r p e r s o n a l c h e c k s by t h e first
half of t h e 1 9 9 0 a
The central finding of this special issue of the
Economic Review is that growth in the number of
personal checks written has decelerated during
the early 1980s, probably will cease during the
later 1980s, and should begin to decline in the
first half of the 1990s. Our research indicates that
people should be writing fewer personal checks
by then, and we find no evidence to support
those who project a7 or8 percent annual growth
rate in total checks written.
The pattern of deceleration and decline results
from t w o distinct sets of influences. First is the
slowing in the number of payments made from
checking accounts, which results from the saturation of the checking account among American
households, from the slowdown in the growth of
the number of households, and from a slowdown in the growth of real consumption per
household.
Second, the pattern is influenced by the increasing popularity of various substitutes for the
personal check acceptance of the cash dispenser/
ATM has influenced the deceleration of the
early 1980s, acceptance of the debit card will
influence the zero-growth period of the later
1980s, and the acceptance of some as-yet undetermined form of remote bill-payment will
40
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
! influence the significant decline of the early
1990s.
As part of these results, the work in this issue
suggests that while 97 percent of transfers out of
household checking accounts were made with
personal checks in 1979, the corresponding
percentage will have dropped to 92 percent by
1984, to 78 percent by 1989, and to 51 percent
by 1994. This 15-year period will witness the
* transformation of the way American households
pay for things.
In deriving these estimates, we have made a
conscious effort to keep the underlying assumptions on the conservative side—to understate, if anything, the degree of displacement of
¡> the personal check by its electronic successors.
The reader who traces the estimation process in
Part Four, for example, will notice that w e have
left a residual of 10 percent of payments from
checking accounts unallocated to any of our
three phases of displacement W e have assumed
that a check substitute such as the ATM is "fully
* saturated" at65 percent of displaceable payments.
A saturation percentage of 75 percent is reasonable
and defensible, in light of the 80 percent-plus
penetration of checking accounts generally and
New England N O W Accounts specifically. The
significance tests in Appendix A show that increa*ing this percentage would significantly deepen
k
the projected decline of personal checks in the
early 1990s.
There is certainly room to question the 4
percent underlying rate of growth in payments
> out of personal checking accounts. Simple extrapolation of growth in the number of checks
written per household implied by various studies
since the early 1960s, indeed, suggests that
number may rise from the current 20 per month
to 35 o r 4 0 per month. (In the latter c-ase, these
would be a combination of checks and check
substitutes.) Such an extrapolation would imply
an underlying growth rate of about 5 percent per
year, rather than the 4 percent w e use. Appendix
* A shows that our"flatteningand decline" pattern
is definitely sensitive to this assumption. The 4
percent assumption used in this study is more
likely and realistic, however. The sharp increase
in the number of transactions per household
implied by a 5 percent rate is economically
unrealistic for the 1979-94 period. A direct answer
to this question would come from longitudinal
polling of American households t o see if the
number of checks and check substitutes used
per month is growing or n o t This kind of information is no longer available through the banking
system because checking accounts are being
offered by other kinds of institutions, and because
many households today have multiple checking
accounts.
The beginning dates we have assigned to
penetration of the debit card in Phase II and
electronic bill payments in Phase III are also
quite debatable. Many experts would put them
later. The significance tests in Appendix A suggest
that the overall pattern of deceleration and
decline produced by this study is not significantly
affected by later beginning dates. W e have
employed earlier dates than some other experts
have suggested because, in the case of debit
cards, we feel that retailers rather than depository
institutions will take the lead in facilitating this
p r o d u c t and that they are already showing signs
of doing so. The prospect that debit cards will
comprise 15 percent of retail purchases out of
checking accounts by 1987 seems reasonable to
Retailers, rather t h a n
d e p o s i t o r y institutions, may
t a k e t h e lead in facilitating
debit c a r d s
us. In the case of the third phase of bill-payment
systems, our estimate that 15 percent penetration
will be achieved by 1992 is admittedly somewhat
arbitrary. W e do feel, as we have stated earlier,
that household experience with "plastic card
transfers out of checking accounts" with ATMs
and debit cards should hasten the transition from
checks to substitute bill-payment devices.
An important feature of the work in this special
issue is that others can use a model of the sort we
employ to assess the prospective results of
alternative assumptions. W e are encouraged
that none of the experts who have been kind
enough to review earlier drafts of this study have
objected to the general approach employed
here.
As we emphasized in Part Four, w e are less
confident about the extension of our results
beyond the household sector. Those results,
which show the same general pattern of deceleration and decline as for personal checks, clearly
call for further research. The essential question
1
M FEDERAL RESERVE BANK O F A T L A N T A
41
with regard to the displacement of business and
government checks is how to weigh the greater
sophistication and expertise of such check writers,
on the one hand, with the incentive of continuing
to write checks to gain disbursement float on the
other hand. Because of float corporate treasurers
are fond of saying " w e will pay electronically
when we get paid electronically." If some way
can be found to offset float, nonpersonal checks
could then be displaced much more rapidly than
personal checks. Otherwise, displacement there
may be even slower.
In addition, w e hope readers of this study will
be careful in applying its general results to
specific situations. For example, displacement
will undoubtedly occur more rapidly in local
Retailers, card n e t w o r k
operators and depository
institutions are p o s i t i o n e d
to c o m p e t e for checksubstitute business
markets that are competitive and fast-growing.
The uneven spread of ATMs is already exemplifying
this p o i n t So displacement in a particular area
may be significantly faster or slower than w e
project Similarly, the astute reader will have
noticed that casl>acquisition and retail-purchase
checks tend to be local, whereas checks written
to pay bills have a much higher proportion
written to nonlocal payees. This implies that
institutions concerned with clearing local checks
will be heavily affected by the displacement in
our Phases I and II, whereas institutions concerned
42
with clearing nonlocal checks will be heavily
affected by our Phase III.
Since our main interest in developing this
study has been to provide a clearer view of the
future, w e conclude with a short recapitulation
o f " items to watch" as we track the displacement
of the personal check in the future:
1. Consumer acceptance, not technological
capability, will determine changes in payment
products.
2. The chances of "overnight" technological
changes are remote Refinements will be made,
but the basic technology is already there.
3. Growth in the A T M and its cash-dispensing
function is providing concrete indications about
the penetration of future electronic alternatives.
4. Transition products, such as cash dispensers
at supermarkets and convenience stores, will
provide important indications about the timing
and strength of successive displacement phases.
5. Retailers and card network operators, along
with depository institutions, are positioned to
compete for check-substitute business. Retailers receiving large numbers of low-value
checks are likely to lead the way among that
group of competitors.
6. The "check" is likely to become a more
ambiguous device. In the future, checks may
be "truncated" and converted to electronic
images at the point of payment, at which point
the functional difference between checks and
debit cards may disappear.
7. Cost and pricing trends will be important in
forecasting household acceptance. Consumer
acceptance of electronic payment alternatives
will be attributable, in part t o cost savings
over traditional payment methods.
A U G U S T 1 9 8 3 , E C O N O M I C R E V I E W>?
APPENDIX A
SENSITIVITY T E S T I N G OF THE MODEL
Electronic spreadsheets made it easy to perform sensitivity tests on our model to assess alternatives to the
assumptions underlying the model. During each sensitivity test, a particular assumption was varied while all
others were held c o n s t a n t In each section below, we
will refer to a specific table that summarizes the impact
of one sensitivity test on the model's forecast For easy
reference, each table includes the results of at least two
variations of each assumption, bracketing the particular
value w e used in the main s t u d y
Table A-1. Sensitivity of Projections in the Number of Personal
Checks Written to Changes in the Growth
of the Personal Payments Base
Year
2Vz%
3%
31/2%
1979, Personal Check
" E q u i v a l e n c y (billion per year)
18.0
18.0
18.0
18.0
% Change, 1 9 7 9 - 1 9 8 4
1984, Personal Checks
Written (billion per year)
+
18.8
+ 7
19.2
+ 9
19.7
% Change, 1 9 8 4 - 1 9 8 9
1989, Personal Checks
Written (billion per year)
-
-
+
+11
19.0
19.9
+ 3
20.9
8
18.1
21.9
23.0
24.1
% Change, 1 9 8 9 - 1 9 9 4
1994, Personal Checks
Written (billion per year)
-27
13.2
-25
14.2
-24
15.2
-22
- 2 0
-18
-16
16.4
17.6
18.9
20.3
4
4
1
1
4V2%
5%
5'/2%
18.0
18.0
18.0
+12
+15
20.2
20.7
+18
21.2
21.7
+
6
+
+21
* Baseline Projection
Notes: 1974-79 Growth Was Approximately 3 2 p e r c e n t
Baseline Assumptions Are Otherwise U n c h a n g e d
Test 1: T h e 4 percent B a s e l i n e A n n u a l Growth
Rate in the N u m b e r of P e r s o n a l P a y m e n t s
(Table A-1)
Regardless of the annual growth rate t e s t e d the
volume of personal checks written will decline between
1989 and 1994. Only if the average annual growth rate
from now until 1994 e x c e e d s 4 1 / 2 percent annually will
the volume of personal checks written in 1994 exceed
the volume written in 1979. If a 4 percent average
annual growth rate is not sustained until 1984, the
decline in the number of personal checks written annually
could begin sometime in 1984, or early in 1985.
Test 2: T h e 6 5 percent S a t u r a t i o n Level on the
Penetration Curve (Table A-2)
In each of the alternatives tested, the number of
personal checks written annually declines between
1989 and 1994. A decrease from a 7 8 percent penetration rate to a 52 percent penetration rate results in
only .3 billion more personal checks in 1 9 8 4 or only 2.3
billion more personal checks in 1989. If the penetration
rates only reach 52 percent the volume of personal
checks written in 1989 will only be 4 billion more than in
1979.
M FEDERAL RESERVE B A N K O F A T L A N T A
T a b l e A-2. Sensitivity of Projections in t h e N u m b e r of Checks
Written to Changes in the Saturation
Level of t h e Penetration Curve
Year
1979, Personal Check
"Equivalency"
(billion per year)
% Change, 1 9 7 9 - 1 9 8 4
1984, Personal Checks
Written (billion per year)
% Change, 1 9 8 4 - 1 9 8 9
1989 Personal Checks
Written (billion per year)
% Change, 1 9 8 9 - 1 9 9 4
1994, Personal Checks
Written (billion per year)
Saturation Saturation* Saturation
Level
Level
Level
of 5 2 %
of 6 5 %
of 78%
18.0
18.0
18.0
+13
+12
+12
20.4
20.2
20.1
-
+
-
8
3
2
22.0
20.9
19.7
-11
-22
-33
19.6
16.4
13.2
* Baseline Projections
Notes: 1974-79 Growth Was Approximately 32%.
Baseline Assumptions Are Otherwise Unchanged.
43
Table A-3. Sensitivity of Projections in the Number of Personal
Checks Written t o Changes in the Allocation of
Potential Market Shares For Each Phase
Conservative
Allocation
Phase I: 9%
Phase II: 30%
Phase 111: 4 2 %
Unallocated: 19%
Baseline*
Allocation
Phase I: 12%
Phase II: 3 3 %
Phase III: 45%
Unallocated: 10%
Full Allocation
of Household Payments
Phase I: 15%
Phase II: 3 6 %
Phase III: 49%
Unallocated: 0
1979, Personal Check
" E q u i v a l e n c y (billion per year)
18.0
18.0
18.0
% Change, 1 9 7 9 - 1 9 8 4
1984, Personal Checks
Written (billion per year)
+14
20.5
20.2
+10
19.8
21.7
- 3
20.9
20.0
- 1 4
-22
- 2 8
18.1
16.4
14.5
Year
% Change, 1984-1989
1989, Personal Checks
Written (billion per year)
% Change, 1 9 8 9 - 1 9 9 4
1994, Personal Checks
Written (billion per year)
-
+12
6
+
1
* Baseline Projections
Notes: 1974-1979 Growth Was Approximately 32%.
Baseline Assumptions Are Otherwise Unchanged.
In each of the alternatives we retained the S-shape of
the baseline penetration curve (5-10-15-25-35-45-4460-65), while w e shifted the magnitude of the curve. For
the 52 percent saturation level, the penetration rates in
the test were: 4-8-12-20-28-36-44-48-52. For the 7 8
percent saturation rate, the rates were: 6-12-18-30-4254-66-72-78.
T e s t 3: T h e A l l o c a t i o n of Potential Market
Shares for Each Phase (Table A-3)
For comparison to the baseline allocation, w e tested
a more conservative and a more liberal allocation of
potential market share. In the most conservative alternative, the number of personal checks written in
1994 has almost returned to the 1 9 7 9 level of activity.
On the other hand, if a more liberal allocation is applied
to the model, the volume of personal checks written
increases only 1 percent between 1984 and 1989.
Test 4: T i m i n g of Phase II (Table A-4)
Phase II in our baseline model begins in 1 9 8 5 and
achieves a 15 percent penetration rate in 1987. We
tested the impact of a one year acceleration and a one
year delay in the onset of Phase II. In either case, the
volume of personal checks written in 1994 is the same
as that forecasted by the baseline timing for Phase II.
The test also suggests that if Phase II is delayed a year
in its progress the volume dropoff between 1989 and
44
Table A-4.
Sensitivity of Projections in t h e N u m b e r o f Personal
Checks Written to Changes in t h e Timing
of Phase II Penetration
Year in Which Phase II Achieves a 15% Penetration Level
Achieved
In
1986
Achieved*
In
1987
Achieved
In
1988
18.0
18.0
18.0
+10
19.8
+12
20.2
+12
20.2
% Change, 1 9 8 4 - 1 9 8 9
1989, Personal Checks
Written (billion per year)
+ 1
20.0
+ 3
20.9
+ 8
21.8
% Change, 1 9 8 9 - 1 9 9 4
1994, Personal Checks
Written (billion per year)
-18
16.4
-22
16.4
-25
16.4
Year
1979, Personal Check
" E q u i v a l e n c y (billion per
yeai)
% Change, 1 9 7 9 - 1 9 8 4
1984, Personal Checks
Written (billion per year)
*Baseline Projections
Notes: Phase I Achieves 15% Penetration in 1981.
Phase III Achieves 15% Penetration in 1991.
1974-79 Growth Was Approximately 32.%
Baseline Assumptions Are Otherwise Unchanged.
AUGUST 1983, E C O N O M I C
REVIEW
Table A-5. Sensitivity of Projections in t h e Number of Personal
Checks Written to Changes in the Timing of
Phase III Penetration
T a b l e A-6. Sensitivity of Projections in t h e Number of Personal
Checks Written to Shape of t h e Penetration Curve
Straight-Line
Baseline,* Exponential
Penetration CurveS-Shaped Penetration
@ 7.2% Annually
Curve
Curve
Year in Which Phase III Achieves a 15% Penetration Level
Year
Achieved
In
1990
Achieved
In
1991
Achieved
In
1992
18.0
18.0
18.0
+12
20.2
+12
20.2
+12
20.2
% Change, 1 9 8 4 - 1 9 8 9
1989, Personal Checks
Written (billion per year)
+ 1
20.3
+ 3
20.9
+ 4
21.0
% Change, 1 9 8 9 - 1 9 9 4
1994, Personal Checks
Written (billion per year)
-27
14.9
-22
16.4
-15
17.8
Year
1979, Personal Check
"Equivalency" (billion per
year)
% Change, 1 9 7 9 - 1 9 8 4
1984, Personal Checks
Written (billion per year)
*Baseline Projections
Notes: Phase I Achieves 15% Penetration in 1981.
Phase II Achieves 15% Penetration in 1987.
1974-79 Growth Was Approximately 32%.
Baseline Assumptions Are
Otherwise Unchanged.
1994 will be even more precipitous than if Phase II
begins as we forecasted, or earlier.
Either of the alternatives are plausible in light of the
anticipated (but difficult t o forecast exactly) rate at
which consumer dissatisfaction over Super NOW checking
account fees modifies consumer behaviorwhen paying
retailers The timing of Phase II appears t o have limited
impact on the volume peak achieved by personal
checks written b e c a u s e in 1989, where the three
alternatives reach their peak divergence, the volume
difference between an early or late pattern is only 1.8
billion personal c h e c k s Stated another way, neither of
the timing alternatives leads to more than a .9 billion
variance with the baseline by 1989.
It should be pointed out that some of the people w h o
have reviewed our model believe that we are too
optimistic about the timing of Phase II. They feel, for
various reasons that the strong retail displacement will
not occur until two or more years later than w e have
forecast. We feel that sensitivity testing suggests that
timing is not a major variable in our scenario Accordingly,
we retained our Phase II as originally written.
Test 5: Timing of Phase III (Table A-5)
This test indicates the impact from a year faster or a
year slower onset of Phase III versus the baseline
timing of Phase III. Both of the alternatives track the
same as the baseline until 1984. Regardless of the
timing, 1989 volume varies at m o s t 0.6 billion from the
M FEDERAL RESERVE B A N K O F A T L A N T A
1979, Personal Check
"Equivalency" (billion per
year)
% Change, 1979-1984
1984, Personal Checks
Written (billion per year)
18.0
18.0
18.0
+13
20.4
+12
20.2
+11
20.0
% Change, 1 9 8 4 - 1 9 8 9
1989, Personal Checks
Written (billion per year)
+ 1
20.5
+ 3
20.9
+ 6
21.2
% Change, 1 9 8 9 - 1 9 9 4
1994, Personal Checks
Written (billion per year)
-19
16.6
-22
16.4
-22
16.5
*Baseline Projections
Notes: Each curve achieved 65% saturation in 9 y e a r s
1974-79 Growth W a s Approximately 32%.
Baseline Assumptions Are Otherwise Unchanged.
baseline. The most significant variance occurs in .1994;
but this is only because neither of the alternatives or the
baseline had reached the 65 percent saturation level by
1994. The actual spreadsheet model for each alternative
shows that the variance narrows significantly in the
years immediately following 1994 w h e n Phase III
saturation o c c u r s
T e s t 6: T h e S h a p e of t h e P e n e t r a t i o n Curve
(Table A-6)
A straight line penetration curve, growing at 7.2
percent annually, and an exponential penetration curve
growing from 5 percent to 65 percent were contrasted
with the S-shaped penetration curve in the baseline
model. The results indicate that variations in the shape
of the penetration curve are not critical to our projections
at any of the five year intervals tested.
T e s t 7: T h e 1 . 5 to 1 Ratio B e t w e e n A T M C a s h
Withdrawals a n d Checks Written to A c q u i r e C a s h
(Table A-7)
The baseline ratio w e selected was an arbitrary
midpoint between t w o e x t r e m e s Use of a 1 t o 1 or a 2 to
1 ratio had some impact on the displacement behavior.
But since only 12 percent of the personal checks
written are for cash acquisition, the ratio's impact on
volume is not as great as it would be for retail or bill
payments
C o n c l u s i o n s F r o m Sensitivity T e s t i n g
Our general conclusion from the sensitivity testing is
that more conservative or liberal assumptions do not
materially change the major thrust of the model: the
45
Table A-7. Sensitivity of Projections in t h e Number of Personal
Checks Written to Changes in the Displacement Ratio
of ATM Cash Withdrawals and
Personal Checks for Cash
Next w e estimate the number of household checking
account transactions 1979-94, by a u g m e n t i n g the
1979 base by " g x 100" percent per year
Year
(2)
1979, Personal Check
"Equivalency"
(billion)
% Change, 1 9 7 9 - 1 9 8 4
1984, Personal Checks
Written (billion per year)
@ 1:1
@ 1.5:1*
@ 2:1
18.0
18.0
18.0
+12
+ 8
20.2
19.5
18.8
% Change, 1 9 8 4 - 1 9 8 9
1989, Personal Checks
Written (billion per year)
+ 3
20.9
+ 2
19.9
0
18.8
% Change, 1 9 8 9 - 1 9 9 4
1994, Personal Checks
Written (billion per year)
-22
16.4
N t = N 7 9 (1 +g) t " 7 9
(We use g = .04, based on our estimates of
growth in the number of households t h e saturation of checking a c c o u n t s and the growth of real
income per household during the 1979-94 period)
This provides the base against which the estimates
corresponding to our three phases of displacement
can be deducted.
+ 4
Each phase shares the c o m m o n form:
-24
15.1
-27
13.8
(3)
number of personal checks written should plateau
during the last half of this decade and by 1994, the
volume of personal checks written will probably be at or
below the 1979 level.
D; t = N t • Sj • U\)
The following table lists the parameters w e have attributed
to each phase of displacement in our model:
A P P E N D I X B: T H E CHECK-DISPLACEMENT
MODEL IN EQUATION FORM
This Appendix summarizes our Check Displacement
Model in equation f o r m These equations should permit
anyone familiar with m i c r o c o m p u t e r " s p r e a d s h e e f programs to duplicate and amend our results
W e start by estimating the number of transfers out of
personal checking accounts during the year 1979, N 7 9 :
N
7 9
=
T7QP
a
where T 7 g is the total number of checks written
by households businesses and state and local
governments during 1979. (We use 32 billion,
based on the 1979 Atlanta Fed Check Study). "P*
is the proportion of commercial checks written by
households (We use .55.) "a" is the proportion of
1979 household transfers made by personal
c h e c k (We use.97, based on the 1 9 7 9 BAI study.)
¡=1,2,3,
t = 79, 94.
where D^t is the n u m b e r of c h e c k s displaced by
Phase i in year t, Sj is t h e share of household
payments affected by Phase i displacement Nt is
defined by equation (2), and f(t) is the penetration
curve characteristic of technological diffusion.
* Baseline Projections. These figures differ from those in t h e
model because t h e 1.5:1 ratio was divided out of the net growth
estimate in the model itself.
0)
t = 79,....,94.
Parameter
Si
f(79)
f(80)
f(81)
f(82)
f(83)
f(84)
f(85)
f(86)
f(87)
f(88)
f(89)
f(90)
f(91 )
f(92)
f(93)
f(94)
,
Phase I:
Cash
Acquisition
Phase II:
Retail
Puchases
.12
.05
.10
.15
.25
.35
.45
.55
.60
.65
.65
.65
.65
.65
.65
.65
.65
.33
.00
.00
.00
.00
.00
.00
.05
.10
.15
.25
.35
.45
.55
.60
.65
.65
Phase III:
Bill
Payments
.45
.03
.03
.03
.03
.03
.03
.03
.03
.03
.03
.03
.05
.10
.15
.25
.35
Í
46
A U G U S T 1 9 8 3 , E C O N O M I C REVIEW>?
In particular, this table suggests a common 5-10-1525-35-45-55-60-65 percentage penetration curve for
each of the three phases, in which 5 percent of checks
(those used for a particular purpose) are displaced
during the first year, 10 percent in the second year, e t c
up to a saturation percentage of 65 percent
Thus, of the N j payments by h o u s e h o l d s in y e a r t , 12
percent are susceptible to displacement by ATMs in
Phase 1,33 percent are susceptible to displacement by
debit cards in Phase II, and 4 5 percent are susceptible
to displacement by bill-payment devices in Phase III.
The penetration functions reflect our expectations
that Phase I penetration began in 1979, became rapid
in 1981, and will become saturated in 1987; that Phase
II penetration will begin in 1985, become rapid in 1987,
and become saturated in 1993; and that Phase III
penetration will begin in 1990, become rapid in 1992,
and not reach saturation until the late 1 9 9 0 s
In the particular case of Phase III bill-paying penetration, the 1 9 7 9 BAI study suggested 3 percent
M FEDERAL RESERVE B A N K O F A T L A N T A
penetration with preauthorized and ACH debits in the
year, so w e set 3 percent as an initial condition and
carried through the 1 9 8 0 s
To estimate the number of personal checks written in
each year 1979-94, w e subtract the number of checks
displaced by each phase from the number of household
checking account transactions:
(4)
Ct=Nt-D
1 j t
-D
2 i t
-D
3 i t
(t = 79
94).
Consolidating these equations in terms of the basic
parameters gives
(5)
C t = T 7 9 (E) (1 + g ) t—79 ( 1 _
Si fl(t)
_ s2f2
{f)
(t=79
_
S3f3(t)]
94).
47
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L e v i t t Theodore. T h e Marketing M o d e . New Y o r k McGraw-Hill Book
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Kotier, Philip. Marketing M a n a g e m e n t . Englewood Cliffs, New Jersey:
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New Y o r k W. W. Norton a n d Company, Ine, 1968.
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— . S t a t e a n d M e t r o p o l i t a n A r e a Data Book 1 9 7 9 . W a s h i n g t o n : U S
G o v e r n m e n t Printing Office.
Conference Proceedings
T h e F u t u r e of t h e F i n a n c i a l Services Industry. H e l d in Atlanta
G e o r g i a J u n e 3-4, 1981. A t l a n t a G e o r g i a Federal Reserve Bank of
A t l a n t a 1981.
T h e F u t u r e of t h e U.S. P a y m e n t S y s t e m , h e l d in A t l a n t a G e o r g i a June
23-25, 1 9 8 1 . A t l a n t a Georgia: F e d e r a l Reserve B a n k of A t l a n t a 1981
Published Speeches
Cox, E d w i n B. " P r o s p e c t s for A u t o m a t e d Tellers a n d Point-of-Sale
F i n a n c i a l Terminals: 1 9 8 1 - 1 9 9 0 , " P r e s e n t e d to the E l e v e n t h Annual
B a n k i n g Industry a n d Bank S t o c k S y m p o s i u m of t h e Financial Analysts
Federation, New YorK New York, on M a r c h 25, 1981. Cambridge,
M a s s a c h u s e t t s : Arthur D. Little, Inc., 1981.
Ford, William F. " T h e P a y m e n t s System of t h e 1980s," p r e s e n t e d at the
S e c o n d A n n u a l S h a r e d EFT S y s t e m s Conference, A t l a n t a G e o r g i a on
February 5, 1981. A t l a n t a Georgia: Federal Reserve B a n k of A t l a n t a
February 1981.
Unpublished Reports
Berkowitz, Robert, B u s i n e s s C o m m u n i c a t i o n s Co., Inc., Stamford, Connecticut, J u n e a n d J u l y 1983.
Douglas, D a m o n G 1 9 7 9 P r o j e c t i o n of C h e c k Volumes. A paper
p r e p a r e d by D a m o n Douglas, an I B M staff m e m b e r for use by IBM's
m a n a g e m e n t staff, S e p t e m b e r 1979.
Marschall, Tom, a n d Rafe Soler. An A p p r o a c h for F o r e c a s t i n g EFTS
V o l u m e s A p a p e r p r e p a r e d by the p l a n n i n g D e p a r t m e n t of the Federal
Reserve B a n k of A t l a n t a for use by t h e Bank's senior m a n a g e m e n t
February 1975.
Dissertations
Interviews
Gambs, Carl M e l v i n T h e E c o n o m i c s of a n A u t o m a t e d
System. Ph.D. Dissertation, Yale University, 1 9 7 2 .
Payments
Government Publications
T h e C o n s e q u e n c e s of Electronic Funds Transfer. A report prepared by
Arthur D. Little, I n a u n d e r c o n t r a c t N S F - C 8 4 4 for t h e National S c i e n c e
F o u n d a t i o n W a s h i n g t o n : U.S. G o v e r n m e n t Printing Office, J u n e 1975.
U.S D e p a r t m e n t of C o m m e r c e , B u r e a u of Census. Projections of
N u m b e r of H o u s e h o l d s a n d F a m i l i e s . C u r r e n t P o p u l a t i o n Report,
S e r i e s p-25, # 8 0 5 . W a s h i n g t o n : U.S. G o v e r n m e n t Printing Office, 1979.
— . Current Population Reports. Washington: U.S. Government Printing
Office. M a r c h 1 9 8 0 , p. 6 0
50
Douglas, D a m o n G., f B M Corporation, W h i t e Plains, N e w YorK J u n e
1983.
Kranzberg, Melvin, C a l l a w a y Professor of t h e History of Technology,
G e o r g i a I n s t i t u t e of Technology, A t l a n t a G e o r g i a April 1 9 8 3 .
Merrill, Peter, Peter Merrill a n d Associates, Boston, M a s s a c h u s e t t s , May
a n d J u n e 1983.
Moore, J a m e s B , S e n i o r v i c e president a n d Director of Research, Trans
Data Corporation, Cambridge, Maryland, M a y 1983.
Rawlings, B r o w n R„ P r e s i d e n t B & A Associates, Dallas, G e o r g i a June
1983.
Tarpley, Fred W., Professor of Economics and Senior Research Scientiest of
the A d v a n c e d T e c h n o l o g y D e v e l o p m e n t Center, G e o r g i a Institute of
T e c h n o l o g y , A t l a n t a G e o r g i a April 1982.
Zimmer, Linda Fenner, P a y m e n t Services C o r r e s p o n d e n t Marlborough,
C o n n e c t i c u t April a n d J u n e 1983.
A U G U S T 1 9 8 3 , E C O N O M I C REVIEW>?
FINANCE
1
'iSERIES SUBSTANTIALLY REVISED - Not consistent with previous reports - SEE NOTES.
MAY
1983
JUN
1982
ANN.
%
CHG.
JUN
1983
MAY
1983
JUN
1982
560,792
16,583
179,589
366,956
APR
467,925
27,647
554,366
16,345
175,670
364,844
MAR
467,127
24,686
473,184
9,147
80,942
383,031
APR
505,624
16,304
ANN.
%
CHG.
,$ millions
Commercial Bank Deposits
Demand
NOW
Savings
f Time
Credit Union Deposits
Share Drafts
Savings & Time
Commercial Bank Deposits
Demand
L
NOW
Savings
h
Time
Credit Union Deposits
Share Drafts
Savings Sc Time
141,832
34,781
10,010
37,572
56,919
4,416
376
_^488
141,184
35,332
9,981
36,400
62,953
4,346
373
3,417
f.v Commercial Bank Deposits
I
Demand
NOW
3
Savings
m
Time
¿ C r e d i t Union Deposits
m
Share Drafts
Savires & Time
14,999
3,584
908
3,151
7,817
622
67
463
14,890
3,624
902
3,034
7,862
612
70
455
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings & Time
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings Sc Time
LOUISIANA
Commercial Bank Deposits
Demand
NOW
Savings
Time
Credit Union Deposits
Share Drafts
Savings Sc Time
f Commercial Bank Deposits
Demand
»
NOW
Savings
Time
m
M ; Credit Union Deposits
Share Drafts
v •
Savings Sc Time
ommercia
Demand
NOW
ank
eposits
Time
Credit Union Deposits
Share Drafts
Savings Sc Time
Notes:
1.557
13,855
3,468
641
1,558
8,696
583
55
11,392
6,122
N.A.
N.A.
21,649
4,201
1,462
5,251
10,861
655
51
604
12,871
11,389
2,399
789
2,349
6,156
N.A.
N.A.
N.A.
21,495
10,790
7T
+ 2
Savings & Loans
Total Deposits
NOW
Savings
Time
+ 8
+ 3
+ 42
+102
- 10
+ 7
+ 22
+170
22,316
6,073
1,015
2,466
13,333
N.A.
N.A.
N.A.
Mortgages Outstanding
Mortgage Commitments
+178
m
Savings <3c Loans
Total Deposits
NOW
Savings
Time
Mortgages Outstanding
Commitments
5c Loans
Deposits
NOW
Savings
Time
Savings Sc Loans
Total Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage Commitments
+110
Savings Sc Loans
Total Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage Commitments
Savings Sc. Loans
Total Deposits
NOW
Savings
Time
N.A.
N.A.
19,338
4,242
899
2,134
12,237
417
26
388
+ 19
+ 81
+122
- 4
- 7
+ 70
+ 13
+ 84
+124
- 5
- 11
Mortgages Outstanding
Mortgage Commitments
1.251
17,167
5,977
1,051
1,656
9,426
665
25
589
24,680
5,784
1,342
5,184
12,891
N.A.
N.A.
N.A.
Savings Sc Loans
Total Deposits
NOW
Savings
Time
+ 36
+153
- 19
+ 31
+ 45
31
6,270
1.588
11
+ 3
+ 37
+125
- 14
+ 35
+ 74
26
4,335
114
785
3,487
APR
3,607
151
4,309
119
757
3,479
MAR
3,583
103
3,560
69
430
3,068
APR
3,984
60
52,614
1,965
16,788
34,186
APR
38,718
2,919
52,343
1,962
16,530
34,176
MAR
38,687
2,812
47,121
1,078
7,706
38,229
APR
45,515
2,833
MAR
8,501
156
1,041
7,329
APR
9,634
294
2,275
7,239
APR
8,177
289
5,633
90
851
4,689
APR
7,757
170
2,260
5,374
APR
7,423
411
7,668
166
2,169
5,382
MAR
7,345
429
1,514
APR
2,121
74
444
1,629
MAR
APR
6,464
157
1,547
4,791
MAR
5,350
80
591
4,677
APR
+
+
+
+
22
65
83
14
- 9
+152
+ 12
+ 82
+118
- 11
- 15
+ 3
+166
+ 186
Mortgages Outstanding
Mortgage Commitments
+146
avings & Loans
Total Deposits
NOW
Savings
Time
Mortgages Outstanding
Mortgage Commitments
6,559
160
1,577
4,836
APR
5,802
181
+ 23
+100
+167
+ 3
- 5
+170
All deposit data are extracted from the Federal Reserve Report of Transaction Accounts, other Deposits and Vault Cash (FR2900),
and are reported for the average of the week ending the 1st Wednesday of the month. This data, reported by institutions with
over $15 million in deposits as of December 31, 1979, and $2.1 million or more in reservable liabilities, represents 95% of deposits
in the six state area. The major differences between this report and the "call report" are size, the treatment of interbank deposits,
_
and the treatment of float. The data generated from the Report of Transaction Accounts is for banks over $15 million in deposits
as of December 31, 1979. The total deposit data generated from the Report of Transaction Accounts eliminates interbank deposits
by reporting the net of deposits "due to" and "due from" other depository institutions. The Report of Transaction Accounts
subtracts cash in process of collection from demand deposits, while the call report does not. Savings and loan mortgage data
are from the Federal Home Loan Bank Board Selected Balance Sheet Data. The Southeast data represent the total of the six states.
Subcategories were chosen on a selective basis and do not add to total.
N.A. = fewer than four institutions reporting.
http://fraser.stlouisfed.org/
W " |
Federal Reserve Bank of St. Louis
CONSTRUCTION
APR
1983
MAY
1982
ANN
%
CHG
44,768
4,669
11,131
5,391
1,832
875
51,099
6,271
15,367
5,859
1,594
790
+
+
6,892
638
1,532
999
397
168
6,815
618
1,558
963
398
165
6,683
809
1,448
1,089
294
89
371
35
68
54
29
6
348
34
72
46
29
5
400
79
41
68
32
7
3,537
345
766
584
233
54
3,543
331
812
566
229
54
Nonresidential Building Permits - $ Mil.
Total Nonresidential
1,046
Industrial Blcfes.
142
Offices
247
Stores
93
Hospitals
29
Schools
27
LOUISIANA
Nonresidential Building Permits - $ Mil.
Total Nonresidential
1,107
Industrial Bldgs.
57
Offices
322
Stores
116
Hospitals
58
Schools
68
MAY
1983
ANN
MAY
1983
MAY
1982
APR
1983
CHG
12-month Cumulative Rate
Nonresidential Building Permits - $ Mil.
Total Nonresidential
45,100
Industrial Bldgs.
5,012
Offices
10,874
Stores
5,513
Hospitals
1,857
Schools
930
12
20
29
6
16
18
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
3
- 21
+ 6
8
+ 35
+ 89
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
+
-
7
56
66
21
9
14
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
3,393
393
654
574
165
23
+ 4
- 12
+ 17
+ 2
+ 41
+135
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
1,043
135
248
88
25
25
1,054
177
260
122
24
32
+
-
1
20
5
24
21
16
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
1,103
59
321
113
61
68
931
90
309
172
30
21
+ 19
- 37
+ 4
- 33
+ 93
+224
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
162
8
17
31
14
7
163
8
16
33
12
5
180
22
43
38
6
1
- 10
- 64
- 60
- 18
+133
+600
Residential Building Permits
Value - $ Mil.
>
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
TENNESSEE
Nonresidential Building Permits - $ Mil.
668
Total Nonresidential
Industrial Bldgs.
51
113
Offices
Stores
122
Hospitals
34
Schools
8
615
49
89
116
41
7
725
49
140
115
29
6
-
8
4
19
6
17
33
Residential Building Permits
Value - $ Mil.
Residential Permits - Thous.
Single-family units
Multi-family units
Total Building Permits
Value - $ Mil.
Nonresidential Building Permits
Total Nonresidential
Industrial Blcfes.
Offices
Stores
Hospitals
Schools
Total Nonresidential
Industrial Bltjgs.
Offices
Stores
Hospitals
Schools
+
S:/
Total Nonresidential
Industrial Blcgs.
Offices
Stores
Hospitals
Schools
Nonresidential Building Permits T
Total Nonresidential
Industrial Bldgs.
Offices
Stores
Hospitals
Schools
51,047
47,933
35,175
+ 45
702.5
541.9
655.6
520.8
473.1
380.9
+ 48
+ 42
96,147
92,702
86,275
+ 11
9,120
8,516
6,769
+ 35
145.8
108.9
136.0
102.3
96.9
85.6
+ 50
+ 27
16,011
15,331
13,452
+ 19
322
295
241
+ 34
6.7
5.5
6.3
4.6
4.1
5.0
+ 63
+ 10
693
643
641
+
5,211
4,891
4,445
+ 17
75.3
62.5
70.3
59.4
54.4
56.5
+ 38
8,748
8,433
7,838
+ 12
1,851
1,719
1,016
+ 82
34.2
18.6
31.7
17.5
20.0
9.2
+ 71
+102
2,897
2,762
2,070
+ 40
853
797
553
+ 54
14.6
11.4
13.7
10.6
9.1
7.6
+ 60
+ 50
1,960
1,90.1
1,483
+ 32
231
218
141
+ 64
4.3
2.8
4.1
2.7
2.9
1.8
+ 48
+ 56
393
381
320
+ 23
652
597
374
+ 74
10.7
8.1
9.9
7.5
6.4
5.5
+ 67
+ 4'/
1,320
1,211
1,099
+ 20
+
8
11
-
+
-
+
+
+
Data supplied by the U. S. Bureau of the Census, Housing Units Authorized By Building Permits and Public Contracts, C-40.
Nonresidential data excludes the cost of construction for publicly owned buildings. The southeast data represent the total of
the six states. The annual percent change calculation is based on the most recent month over prior year. Publication of F.
Dodge construction contracts has been discontinued.
http://fraser.stlouisfed.org/
52
Federal Reserve Bank of St. Louis
A U G U S T 1 9 8 3 , E C O N O M I C REVIEW
GENERAL
LATEST
DATA
PREV.
PERIOD
YEAR
AGO
2,616.1
N.A.
N.A.
8,687.5
2,581.8
N.A.
N.A.
8,670.5
2,483.7
N.A.
N.A.
8,649.1
+ 0
298.1
163.7
297.1
167.8
290.6
173.9
+ 3
- 6
314.5
N.A.
4,326.9
1,409.0
308.6
N.A.
4,461.6
1,407.0
293.9
N.A.
4,240.8
1,387.0
+ 7
N.A.
25.4
N.A.
25.7
N.A.
25.9
-
2
4Q
MAY
MAY
JUN
34.7
26.9
118.2
55.0
33.9
26.5
103.2
55.0
32.9
25.2
111.4
55.0
+
+
+
+
5
7
6
0
APR
N.A.
3.4
N.A.
3.4
N.A.
3.5
-
3
117.4
69.2
2,087.4
63.0
MAY
159.4
6.9
114.8
68.4
2,176.0
64.0
MAR
159.0
7.2
108.0
67.2
2,114.9
77.0
MAY
155.7
6.7
55.3
39.9
1,641.8
N.A.
JUN
302.3
3.9
54.0
39.4
1,720.2
N.A.
APR
297.6
4.1
51.2
38.2
1,548.8
N.A.
JUN
291.1
4.4
+ 8
+ 4
+ 6
44.7
N.4.
283.Ò"
1,205.0
44.4
N.A.
262.7
1,202.0
42.5
N.A.
269.7
1,164.0
+ 5
N.A.
4.0
N.A.
3.8
N.A.
4.1
Personal Income
($bil. - SAAR)
4Q
Taxable Sales - $ bil.
Plane Pass. Arr. 000's
MAY
Petroleum Prod, (thous.) J U N
Consumer Price Index
20.4
N.A.
35.9
86.0
19.9
N.A.
32.4
86.0
19.3
N.A.
32.7
91.0
1967 = 100
Kilowatt Hours - mils.
N.A.
1.7
N.A.
1.7
N.A.
42.0
30.3
160.6
N.A.
41.5
29.2
167.1
N.A.
39.9
29.1
163.3
N.A.
N.A.
5.5
N.A.
5.5
N.A.
5.5
Personal Income
4Q
($bil. - SAAR)
Taxable Sales - $bil.
Plane Pass. Arr. 000's
Petroleum Prod, (thous.) J U N
Consumer Price Index
J UN
1967=100
APR
Kilowatt Hours - mils.
Personal Income
4Q
($bil. - SAAR)
Taxable Sales - $ bil.
MAY
Plane Pass. Arr. 000's
Petroleum Prod, (thous.) J U N
Consumer Price Index
1967=100
APR
Kilowatt Hours - mils.
Personal Income
($bil. - SAAR)
Taxable Sales - $ bil.
Plane Pass. Arr. 000's
Petroleum Prod, (thous.)
Consumer Price Index
1967=100
Kilowatt Hours - mils.
Personal Income
($bil. - SAAR)
Taxable Sales - $ bil.
Plane Pass. Arr. 000's
Petroleum Prod, (thous.)
Consumer Price Index Nov. 1977 = 100
Kilowatt Hours - mils.
4Q
JUN
MAY
JUN
Miami
APR
Personal Income
($bil. - SAAR)
4Q
Taxable Sales - $ bil.
1Q
Plane Pass. Arr. 000's
MAY
Petroleum Prod, (thous.)
Consumer Price Index - Atlanta
1967 = 100
Kilowatt Hours - mils.
APR
Personal income
($bil. - SAAR)
4Q
Taxable Sales - $ bil.
Plane Pass. Arr. 000's
MAY
Petroleum Prod, (thous.) J U N
Consumer Price Index
1967 = 100
Kilowatt Hours - mils.
APR
APR
Personal Income
($bil. - SAAR)
4Q
; Taxable Sales - $ bil.
MAY
| Plane Pass. Arr. 000's
MAY
* Petroleum Prod, (thous.)
Consumer Price Index
i
ANN.
16
CHG.
CURR.
PERIOD
+ 5
+ 2
+ 2
+ 9
+ 3
- 1
-18
+ 2
+ 2
+ 4
-12
+ 4
+ 3
-
3
+ 6
+10
- 5
+ 5
+ 4
- 2
JUN
1983
MAY (R)
1983
JUN
1982
ANN.
%
CHG.
Agriculture
Prices Rec'd by Farmers
Index (1977=100)
134
Broiler Placements (thous.)
83,554
Calf Prices ($ per cwt.)
65.20
Broiler Prices (4 per lb.)
28.3
Soybean Prices ($ per bu.)
5.83
Broiler Feed Cost ($ per ton)
217
137
83,638
66.10
26.1
6.05
220
138
84,455
61.70
28.9
6.12
215
+
+
3
1
6
2
5
1
Agriculture
Prices Rec'd by Farmers
Index (1977=100)
122
Broiler Placements (thous.)
32,758
Calf Prices ($ per cwt.)
61.56
Broiler Prices (t per lb.)
27.3
Soybean Prices ($ per bu.)
6.05
Broiler Feed Cost ($ per ton)
197
122
32,406
61.16
25.5
6.19
207
123
32,345
58.02
27.6
6.24
213
+
+
-
1
1
6
1
3
8
Agriculture
Farm Cash Receipts - $ mil.
(Dates: APR, A P R )
569
Broiler Placements (thous.)
10,793
Calf Prices ($ per cwt.)
60.50
Broiler Prices (® per lb.)
27.0
Soybean Prices ($ per bu.)
5.96
Broiler Feed Cost ($ per ton)
195
10,648
59.40
25.5
6.06
210
603
10,826
55.20
27.0
6.12
215
- 6
- 0
+10
0
- 3
- 9
Agriculture
Farm Cash Receipts - $ mil.
(Dates: A P R , APR)
1,948
Broiler Placements (thous.)
2,091
Calf Prices ($ per cwt.)
68.40
Broiler Prices (<t per lb.)
27.0
Soybean Prices ($ per bu.)
5.96
Broiler Feed Cost ($ per ton)
235
2,031
67.20
25.0
6.06
230
2,007
1,887
62.50
28.0
6.12
225
- 3
•fll
+ 9
- 4
- 3
+ 4
Agriculture
Farm Cash Receipts - $ mil.
(Dates: APR, APR)
803
Broiler Placements (thous.)
13,067
C a l f Prices ($ pa 1 cwt.)
57.50
Broiler Prices (<t per lb.)
27.0
Soybean Prices ($ per bu.)
5.89
Broiler Feed Cost ($ Der ton)
190
13,047
56.90
25.5
5.92
197
805
13,065
56.50
27.0
6.12
205
- 0
+ 0
+ 2
0
- 4
- 7
Agriculture
Farm Cash Receipts - $ mil.
(Dates: A P R , A P R )
423
Broiler Placements (thous.)
N.A.
C a l f Prices ($ per cwt.)
60.00
Broiler Prices ($ per lb.)
28.5
Soybean Prices ($ pa- bu.)
6.30
Broiler Feed Cost ($ per ton)
270
N.A.
59.20
26.0
6.30
265
Agriculture
Farm Cash Receipts - $ mil.
(Dates: A P R , A P R )
589
Broiler Placements (thous.)
6,807
C a l f Prices ($ per cwt.)
60.90
Broiler Prices (4 per lb.)
28.0
Soybean Prices ($ per bu.)
5.89
Broiler Feed Cost ($ per ton)
179
6,681
60.30
26.0
6.33
197
Agriculture
Farm Cash Receipts - $ mil.
(Dates: A P R , A P R )
607
Broiler Placements (thous.)
N.A.
C a l f Prices ($ per cwt.)
60.50
Broiler Prices (« per lb.)
27.0
Soybean Prices ($ pa- bu.)
6.18
Broiler Feed Cost ($ per ton)
220
N.A.
62.00
24.0
6.14
225
-
-
-
-
-
-
473
N.A.
58.80
29.5
6.36
260
+
+
599
6,566
59.60
29.0
6.29
210
- 2
+ 4
+ 2
- 3
- 6
-15
542
N.A.
55.30
27.5
6.22
192
+ 12
APR
+ 0
1967 = 100
f Kilowatt
Notes:
Hours - mils.
• Personal Income data supplied by U. S. Department of Commerce. Taxable Sales are reported as a 12-month cumulative total. Plane
I Passenger Arrivals are collected from 26 airports. Petroleum Production data supplied by U. S. Bureau of Mines. Consumer Price
m index data supplied by Bureau of Labor Statistics. Agriculture data supplied by U. S. Department of Agriculture.
Farm Cash
I Keceipts data are reported as cumulative for the calendar year through the month shown. Broiler placements are an average weekly
»irate. The Southeast data represent the total of the six states. N.A. = not available. The annual percent change calculation is based
on most recent data over prior year. R = revised.
EDERAL RESERVE B A N K O F A T L A N T A
-11
2
3
1
4
+ 9
- 2
- 1
+15
53
EMPLOYMENT
ANN.
%
CHG.
MAY
1983
APR
1983
MAY
1982
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfe. Ave. Wklv. Earn. - $
110,308
99,543
10,765
10.1
N.A.
N.A.
39.9
350
109,875
98,840
11,035
10.2
N.A.
N.A.
39.8
349
109,914
99,957
9,957
9.4
N.A.
N.A.
39.0
330
+ 0
- 0
+ 8
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfe. Ave. Wklv. Earn. - $
14,218
12,791
1,426
10.3
N.A.
N.A.
40.2
306
14,184
12,758
1,426
10.4
N.A.
N.A.
40.0
304
14,120
12,813
1,307
9.6
N.A.
N.A.
39.5
288
+ 1
- 0
+ 9
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
^Wf^A^.^^^^^rn. - $
1,727
1,505
223
13.1
N.A.
N.A.
40.2
305
1,733
1,496
237
14.3
N.A.
N.A.
40.2
304
1,722
1,487
235
13.9
N.A.
N.A.
39.2
285
+ 0
+ 1
- 5
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
4,748
4,335
412
9.1
N.A.
N.A.
40.3
293
4,727
4,332
395
8.6
N.A.
N.A.
40.0
292
4,671
4,328
343
7.8
N.A.
N.A.
39.6
272
+ 2
+ 0
+20
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment Rate - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkljr. Earn. - $
2,693
2,501
192
7.3
N.A.
N.A.
40.5
280
2,691
2,495
196
7.7
N.A.
N.A.
40.5
283
2,658
2,460
197
7.6
N.A.
N.A.
39.2
262
+ 1
+ 2
- 3
Civilian Labor Force - thous.
Total Employed - thous.
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
1,852
1,620
232
12.6
N.A.
N.A.
39.7
390
1,850
1,624
226
12.2
N.A.
N.A.
39.7
387
1,850
1,675
176
10.7
N.A.
N.A.
41.6
386
+ 0
- 3
+32
Civilian Labor Force - thous.
Total Employed - thou a
Total Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. R a t e - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
1,063
937
126
12.5
N.A.
N.A.
39.8
264
1,054
933
121
12.4
N.A.
N.A.
39.4
261
1,073
959
114
10.6
N.A.
N.A.
38.8
248
- 1
- 2
+11
Civilian Labor Force - thous.
Total Employed - thous.
Y o t a l Unemployed - thous.
Unemployment R a t e - % SA
Insured Unemployment - thous.
Insured Unempl. Rate - %
Mfg. Avg. Wkly. Hours
Mfg. Avg. Wkly. Earn. - $
2,135
1,893
241
11.7
N.A.
N.A.
40.6
305
2,129
1,878
251
12.0
N.A.
N.A.
40.0
299
2,146
1,904
242
11.0
N.A.
N.A.
38.7
274
- 1
- 1
- 0
Notes:
+ 2
+ 6
+ 2
+ 6
+ 3
+ 7
+ 2
+ 8
+ 3
+ 7
- 5
+ 1
+ 3
+ 6
+ 5
+11
APR
1983
MAY
1983
ANN.
%
CHG.
MAY
1982
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., 3c R e a l Est.
Trans. C o m . & Pub. Util.
89,873
18,455
3,893
20,359
16,067
19,681
5,418
4,994
89,005
18,295
3,649
20,165
16,034
19,523
5,395
4,953
90,407
19,049
3,998
20,457
16,179
19,094
5,332
5,119
- 1
- 3
- 3
0
- 1
+ 3
+ 2
- 2
Noni arm fcmployment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. C o m . & Pub. U t i l .
11,451
2,151
622
2,706
2,173
2,298
664
694
11,439
2,134
612
2,712
2,179
2,304
662
694
11,431)
2,190
659
2,686
2,160
2,229
649
703
+
+
+
+
+
-
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., (5c Real Est.
Trans. C o m . & Pub. U t i l .
1,312
329
59
266
295
219
59
70
1,310
329
59
266
293
220
59
70
1,324
344
58
268
291
215
59
72
+
+
+
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., las., (5c Real Est.
Trans. C o m . & Pub. U t i l .
3,851
468
244
1,021
645
939
292
234
3,861
461
238
1,031
649
947
291
235
3,770
462
257
997
640
895
281
230
+
+
+
+
+
+
+
2
1
5
2
1
5
4
2
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & R e a l Est.
Trans. C o m . & Pub. U t i l .
2,238
500
102
531
444
389
120
146
2,227
497
98
527
445
388
119
146
2,207
503
105
520
437
372
117
146
+
+
+
+
+
1
1
3
2
2
5
3
0
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. C o m . <5c Pub. U t i l .
1,588
191
115
365
311
308
80
124
1,590
191
116
364
313
308
80
125
1,623
207
124
368
311
305
79
130
-
2
8
7
1
0
+ 1
+ 1
- 5
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & Real Est.
Trans. C o m . dc Pub. U t i l .
790
200
41
162
181
124
33
39
787
197
40
161
182
124
33
39
801
206
42
162
182
123
33
40
- 1
- 3
- 2
0
- 1
+ 1
0
- 3
Nonfarm Employment- thous.
Manufacturing
Construction
Trade
Government
Services
Fin., Ins., & R e a l Est.
Trans. C o m . & Pub. U t i l .
1,672
463
61
361
297
319
80
81
1,664
459
61
363
297
317
80
79
1,705
468
73
371
299
319
80
85
- 2
- 1
-16
- 3
- 1
0
0
- 5
U
2
6
1
1
3
2
1
1
4
2
1
1
2
0
- 3
All labor force data are from Bureau of Labor Statistics reports supplied by state agencies.
Only the unemployment rate data are seasonally adjusted.
The Southeast data represent the t o t a l of the six states.
The annual percent change calculation is based on the most recent data over prior year.
54
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