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Electronic payments cut into checks' turf

A new study Wednesday from the Federal Reserve revealed that credit and debit cards are taking huge bites out of old-fashioned check writing.

Transactions involving electronic payments now total 30-billion a year, a 500 percent increase since 1979, the last time a comprehensive study was done. By comparison, consumers and businesses write 49.1-billion checks a year, an increase of 53 percent.

The study's results surprised many at the Fed and elsewhere, who had underestimated the growth of card and other nonpaper payments. In recent years, industry experts estimated the annual number of checks written at roughly 65-billion.

"The results clearly paint a picture of a payment system in migration," said Roger Ferguson, vice chairman of the Federal Reserve Board.

The big jump in electronic payments reflects the ever-increasing role of technology in the retail, financial and banking businesses, economists said.

"Businesses have adopted technologies that have made it more convenient for consumers to purchase goods," said Richard Yamarone, economist at Argus Research Corp. "Rather than writing a check, which can require several forms of identification, a cumbersome five-minute process, consumers can swipe a card."

To some extent, Americans are feeling more comfortable about using certain electronic payment options, such as debit cards, Yamarone said.

Checks now account for about 60 percent of all payments in the United States that do not involve cash, compared with 85 percent in 1979. Electronic payments account for 40 percent of total noncash payments, compared with roughly 15 percent in 1979, officials said.

Fed officials pointed out that in 1979 debit cards did not exist and a national network of electronic clearinghouses, called the Automated Clearing House, was in its infancy. That network is mostly used for moving income payments, such as preauthorized payroll checks, but also for debit payments, including mortgage payments.

Still, officials said they are encouraged by the move toward electronic payments, which cost less for consumers and businesses. The government and many businesses have saved money by cutting fewer checks for payroll and other expenses. And companies that accept cards or other electronic payments for bills save themselves and their customers the hassle and cost of paper payments.

That said, no one expects checks to disappear.

Checks written from consumer to consumer, which represent 11 percent of all checks, are not likely to be replaced any time soon, said Patrick Barron, first vice president of the Atlanta Federal Reserve Bank.

And for some people, checks will just remain in style.

"I just feel more comfortable using checks or cash," said George Collins, a real estate consultant in Chicago. He does not like the risk of fraud if a credit or debit card is lost.

Other findings from the Fed's studies:

Consumers write about 50 percent of all checks and businesses receive about half of all checks. About one-quarter of the checks are written to pay bills. The second-biggest use _ 19 percent _ is for a purchase.

The average check value is $965, compared with $757 in 1979.

The 49.1-billion checks currently written are worth nearly $48-trillion a year. The 30-billion electronic payment transactions in the United States have a value of more than $7-trillion.

Credit card transactions represented about half of electronic payments _ 15-billion _ worth $1.23-trillion. Debit cards came in second place with 8.3-billion transactions valued at $348-billion.

About 1,300 financial institutions, including banks, thrifts and credit unions, responded to the Fed's three commissioned surveys that examined methods and volumes of retail payments.

_ Information from the Associated Press and Chicago Tribune was used in this report.