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Plastic beats paper as check-writing declines

Transactions made electronically, mostly with debit and credit cards, have surpassed paper checks for the first time, according to a study by the Federal Reserve.
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Welcome to debit card nation.

Transactions made using electronic systems including debit and credit cards have surpassed paper checks for the first time, according to a study released Monday by the Federal Reserve.

U.S. businesses and consumers wrote nearly 37 billion checks in 2003, compared with more than 44 billion payments made with cards or electronically, according to the Fed research. That was a reversal from just three years earlier, when the 42 billion checks easily outnumbered the 31 billion electronic transactions.

"What we're seeing is the beginning of the long-predicted migration to a checkless society," said Richard Oliver of the Atlanta Fed, who oversees the central bank's retail payment operations. But with checks still accounting for nearly 60 percent of the $67 trillion in non-cash transactions, he and others said checks would still be an important part of the economic system for years to come.

The explosive rise of debit cards is the main reason why checks are being eclipsed. Americans swiped their debit cards almost 16 million times in 2003, nearly double the pace three years earlier.

Debit cards are just about as common as cash at the register, accounting for 31 percent of all point-of-sale transactions last year, compared with 21 percent in 1999, according to a separate study by the American Bankers Association.

“It’s all about convenience. No longer do consumers want to write checks with two forms of identification. It’s just too cumbersome,” said Richard Yamarone, economist at Argus Research. “It’s so much easier to swipe and sign.”

While debit cards have been around for decades, their popularity as a payment method began to take off in the late 1990s, when card processing giants MasterCard and Visa got in on the action, said John Hall of the bankers association. Their imprints allowed retailers to begin processing debit cards just like credit cards, without a need for customers to enter personal identification numbers.

Since then, debit card terminals have become ubiquitous, and younger consumers in particular do not hesitate to whip out their cards to pay for a $3 coffee drink or $6 fast-food meal. The average debit-card transaction was just $40 last year, down from $42 three years earlier.

The growing number of debit card users apparently do not mind giving up the "float" period offered by credit cards.

"Debit is safer than cash, more convenient than a check and you have a record of all your purchases, yet you're not adding to your credit line either," said John Hall of the bankers association.

Consumers and businesses also increasingly have been taking advantage of automated and electronic bill payment and automatic deposit instead of paychecks. But Oliver said that transition would take longer because of competing systems and standards.