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Paper or plastic? Debit cards replace checks as currency of choice

KEVIN CASTLE • Feb 11, 2007 at 8:09 AM

Data show debit card usage has skyrocketed in recent years. Photo by David Grace.


Swipe or write?

Most consumers have already answered that question when it comes to using a debit card or writing a check, according to a local bank president.

"We're still seeing a lot of checks being written, but since the late 1970s, plastic (card) usage has definitely increased," said First Tennessee Regional President Larry Estep.

The most recent data from the Federal Reserve backs up Estep's assessment, with double- digit percentage declines in paper check usage for purchases and other financial transactions since 1995.

In that year, 49.5 billion checks were honored by banks. But by 2003 the number of checks written had dropped to 36.6 billion.

Meanwhile, debit card transactions rose from 8.3 billion to 15.6 billion.

"It's a convenience issue for most consumers that we have seen in the surveys and studies we've done," said Estep.

"People have told us that they don't want to carry a lot of cash or keep up with a checkbook. The card is easier, especially when you're in a different city or state. It eliminates a lot of hassle.

"With the younger generation who are now becoming regular banking customers, the debit card is just about the only option they want. Some may place a small order for checks as a precaution, but most just want that plastic. It's how they've grown up, with the debit card."

A study was conducted last February by a Federal Reserve employee using variables such as number of items purchased and the number of seconds it took to swipe a card through a scanner, write a check or pay with cash.

In all the methods that were analyzed, cash was still the way to go for quick service.

"Cash transactions have the lowest mean ring time, at approximately 56 seconds, while checks have the highest mean ring time, at approximately 148 seconds. Credit card and debit card transactions have similar mean ring times, at 112 and 101 seconds, respectively," the study said.

Will plastic debit and credit cards replace cash completely sooner or later? Estep says that depends on the consumer.

"Right now, the younger generation wants plastic," he said.

"I mean, 30 years ago, they were telling us that we would have a cashless society, and it still hasn't happened. As more employers go with an electronic form of payroll, you will see more and more of society change to a checkless format.

"Will we ever become paperless when it comes to money? I don't think so, not at least in my lifetime. You may continue to see a decline, but it will be a situation between the practice of business owners and employers versus the consumer. Payroll will drive the next generation away from the paper."

Identity theft and other forms of fraud have increased as debit and credit card use has risen, and banks are working to address these problems, Estep said.

"I think the banking industry makes strides every day to combat identity theft and encrypting code numbers," he said. "The problem is once the system devises a way to protect people, the crooks find a way around the system once more."

Plastic might be preferred, but Estep says there are certain situations where writing a check is still best. They include:

• Any large payment like a car payment or mortgage which uses the signature or the paper check as a receipt.

• Using a check as "a paper trail" for a method of payment for banking institutions or businesses.

• Contributions to churches or other nonprofit organizations so receipts are available for tax time.

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