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Consumer Information

From Seashells to Bytes

Electronic Payments: The Wave of the Future, Here Today

Check Use Slowing but Still Important

Cash Is Still Popular

Consumers' Corner
From Seashells to Bytes

seashells and money imagesFrom using tiny seashells for barter to writing checks to sending data electronically, people have continually devised easier ways to pay for things.

The evolution continues on the nation's payment network, which includes an array of options for exchanging money for goods and services. The system includes any mechanism, from cash to online bill paying, that allows buyers and sellers to transfer value.

Underlying the system is trust and reliability. Use a check, credit card, debit card, or other electronic form of payment, and the payment system makes sure money comes out of, and is put into, the proper financial accounts.

The Federal Reserve manages large parts of the payment system, as do other organizations. Through its processing, the Federal Reserve as the nation's central bank helps to ensure public confidence even as the system continues to evolve.

Technology brings change

The rise of the Internet, along with more secure and robust means of electronically exchanging financial data, has fueled rapid growth in electronic payments. For the first time in the United States, more payments are being made electronically than with paper checks.

Payments made by debit and credit cards and automated clearinghouse (ACH) transactions, such as the direct deposit of paychecks, are among common electronic payments. ACH transactions, which also include many retail purchases and monthly bills paid over the Internet and telephone, are growing about 15 to 20 percent annually and account for billions of transactions each year.

The Fed's role in the payment system

In providing payment services to banks and other depository institutions, the Federal Reserve System has a broad set of responsibilities. Specifically, the Federal Reserve Banks distribute paper money, or currency, and coins to banks; collect and return checks; and facilitate the electronic transfer of funds and government securities, including the processing of ACH payments.

Consumers generally use Fed services indirectly as customers of banks, savings and loan associations, and credit unions. However, the Fed works with consumers directly to help resolve some problems with some types of financial institutions.