How the ACH May Have Been the Winner of the Pandemic Payments Sweepstakes

The share of payments claimed by the automated clearing house rose faster in 2020 than the share for cards, while checks dropped markedly. All the while, the share of payments claimed by cards, which had been steadily on the rise for years, flattened out. And while contactless transactions did rise fast, they still account for a very small share of all in-person card payments. All of this is according to the latest payments data released Wednesday by the Federal Reserve Payments Study.

The data, which the Fed gathered quarterly in 2020 for the first time, show a surging ACH, with the Fed estimates indicating the massive, 47-year-old network was the only payment system to increase in 2020 by number of transactions. In part, this came about as the pandemic drove down in-person card transactions, offsetting increases in online activity, the study indicates.

Looking at the three primary payment systems—cards, checks, and ACH—card transactions as a share of all transactions dropped slightly last year, to 74.25%, according to the data. ACH, on the other hand, saw its share climb to 19.24% from 17.87% in 2019. Checks declined to 6.51% from 7.5%, continuing a long-term trend.

The drop in cards’ share, though just 0.39 percentage point, was nonetheless significant, the study says, as it represents the first such decline detected by the Fed since it started making estimates nearly 22 years ago.

Helping to drive the rise in ACH’s share were a number of factors, according to the study, including more payments by both consumers and businesses as well as increasing use of the ACH for settlement of small-value transactions, including those done through mobile devices. At the same time, such traditional transfers as bill payments and payroll deposits grew in number “at a faster rate than in previous years,” according to the study.

As for cards, the pandemic last year “ushered in an unprecedented shift from in-person to remote card payments,” the study says. In-person payments dropped by 11.7 billion, the first decline of any amount in this category seen by the series of Fed studies. Remote transactions—which include e-commerce—grew by 8.7 billion, the biggest such one-year rise observed by the Fed but not enough to offset the plunge in in-person activity.

At the same time, the number of contactless card payments soared fully 172% in 2020 over 2019, reaching 3.7 billion. This performance followed an already impressive rise of 121% in 2019 over 2018. The big increase in 2020 left contactless at 4.63% of all in-person card payments, according to the study, up from 1.7% in 2019 and 0.77% in 2018. As impressive as that is, however, the study cautions that 4% remains a relatively small number.

Payments from digital wallets also enjoyed a boost in 2020, accounting for 2.6% of all credit and non-prepaid card transactions. That was up from 0.50% in 2017, but the rate of increase was much faster in 2020, suggesting, the study says, that “the pandemic may have resulted in account holders making more digital wallet payments than they would have otherwise.”