Why are (some) consumers (finally) writing fewer checks? The role of payment characteristics

Since the mid-1990s, the U.S. payment system has been undergoing a transformation featuring a significant decline in the use of paper checks that has been quite uneven across consumers and not well understood. This paper estimates econometric models of consumers' adoption (extensive margin) and use (intensive margin) of checks plus six other common U.S. payment instruments, using a comprehensive new data source on consumer payment choice. We find that payment characteristics are the most important determinants of payment instrument use. Plausible changes in the relative convenience and cost of checks can explain directly about 25 and 14 percent, respectively, of the 8.4 percentage point decline in check use from 2003 to 2006. Changes in the relative characteristics of substitute payment instruments contributed indirectly to the decline in check use. The largest part of the decline in check use (33 percent) occurred via an increase in the number of payment instruments per consumer, which likely was influenced by payment characteristics as well, but this indirect effect cannot be identified with available data.