Many of the sweeping changes experienced during the pandemic have been explained as accelerations of preexisting trends, from millions more people working at home to similar numbers embracing online grocery shopping. Add electronic payments to that list, as the volume of digital pay and transfers made record gains in what has until now been a slow, but steady process of replacing older forms of payment.
The broadest measures of electronic payments saw rapid but not breakneck growth during 2020. Payments increased by 8.2%, for a total of 26.8 billion transactions, according to Nacha, which governs the payment system (the ACH Network) enabling direct deposit and direct payments for all U.S. bank and credit union accounts. Likewise, the total value of ACH payments rose strongly by 10.8% from 2019, to $61.9 trillion.
Direct deposits of worker paychecks also increased by 12% to more than 8 billion transactions. The number of consumer bill payments, account transfers and similar transactions initiated over the internet rose a similarly strong 15%.
Some narrower measures of digital payment activity showed that the year was highly out of the ordinary, however. For instance, direct person-to-person payments and transfers rose 42%, to 218 million transactions.
One of the biggest percentage increases reported was in same-day ACH payments, which were up 86% to $460 billion. This is in part due to the March 2020 increase to $100,000 in the maximum amount allowed for same-day ACH transactions, Nacha reported.
However, the sharp increase in dollar volume of same day ACH payments wasn’t entirely due to the ability to handle larger amounts per transaction. The number of same-day ACH payments rose as well, to 347 million, a 39% increase.
And, whatever happens with the pandemic in 2021, the popularity of same-day ACH transactions is likely to increase further. That’s because on March 19, 2021, the ACH Network will extend the hours during which same-day ACH payments can be submitted. This means banks and credit unions will have expanded ability to give same-day access to fund payments transmitted via the network.
Digital payment breakdown
The nearly 27 billion electronic payments handled by the ACH Network were made up of 15.2 billion debits and 11.6 billion credits. The breakdown based on the almost $62 billion in dollar value went the other way, with $40.2 trillion in credits outweighing $21.7 trillion in credits.
The volume and value of electronic payments has been increasing strongly for years. For the last six years, the number of payments has grown by at least a billion annually, Nacha said. The value of payments handled by the network has increased by at least $1 trillion every year for the last eight years.
Further breakdowns of the data show 4.4 billion business-to-business transactions, a 10.7% increase. The volume of health care transactions was up just 5.4% to 361.6 million.
Digital in, paper out
Just as digital transactions swelled, paper-based transactions shriveled. The number of ACH payments performed with a traditional paper check fell by 21%. As of now, according to Nacha, less than 4% of all ACH payments are initiated with paper checks.
The replacement of paper checks with digital transfers began more than 50 years ago when banks began exploring better ways to handle the huge and growing volume of paper checks. Beginning in the 1970s, employers increasingly began using direct deposit to pay employees.
Progress toward paperless payments has been steady ever since, according to a history of direct deposit on Nacha’s site. Twenty years ago, banks started electronically canceling checks, replacing the venerable rubber stamp. Starting in 2001, people were able to pay via ACH electronically using the telephone and the internet with no paper involved. Same-day ACH was inaugurated in 2016.
Today, few people ever see canceled checks. And now 93% of American workers and 99% of Social Security recipients are paid via deposits directly into their bank or credit union accounts, according to Nacha.