ell, it's official: Paper-based payments are on the wane. Not that any payment option ever really goes away, but as more electronic payment options become available, growth in this area has created a marketplace ripe with possibilities.

Indeed, over the last 25 years, according to Dove Consulting, electronic payment methods' share of wallet has grown from 15% to 55% (from 15% in 1979 to 23% in 1995 to 42% in 2000, and most recently reaching 55% in 2003).

Not only are consumers migrating from cash and checks to electronic payment methods, but the rate at which that change is occurring is accelerating.

To put this in perspective for the payments acquiring business, Americans are using debit cards with increasing frequency when making payments at the POS and elsewhere. They also are using prepaid cards (including gift cards) with greater frequency, especially at the POS.

Much of the growing popularity of debit cards has occurred at the expense of checks. Checks today account for 11% of POS transactions, down from 15% in 2003 and 18% in 2001. And checks today are used for fewer than half (49%) of monthly bill payments, down from 60% in 2003 and 72% in 2001.

"Across all payment venues, debit is emerging as the clear winner," Tony Hayes, a Dove Vice President said in discussing the "2005/2006 Study of Consumer Payment Preferences," conducted on behalf of the American Bankers Association (ABA) and several payments groups.

"Debit is now tied with cash for the highest share of consumers' in-store purchases. A third of all consumers report that debit is the payment method they use most frequently in stores," Hayes added.

Deborah Baxley, a partner in IBM Business Consulting, concurs. Based on her research, Baxley estimates that debit card payments, overall, are growing at three times the rate of credit card payments. "Electronic payments of all types are overtaking paper," she said.

The Dove research is the fourth in a series of biennial studies tracking consumer payment habits and preferences. In addition to the ABA, sponsors included MasterCard International, The Clearing House (a bank-owned payments consortium), Citigroup and ACI Worldwide (an EFT software house).

To gather data researchers queried more than 3,000 consumers on their payment preferences and uses.

For the 58 individual payment choices consumers make each month, whether in stores, over the Internet, or while paying bills, consumers choose electronic options more often than not, the study determined.

Cash and checks account for only 45% of consumers' monthly payments, Dove found, down from 49% in 2003 and 57% in 2001.

(The largest amounts of monthly payments, 46, by Dove's reckoning, are made in stores.)

PIN or Signature, Debit Is Best

Not surprisingly, Dove found that debit cards dominate Americans' migration to electronic payments, especially at the retail check out, suggesting that Americans with greater frequency prefer to pay for purchases from available funds, not from lines of credit.

Six years ago, debit cards represented 21% of in-store transactions; today debit's share of in-store purchases stands at 33%, according to Dove. A clear majority of Americans (83%) carry debit cards. And most of those (95%) function as both online (PIN-based) and offline (signature-based) debit cards.

Rewards programs are driving much of the debit card usage growth, and more often than not those programs are tied to offline debit cards.

Among cardholders currently enrolled in a rewards program, 46% said they plan to use offline debit cards more often because of rewards; about one-third as many (16%) said they plan to use online debit cards more often.

Prepaid Card Use Doubles

The biggest percentage change in consumer wallet share has been in prepaid cards, especially gift cards, which now account for 4% of in-store purchases, up from 2% in 2003.

Nearly one in three consumers (32%) report using gift or other prepaid cards for at least one in-store purchase a month, up from 12% in 2003. In addition, 12% of consumers told Dove they plan to use these cards more often over the next two years. As of now, just over one-third of consumers (35%) have neither received nor gifted a prepaid card.

There's plenty of room for growing a prepaid card business. That's good news for acquirers and for the feet on the street, because it indicates that many opportunities still exist to sell merchants on this emerging new card payment option.

Patti Murphy is Contributing Editor of The Green Sheet and President of The Takoma Group. Send an e-mail to her at patti@greensheet.com .