The Retail Payments Office

Photo of cell phone with globe representing mobile payments

Amid the long recovery, the Federal Reserve's Atlanta-based Retail Payments Office, or RPO, continued to refine a key component of the nation's financial infrastructure: national retail payments services, the system through which consumers and businesses pay for goods and services.

The RPO handles billions of dollars in transactions every day. Those transactions pass through Fed networks, such as the automated clearinghouse (ACH), which processes online bill payments, direct paycheck deposits, mortgage payments, and other consumer and business transactions. The RPO also processes a large number of check payments deposited at the Fed by financial institutions across the United States.

While the RPO does not process all retail payments—it does not handle credit and debit cards—its suite of payments services is extensive enough to make the Fed an important and influential player in the industry. The RPO undertook a multi-year initiative to enhance the speed and efficiency of check clearing by converting paper checks into electronic images. In addition to helping to make the nation's overall payments system more efficient, that effort has allowed the RPO itself to operate with significantly fewer personnel and to largely stop transporting paper checks across the country. Since November 2003, the RPO has reduced the number of Federal Reserve check processing sites nationwide from 45 to one in response to the rapid slide in paper check writing and the accompanying rise in electronic payments.

In 2010 alone, the RPO's costs plummeted 36 percent from the previous year, to $270.5 million. As the RPO's costs have fallen, it has in turn lowered fees to its customers, mainly financial institutions. The RPO structured these prices to encourage customers to use electronic methods of processing payments.

Importantly, the RPO also serves as a knowledge center. Every three years, the RPO conducts the only comprehensive, ongoing study of the fluid payments industry. The study is one of the primary tools the RPO uses to track the industry. Released in December 2010, summary findings of the RPO's most recent study showed that Americans increasingly prefer electronic payments methods, including debit cards, credit cards, prepaid cards, online payments, and ACH transactions. Electronic payments accounted for more than three-quarters of noncash payments in 2009, the biggest portion ever. Meanwhile, the share paid by check kept falling, from a third in 2006 to less than a quarter in 2009. In particular, during the three years covered by the study, debit cards surpassed checks to become the single most popular noncash retail payments option, representing about 35 percent of payments made with a method other than cash.

New technology also means more fraud

As technological advances create new methods of payment, they likewise open new channels for fraud and crime. To help identify and mitigate these emerging risks, in 2008, the Retail Payments Risk Forum grew out of the RPO. The Forum addresses challenges faced by the payments industry, bank regulators, and law enforcement in managing retail payments risks and enhances collaboration among these parties to detect and mitigate fraud.

To that end, the Forum convenes conferences, conducts research, serves on industry workgroups, and disseminates information through channels including a blog, podcasts, and white papers. Forum research has helped to illuminate truths about the risks of America's traditional plastic. To wit, the magnetic stripe debit and credit cards that predominate in America are far more vulnerable to fraud than are the chip-implanted cards rapidly being adopted in many other countries.

The Forum's role as convener has proven particularly valuable in a fragmented industry. For example, the Forum fostered collaboration between financial institutions and law enforcement agencies that produced a set of tools the financial industry will use to better report fraud and thus help in criminal investigations.

Significant in 2010 was the Forum's partnership with the payments research group at the Boston Fed to establish the Mobile Industry Work Group. The group is the first initiative that convenes all participants in the burgeoning mobile payments industry—from banks to telecommunications firms to card networks to handset makers—to examine common concerns and to advance the adoption of mobile payments in the United States.

In 2010 alone, the RPO's costs plummeted 36 percent from the previous year, to $270.5 million. As the RPO's costs have fallen, it has in turn lowered fees to its customers, mainly financial institutions.