Atlanta Fed Official Discusses Payment System Changes
Rapid changes in the payment system have become a worldwide phenomenon. In July, Atlanta Fed First Vice President Pat Barron discussed the globally evolving payment system at a conference in Santiago, Chile, hosted by the Chilean Superintendent of Banks and Financial Institutions and the Central Bank of Chile.
Barron began by pointing out that an interconnected payment system can transmit financial risks across institutions and markets. Central banks can limit such contagion by promoting safe and efficient payment systems, he said, citing a report by the Committee on Payment and Settlement Systems of the Bank for International Settlements.
Reckoning with market forces
Central bankers must adjust to market forces, he said, noting the Fed’s efforts to respond to the 5 percent annual decline of U.S. check volume. For example, he cited the Fed’s role in developing the legislation known as Check 21, which reduces the number of paper checks shuttled through the payment system. While Check 21 may not address all the logistical issues in check clearing, Barron predicted that by 2008 about half of all U.S. financial institutions will have the capability to send and receive checks electronically via mechanisms established by Check 21.
Barron is pleased with the progress of the Fed’s automated clearinghouse (ACH). ACH volume, he noted, increased about 17 percent in 2004 and today accounts for more than 11 percent of all noncash payments, totaling annually more than 9 billion transactions worth some $22 trillion.
The challenges of keeping pace with technology
While the Fed has made progress in meeting customer needs, challenges remain, notably information security and antiquated, complicated retail payments laws. “Both technical innovation and the role of nonbank participants in U.S. retail payments systems have evolved much more quickly than the law has changed,” Barron said.
“I believe the most hazardous course is to stand still and expect tomorrow to be the same as yesterday,” he added. “We cannot ignore the future of payments, which is already unfolding in Korea, Finland, and other places, where people often use mobile phones to make purchases. There’s every reason to believe wireless and many other new and convenient transaction methods will take root in the United States, Chile, and elsewhere.”