What's Really New about the New Forms of Retail Payment?

William Roberds
Economic Review, Vol. 82, No. 1, 1997

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Rapid developments in technology have brought about new methods of retail payment—such as remote banking, electronic cash, and debit, stored-value, and smart cards—that were unavailable a decade ago. Some observers believe that these alternative payment methods will differ from traditional methods not only in a technological but also in an economic sense and will alter how consumers and businesses interact.

This article examines the question of whether, from the standpoint of economic theory, there is or will likely be anything new about these new forms of payment. The author describes some of the conflicts of interest that confront all types of payment systems in market economies. He then considers why traditional forms of payment, such as checks and banknotes, represent reasonable solutions to these conflicts of interest and outlines some shortcomings of the traditional forms. The article also analyzes the economic characteristics of the new forms of payment and explains why they differ little and in some cases not at all from more traditional forms. Finally, the author concludes that the same policy issues that apply to the creation of checkable deposits and to the issue of banknotes should apply to the creation of the new forms of liabilities.

March 1997