Emerging Electronic Methods for Making Retail Payments

In modern economies, individuals and businesses can pay for most purchases in a variety of ways. They can use cash, checks, debit cards, credit cards, travelers checks, or money orders. Subject to certain regulatory and reporting restrictions, the parties in the transaction can choose which payment method to use, based on factors such as convenience and cost. Financial intermediaries such as banks and credit card companies are interested in introducing small- dollar, or retail, payment methods that are based on sophisticated computer technology. Most large-dollar, or wholesale, payments in the United States, usually denominated in the millions of dollars, are already conducted electronically through either Fed- wire computer network that connects Federal Reserve Banks with more than 11,000 domestic depository institution or a similar private system known as CHIPS Clearing House Interbank Payment System. The new retail payment methods would bring electronic technologies to financial transactions conducted by individuals and smaller, nonfinancial organizations. Financial intermediaries hope to profit from the new products through a combination of fees and interest income.