CHICAGO — Several important public and private players in the payments industry are trying to accelerate the transition to electronic processing.
A number of the players discussed their plans at a two-day conference last week entitled "Competitive Forces Shaping the Payments Environment: What's Next?" and sponsored by the Federal Reserve Bank of Chicago. The topics included the continuing replacement of checks by images or image replacement documents; contactless systems integrated into mobile devices; and the worldwide transmission of remittances by immigrants to family members. Related Link
Gov. Randall S. Kroszner of the Federal Reserve Board, said that the central bank is using a variety of incentives to promote the movement away from paper checks toward electronic alternatives, both in image processing and in the use of the automated clearing house system.
"The Reserve banks are now pricing their check services to encourage greater use of electronic check clearing," Gov. Kroszner said in a keynote address to open the conference, noting that in the last nine months of last year the Fed's delivery of IRDs tripled, and of the delivery of images surged fivefold.
Pricing is one of several levers that the Fed has used to encourage the industry to embrace imaging. In February the central bank disclosed plans to stop offering its traditional Payor Bank Services through paper channels by 2010 and to offer the service only through image-based systems. The Fed also has consolidated its check-processing operations substantially. In 2003 it operated 45 processing centers around the country, but by the time the current round of closings is complete by mid-2008, it will have 18.
Gov. Kroszner said that the Fed has acknowledged the shifting landscape by adjusting its liability rules under Regulation CC, but he would not discuss the possibility of payment alternatives, such as cards, replacing checks altogether.
"That's something for the users of the system to decide. I don't know which way the technology will evolve," he said. "For the foreseeable future, I see a lot of different approaches."
Frank G. D'Angelo, the president and chief operating officer of Metavante Corp.'s payments group, said that credit and debit cards would increasingly supplant checks and even cash, though a $100 bill still enjoys universal acceptance around the world.
Still, "cards account for over half of all U.S. payments, up from 29% a decade ago," he said, and Metavante, which Marshall & Ilsley Corp. of Milwaukee is spinning off, is pursuing a variety of electronic initiatives, such as a joint venture with Monitise Ltd., a London division of the information technology consulting company Morse PLC, to establish a mobile banking and payments system that would use Metavante's NYCE debit network to process transactions.
Mr. D'Angelo predicted it would be three to five years before mobile payments are used widely in the United States, because contactless readers are not yet in wide use, and because the developers of cell phones and other mobile devices have just begun experimenting with ways to integrate payment mechanisms.
Spencer White, the director of mobile financial services at AT&T Corp., said it has been conducting a contactless payment trial in New York with several companies, including Citigroup Inc. and MasterCard Inc., with a goal of "refining the user experience" for using near-field communications chips in handsets.
Mr. White would not discuss the test's results, except to say that the participants are analyzing the findings, and that "contactless is going to be hot over the next several years."
Sujit Chakravorti, a senior economist at the Chicago Fed and a key organizer of the conference, said that accelerated payment systems such as contactless cards would mean not only more convenience for consumers, but also potentially higher sales for merchants by moving customers through their checkout lines at a faster pace.
"If merchants accept debit cards, they have to make less change," Mr. Chakravorti said.
But he also said the shift is likely to depend on the development of networks to expedite the transactions.
Whether sending money to family members at home or rushing through the line at a quick-service restaurant, "it's a question of connectivity," Mr. Chakravorti said. "It doesn't do any good to go to a merchant with an NFC card if he doesn't know how to accept it."
