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The Changing Pattern of Payments in the United States

Author(s): Anthony M. Santomero, Federal Reserve Bank of Philadelphia

Date published: Oct 2004

The 2004 Marjolin Lecture was given by Anthony M. Santomero, President of the Federal Reserve Bank of Philadelphia. The title of the lecture was: The Changing Pattern of Payments in the United States. In his opening remarks, the speaker described the differences in the origins and evolution of payment structures between the United States and Europe. Europeans use cash roughly twice as much as do Americans. In Europe, half of all non-cash retail payments are made through a Giro system and only about 15 percent by check. In the United States, it is almost exactly the reverse. Payment cards account for the remainder of retail payments. European central banks encouraged the use of Giro systems. In the United States, the Federal Reserve System in 1913 was mandated to create a national clearing system for checks, and checks have remained the dominant form of non-cash payment. In the early 1970s, the Fed introduced the Automated Clearing House (ACH), but unlike the European Giro, ACH has not developed into the dominant form of electronic payment. It was the credit card that proved most instrumental in moving US payments from paper to electronics. In the 1980s, the debit card arrived. Since its arrival, the growth in usage has been dramatic. The speaker expected retail payments in the U.S. to continue moving away from paper checks toward electronic instruments, including credit cards, debit cards, ACH and emerging vehicles such as prepaid cards. Organizations other than banks will expand their role in the payments system, especially retailers themselves. Keen competition among card providers can be expected.The President concluded the Marjolin Lecture by describing the challenges to the Fed. The central bank is committed to working to improve the reliability and efficiency of the current generation of payment vehicles. At the same time it works to foster innovation and to support the next generation of payments vehicles. The Fed is investing heavily in technologies that enable electronification. It seems that there is an emerging trend for the U.S. payments system and the European model to convergence. The United States and Europe will look more alike, although the two Continents will get there from very different starting points.

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