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In recent years, financial crimes and large scale heists involving the banking sector have significantly increased. Banks and Financial Institutions form the economic and commercial backbone of a country. An essential function of banks is the transfer of funds domestically or internationally. Most banks today transfer money by using electronic fund transfer systems such as the Automated Clearing House (ACH) or messaging systems such as SWIFT, FedWire, Ripple, etc. However, vulnerabilities in the use of such systems expose banks to digital heists. For example, the 2016 heist in the central bank of Bangladesh used the SWIFT network to send fake messages. It almost resulted in the theft of nearly $1 billion, which is one-sixth of the total foreign currency reserve of Bangladesh. Similar attacks have happened in many other countries as well. In this paper, we discussed multiple such incidents. From those incidents, we systematically analyze two such events – the Bangladesh Bank heist and the DNS takeover of Brazilian banks – to understand the nature and characteristics of such attacks. Through our analysis, we identify common and critical security flaws in the current banking and messaging infrastructures and develop the desired security properties of an electronic funds transfer system.

Korean small and medium sized software companies have tried to export their solutions or services to overseas markets. In 2016, exports of the...

The Pantawid Pamilyang Pilipino Program (Pantawid Pamilya) has rapidly expanded to become the largest social protection and human development program in the Philippines. Over the last decade, the evolution of the Pantawid Pamilya was not only about its size and coverage, but also related to the program design and the quality of implementation. Payment is one of key elements which improved over time; however, severe challenges that hamper their efficiency remain unaddressed. For instance, the 4Ps has not taken full advantage of the existing payment system in the Philippines yet. The Pantawid Pamilya has great potential to increase the use of electronic payments, which significantly saves time and removes paperbased documentation. Thus, this note recommends the Government of the Philippines to develop a strategic payment reform agenda, under which 4Ps should allow beneficiaries to receive payments at any transaction account of their choice. In parallel, it is key to revisit business processes and invest in the management information system to reduce manual transactions to achieve more efficient payment. Beyond efficiency, the Pantawid Pamilya program can also strategically leverage different financial modalities/service providers to promote the financial inclusion agenda for beneficiaries. While service providers currently see the Pantawid Pamilya payout as a goodwill rather than a business opportunity, there is great potential for beneficiaries to become the customers of their products and services with a mainstream account.

In his budget speech, the Finance Minister, stated that the year, 2011-12 would be a transition towards a more transparent and result oriented economic management system in India. The Government would take major steps in placing the administrative procedures concerning taxation, trade and tariffs and social transfers on electronic interface, free of discretion and bureaucratic delays. In furtherance of these objectives and in compliance with the provisions of the IT Act, along with other related laws and recommendations made by the Reserve Bank of India (RBI), the Public Finance Management System (PFMS) established itself as a safe, secure, efficient and robust payment platform for the Government of India (GoI). The system enabled the successful delivery of payment services from Government Treasuries and Program Implementing Agencies (PIA) into beneficiaries' accounts with the capability that the executive, legislature, internal and external audit, and the citizen access all financial transactions pertaining to government expenditures. The system has expedited direct payments from paying units to citizens, government employees, contractors and other entities receiving payments, in facilitating paperless transaction in a secure environment, reducing overall cost and promoting green banking. The digitally signed e-pay orders are processed by the accredited banks to credit the beneficiary accounts through a bouquet of electronic payment instruments viz. ICBS (Intra Core Banking Solution) / NEFT (National Electronic Fund Transfer) / RTGS (Real Time Gross Settlement), AEPS (Aadhaar Enabled Payment System), NACH (National Automated Clearing House), etc. The Ministry of Finance has taken a big leap forward, with PFMS poised to develop as one of the largest financial management systems in the world, which would be critical in bringing about transformational accountability and transparency in financial management, promoting good governance.

This study determined the extent to which TSA can block financial leakages in public funds management. The study adopted judgemental method of sampling to select forty workers from a total population of one hundred and fifty eight staff of the Federal Polytechnic, Federal Pay Office, Corporate Affairs Commission and Nigeria Security and Civil Defence Corps Ado Ekiti, Ekiti State Nigeria. Descriptive statistics of percentages, average and standard deviation were used to analyze the respondents’ opinions to the questionnaire. Reactions were allocated weights of 0 to 4 on Likert scale according to the degree of disagreement/agreement with each statement. An overall average mean score of 2.60 indicate that respondents agree that TSA block financial leakages in public fund management. Regression analysis result confirmed that TSA is significant in financial leakage blockages (t value =28.04, p = 0.00), thus indicating the effectiveness of TSA policy operations in blocking financial leakages in public funds management in Nigeria. It was recommended that central bank should improve on the statements of accounts dispatch to real time gross settlement systems and automated clearing house (ACH) to avail them of all transactions details using automated processes on a daily basis. Government should improve on central bank oversight functions on payment and settlement by using automated processes and promote education and training of staff on TSA operations to avert sabotage of the policy.

This paper is about the potential understanding of the development of Information and Communication Technology in Tanzania, e-payment (electronic cheque) respectively. Further, the paper assesses the development of cheque system (origin, meaning, and forms of cheque) from traditional means to modern means that is electronic cheque system and the law governing it. The most important part of the paper is on the analysis of the laws dealing with electronic cheque and the admissibility of an electronic cheque system in Tanzania, particularly on how these new laws (the Electronic Transactions Act No.13 of 2015, the National Payment Systems Act NO.4 of 2015, Cyber Crime Act, No.14 of 2015, the Tanzania Automated Clearing House Rules and other related laws) which have provided for the same. The questions guiding this paper are, whether the electronic cheque system in Tanzania is protected by the law, whether the law has provided for the conditions for electronic cheque, whether we have electronic clearing house and system and whether electronic cheque can be admissible before the court of law as evidence in both civil and criminal action. As the fact that electronic cheque is discussed, then we cannot escape a briefly details on electronic evidence, as electronic cheque may form part and parcel of electronic evidence when required to be so.

One-tenth of the world’s ever-growing internet population shops online, representing a staggering 627 million people. As more organization adopts e-payment methods, changes in the market-place for business-to-business (B2B) payments increasingly demand executives’ attention. Businesses are beginning to realize they must add new payment options to a process still dominated by paper checks, wire transfers, and automated clearinghouse (ACH) transactions. Extreme programming and other emerging agile methods represent an important new direction in software engineering and development. This paper explores the integration of both usage-centred engineering and extreme programming for epayment model using open network system. This paper describes the development of a B2B E-payment system using Use-Case modelling techniques as well as, ESignatures and XML. We propose an open network system which can adapt to users changing needs as well as allowing effective and secured transaction via any customers’ bank account.

In the recent years payment systems in Europe are evolved to a new scenario where transactions and retail payments take place according to the SEPA (Single Euro Payments Area) Regulation. SEPA is an initiative of the European banking industry aiming at making all electronic payments across the Euro area -- e.g. by credit card, debit card, bank transfer or direct debit -- as easy as domestic payments currently are. One of the payment schemes defined by the SEPA mandate is the SEPA Direct Debit (SDD) that allows a creditor (biller) to collect funds from a debtor's (payer's) account, provided that a signed mandate has been granted by the payer to the biller. Thanks to SDD consumers can make and receive no-cash euro payments with a single set of instructions and a single bank account. It is apparent that the use of this standard scheme facilitates the access to new markets by enterprises and public administrations and allows for a substantial cost reduction. However, the other side of the coin is represented by the security issues concerning this type of electronic payments. A study conducted by Center of Economics and Business Research (CEBR) of Britain, on behalf of Liverpool Insurance Company, showed that from 2006 to 2010 the Direct Debit frauds have increased of 288%. In this paper a comprehensive analysis of real SDD data provided by the EU FP7 LeanBigData project is performed in order to identify and classify emerging and sophisticated attack patterns that can be executed against an SDD service. The results of this data analysis will be used to inspire the design of a security system supporting analysts to detect Direct Debit frauds.

The United States payment system costs around $225 billion annually and checks account for 75% of all noncash payments. Other electronic payment methods (debit cards, automated clearing house direct deposits, and debits) cost only around one third to one half as much as a check. This paper outlines the main reasons why the shift from checks to cheaper electronic payments has been slow, much slower here than in other countries. We also forecast the future use of checks and electronic payments and end by discussing policy initiatives that may speed up this substitution process.

We analyzed the consumer’s payment option to use debit, general purpose credit cards, gasoline credit cards, or cash. Based on the results from a nested multinomial logit model, we found consumers are more likely to use cash when they have less education, lower incomes, are middle-aged, and own fewer credit cards. Debit and credit card users are younger, more educated, and hold more credit cards. Respondents who use their debit card are less likely to use their gasoline credit card. The results suggest that greater debit card usage will place the greatest competitive pressure on the gasoline credit card program.

The importance of securing a payment transaction is immeasurable for Voca, an automated clearing house, which processed £3 trillion transactions in 2004, alone. 1 Voca is employed by BACS Payment Schemes Limited, which provides secure transaction services to process its Direct Debit and Direct Credit payments in the UK. BACs processes over 60 million Direct Debit and Direct credit payments on a peak day. 2 Voca is also employed by BACs to manage the migration to BACSTEL-IP. BACSTEL IP is a a technology renewal programme using PKI and IP to update the payment processes for wages.

The David Hume quotation at the beginning of this paper advises us that payment systems determine, as much as any other market institution, how smoothly an economy operates. However, unlike the other papers presented at this conference, it is not Hume's "oil" that interests Bauer and Ferrier, but rather how well the machines of payments processing are themselves lubricated. The authors estimate cost functions for each of the three payment services produced and sold by Federal Reserve Banks check processing, automated clearing house services (ACH), and wire transfers (the Fedwire). Based on the parameters of these cost functions, the authors construct measures of scale economies, cost efficiency, and technological progress. Their results lead them to three fundamental conclusions: (a) significant scale economies suggest that the production of ACH and Fedwire services should be consolidated into fewer sites within the Federal Reserve system; (b) ACH and Fedwire processing sites have reduced costs over time by exploiting technological advances; and (c) divergent expense levels at individual Federal Reserve check-processing, ACH, and wire transfer sites may indicate inefficient operations at these sites.

Efficient and secure processing of funds transfers has become a key factor for the liberalization of international financial markets. Two elements are important in the processing of large value funds transfers namely clearing and settlement. The Clearing House (TCH) was established as early as in 1853 to facilitate payments. Clearing House Interbank Payments System (CHIPS) began to operate in 1970 as an arrangement of eight banks, all members of the New York Clearing House Association. CHIPS started its operations as a department of the TCH. Currently, TCH is owned by 22 financial institutions which represent about 60 percent of US Deposits. CHIPS is based on standardization and finality by providing real-time payments. Participating institutions are required to provide daily pre-funding for their balances based on the average during the prior six weeks. Keywords: Clearing House Interbank Payments System (CHIPS); international financial markets; The Clearing House (TCH)

Treasury management involves various activities that focus on working capital, particularly cash. The cash-flow timeline displays the collections and disbursements of a company, allowing treasury to manage inflow and outflow activities. Collection activities involve Fedwire, ACH, purchasing cards, and checks, managed both through lockbox and conversion to electronic funds transfer. The objective is to optimize mail, processing and availability float Concentration systems are-used to mobilize funds in collection accounts and to fund disbursement accounts. Disbursement techniques include controlled disbursing as supported by positive pay and reconciliation, and comprehensive payables. Keywords: treasury management; float; availability; earnings credit rate allowances; sweeps; account analysis; Fedwire; Automated Clearinghouse (ACH); checks; lockboxes; controlled disbursement; positive pay; reconciliation; comprehensive payables

Survey data collected for the Federal Reserve in 2007 show a continuation of significant changes in the way consumers and businesses make payments. Data previously published by the Federal Reserve show that in 2003 the number of electronic payments in the United States (made mostly through debit and credit card networks and the automated clearinghouse system) exceeded the number of check payments for the first time.1 The recent data indicate that by 2006 the number of electronic payments was more than twice the number of check payments, or about two-thirds of all noncash payments (table 1, chart 1). The value of electronic payments has also grown substantially, but in 2006 they still accounted for less than half the value of noncash payments (45 percent).2 The use of checks has been declining since the mid-1990s, generally because check payments—and most likely some cash payments—are being replaced by payments made with electronic instruments. The latest data show a continuation of this trend. Consumers in particular are paying electronically much more often than in the past, with most of the increase between 2003 and 2006 due to a rapid rise in the number of debit card payments of relatively low value (on average, $39). Consumers’ checks are also increasingly being ‘‘converted’’ into electronic payments made via the automated clearinghouse (ACH) system.3 In 2006, about 8 percent of all checks written were converted to ACH payments, compared with fewer than 1 percent in 2003. The interbank check-clearing system itself is also rapidly becoming more electronic, as original paper checks are increasingly being ‘‘truncated’’ and replaced with electronic images during the checkclearing process.4 The apparent catalyst for the dramatic change in check clearing was passage of the Check Clearing for the 21st Century Act (Check 21). Signed into law in October 2003 and taking effect in October 2004, Check 21 allows a collecting bank to present a legally equivalent paper copy of an original check—called a ‘‘substitute check’’—if the paying bank requires a check to be presented for payment in paper form.5 In early 2007, an estimated 57 percent of all interbank checks in the United States were presented in original paper form and about 43 percent were truncated and ultimately presented to the paying bank either electronically or as a substitute check. Of the portion that were truncated, 66 percent were presented electronically. The number of checks presented electronically in 2007 was approximately three times the number presented electronically just one year earlier. More recent data on the portion of interbank checks presented by the Federal Reserve Banks indicate that dramatic changes have continued since the 2007 surveys. Data for June 2008, for example, indicate that about 53 percent of checks NOTE: Darrel W. Parke and May X. Liu, of the Board’s Division of Research and Statistics, provided valuable assistance with survey design, sampling, and production of the statistical estimates. 1. Previous reports include Geoffrey R. Gerdes, Jack K. Walton II, May X. Liu, and Darrel W. Parke (2005), ‘‘Trends in the Use of Payment Instruments in the United States,’’ Federal Reserve Bulletin, vol. 91 (Spring), pp. 180–201, www.federalreserve.gov/pubs/bulletin/ 2005/spring05_payment.pdf; and Geoffrey R. Gerdes and Jack K. Walton II (2002), ‘‘The Use of Checks and Other Noncash Payment Instruments in the United States,’’ Federal Reserve Bulletin, vol. 88 (August), pp. 360–74, www.federalreserve.gov/pubs/bulletin/2002/ 0802_2nd.pdf. 2. Payments transmitted over large-value funds transfer systems (such as Fedwire, operated by the Federal Reserve, and the Clearing House Interbank Payments System, or CHIPS, operated by the Clearing House Payments Company), sometimes called wholesale payments, are outside the scope of this article. These systems are used primarily for large monetary and financial transactions, such as overnight loans between depository institutions. Including such transactions in the calculations reported in this article would not meaningfully affect the total number of payments but would dramatically increase the value. An unknown number of transactions of other types are made over these systems by consumers and businesses. 3. Most check conversions take place at ‘‘lockboxes’’ to which bill payments are mailed; a small proportion take place at retail establishments when checks are tendered at the point of sale. Consumers whose checks are going to be converted are permitted to ‘‘opt out.’’ Under the rules of the National Automated Clearinghouse Association (NACHA), corporate and business-format checks are not eligible for conversion to ACH payments. 4. Interbank checks are checks that pass between depository institutions. 5. Before Check 21, paying banks’ requirement that the original check be presented was a major barrier to the widespread use of electronic check-clearing technology. The option of providing a substitute check gives depository institutions and their agents the freedom to use electronic check-processing methods for most or all of a check’s journey to the paying bank, as the substitute check is needed only at the end of the process if the paying bank requires paper. A75

Payments are an integral part of a modern market economy as most transactions involve the use of cash, checks or electronic transfers. Commercial banks and the central bank provide in a symbiotic relationship the infrastructure through which payments flow. An efficient payment system is a prerequisite for a wellfunctioning economy. Historically, central banks have played an active role in the payment system. They continue to do so both as a provider of payment services and as an overseer of private sector systems. The extent to which the central bank is involved in the payment system varies from country to country. Most central banks at least provide the medium to settle small payments, i.e. cash. In addition, central banks tend to support an interbank payment system that settles large, time-critical wholesale payments. Many central banks, such as the Federal Reserve, also process retail payments including checks and Automated Clearing House (ACH) transfers. However, central banks tend not to issue debit cards or credit cards.

On March 20, 2007, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop led by Stan Paur, chairman of PULSE EFT Association LP, a Discover Financial Services LLC company, and Tony Hayes, vice president of Dove Consulting, a division of Hitachi Consulting. Paur and Hayes shared findings from PULSE's 2007 Debit Issuer Study, conducted by Dove Consulting with 55 debit card issuers of varying sizes. In examining developments in the debit card market, Hayes and Paur shared survey results and provided additional insights into four key areas: performance metrics, networks and interchange, debit rewards, and debit card fraud. This paper describes trends and issues affecting the debit card market in each of these four areas, in an effort to expand understanding of this dynamic and increasingly important category of consumer payments.

In 2003, for the first time, the number of electronic payments in the United States exceeded the number of check payments--a result of substantial growth in electronic payments (especially by debit card) and a decline in check payments. The shift toward electronic payments suggests that, as with other large economies, many payments formerly made by check are now being made with electronic payment instruments. As in past years, however, the value of checks far exceeded the value of commonly used electronic payments. ; Comparisons among groups of depository institutions of different types and sizes suggest that the distribution of payments of different types is linked in part to the types of customers those institutions tend to serve. For example, at credit unions, which generally serve individuals rather than businesses, checks accounted for a smaller proportion of account debits, and debit card payments and ATM withdrawals accounted for a larger proportion, than at institutions of other types. ; Overall, "on us" check payments, those for which the payer and payee used the same institution, declined slightly. The rate at which checks are returned also declined, while the rate of returned ACH payments--almost twice that of checks--increased, in part because of new types of ACH payments, including ACH transactions initiated with a check. ; Data gathered in 2004 also reveal some differences among geographic regions. Debit card use was substantially greater, and check use substantially lower, in the West than in other regions. In contrast, debit card use was considerably less common in the Northeast, and the decline in check payments since 2000 was less pronounced in that region. ; Indirect evidence--data on ATM withdrawals and cash back from debit card payments--suggests that cash remains a popular means of making payments. Industry data showing increases in ATMs and ATM transactions appear to reflect a shift toward greater use of ATMs and less use of checks to obtain cash, and do not necessarily indicate an increase in the use of cash.

The Check Clearing for the 21st Century Act (the "Check 21 Act") was introduced to Congress by the Federal Reserve System, enacted by Congress, signed by the President, and became effective on October 28, 2004. The Check 21 Act reinforces the traditional checking system, while making some modest changes to the methods of check clearing. Mainly, the Check 21 Act introduces the concept of the "substitute check," which could make the check clearing process somewhat faster and cheaper, assuming the Act is widely adopted by the U.S. banking system. A substitute check is a digitized image of an original paper check with a similar size and an image of the front and back of the original check. The front of a substitute check states: "This is a legal copy of your check. You can use it the same way you would use the original check." The substitute check can be used as proof of payment just like the original check. If a bank elects to operate under the procedures of the Check 21 Act, a customer must accept the new check clearing system; there is no element of customer choice involved. The substitute check will, however, diminish, and in some cases, entirely eliminate, security features, which banks and law enforcement have developed in order to detect fraudulent check activities such as variations in paper quality, original signatures and fingerprints. The Check 21 Act leaves essentially intact the other basic laws governing payment by check - Articles 3 and 4 of the Uniform Commercial Code (UCC) as well as Federal Reserve Regulations J and CC (with the exception of some appropriate modifications to Regulation CC). The Act does not have an effect upon the many electronic payment devices in wide use, including credit and debit cards, Automated Clearing House payments and more. Prior to enactment of the Check 21 Act, the legal system allowed banks to agree among themselves and with their customers to vary the check clearing system almost as they wished. Banks did not, however, adopt an electronic approach to the handling of paper checks because of the virtual impossibility of getting sufficient agreement. Around 2000, for the first time since their use in commerce, the number and volume of check transactions had begun to decline in favor of electronic payment instruments. The Federal Reserve might have used its great prestige and authority to anoint the ongoing process of electronic payments and thereby speed modernization of the payment systems. On the contrary, the Federal Reserve did not take this direction but rather blessed the cumbersome, slow, expensive checking system. The Check 21 Act could have some effect on U.S. payment systems only if it is actually put into broad use by the banks. Although the Act and its substitute check system became effective on October 28, 2004, there is little sign of the system being widely implemented. Little investment has been made in the expensive check image exchange and truncation equipment that will be required to implement the Act. Almost no education has been given by banks to their customer base to apprise them of what may be in store. As result, most bank customers have never heard of the Act or of its substitute checks. Some bankers are not even convinced that the substitute check system will be an improvement on the existing check clearing system and point out the ambiguities and unanswered questions embedded in the Check 21 Act. Ultimately, the Check 21 Act is a step in the wrong direction in the evolution of the U.S. payments system. The Federal Reserve should have allowed the antiquated checking system to continue to phase out of use. Additionally, the Fed should concentrate on developing an innovative electronic payments system and facilitate its use by consumers and businesses.

Declining paper check usage, growing reliance on credit cards, and the rapid expansion of debit cards are all well-known aspects of the rise of electronic payments, but less focus has been placed on automated clearing house (ACH) transactions. This Policy Analysis Paper describes the changing ACH landscape, and considers the degree to which this growth and change have heightened one risk issue in particular: the susceptibility of ACH payments to fraud. The paper begins by summarizing overall trends in ACH payments and factors underlying the growing demand. This description of the ACH landscape also focuses on the emergence and rapid recent growth of a new set of ACH debit transactions, referred to as “e-checks” that, unlike traditional ACH debits, do not rely on established customer-originator relationships.

This chapter summarizes the basic concepts and developments in domestic and international EFT systems prior to the advent of the Internet, before examining new requirements dictated by E-commerce. It then summarizes security developments, with particular emphasis on the new trust schemes that are viewed as indispensable for the development of E-commerce. Developments in EBPP and e-EFT are then described for the retail (B2C, P2P) and wholesale (B2B) sectors, examining potential disintermediation threats to the banking system. The article concludes with the authors' views on opportunities for financial institutions, and future perspectives. Keywords: automated clearing house (ACH); business-to-business e-commerce; electronic data interchange (EDI); payment; payment system

Debit cards are overtaking credit cards as the most prevalent form of electronic payment at the point of sale, yet the determinants of a ubiquitous consumer choice - debit or credit? - have received relatively little scrutiny. Several stylized facts suggest that debit-card use is driven by behavioral factors. The popular view is that debit-card use presents a puzzle for canonical economic models. However, we should not overlook standard cost-based motives for using debit cards. Principally, the 50 percent of debit-card users who revolve credit-card balances would pay interest to charge purchases on the margin and hence might rationally choose to use debit rather than credit to minimize transaction costs. Debit-card use might also be rational for consumers lacking access to a credit card or facing a binding credit limit. I document robust effects of these types of credit-card use on debit use and show that such effects are consistent with a canonical model of consumer choice. This paper also shows, however, that it is difficult to distinguish sharply between canonical and behavioral motives for debit-card use in publicly available data. More generally, I develop analytical frameworks for testing competing canonical and behavioral models and find evidence consistent with important roles for both pecuniary and psychological motives.

In the past decade, the U.S. economy has witnessed a tremendous surge in the usage of electronic payment processing services and an increased importance of the firms that provide these services. The payments industry has also undergone changes in cost structure with the introduction of new technology. Unfortunately, data on the private provision of payment processing services are not available. However, the Federal Reserve provides similar services and collects data on its own provision of payments processing, offering an opportunity to gain insights into the cost structure of payments processing. In this paper, we estimate the scope and scale economies and the technical change in the Federal Reserve's provision of payments processing from 1990-2000. We find considerable scale economies and evidence of some scope economies for the provision of automated clearinghouse, Fedwire, and book-entry services no matter whether we specify a separable quadratic or a translog cost function. In addition, we find that disembodied technical change also contributed to the overall reduction in costs throughout the 1990s.

We seek to determine the causes and magnitudes of network externalities for the automated clearinghouse (ACH) electronic payments system. We construct an equilibrium model of customer and bank adoption of ACH. We structurally estimate the parameters of the model using an indirect inference procedure and panel data. The parameters are identified from exogenous variation in the adoption decisions of banks based outside the network and other factors. We find that most of the impediment to ACH adoption is from large customer fixed costs of adoption. Policies to provide moderate subsidies to customers and larger subsidies to banks for ACH adoption could increase welfare significantly.

Credit cards, debit cards, and ACH have increased the share of electronic payments both at point-of-sale locations and for bill payments. Although the adoption of electronic payments in the consumer-to-consumer payments setting has lagged behind these other areas, online person-to-person payment systems have recently been reporting strong growth. This article analyzes the growth of online P2P payments, the problems and opportunities faced by payment providers, and the future of electronic C2C payments.

Payment systems include all the paper (including cash) and electronic systems a country uses to exchange financial value to discharge obligations. Financial markets rely on promptness and certainty of payment and settlement for borrowing and investing. Consumers want convenience, choice (of payment options), privacy, and low cost. Inefficiencies in payment systems cause a drag on the national economy. The authors compare trends and areas for improvement in payment systems in Colombia and El Salvador, two countries that differ in size, volume of check-based transactions, and national issues. Check standards have developed slowly in both countries, which has retarded automation, particularly in Colombia, where the volume of checks handled makes manual processing unmanageable. Both countries need stronger leadership from central banks and bankers associations; incentives to adopt common check standards; streamlined check sorting and encoding, microfilming, and manual data processing; alternative (especially credit-based) payment mechanisms and private check-processing bureaus; and settlement of stock exchange transactions through several banks, rather than one bank. The countries differ in important ways: 1) it will be easier to reach economies of scale in check processing in Colombia (which has too many local clearinghouses) than in El Salvador (which has too few). Both countries need a more balanced approach; 2) same day payments are possible in Colombia; payments in El Salvador are next day, at best; 3) financial markets are less mature in El Salvador and may not need to be as sophisticated as markets in other countries; and 4) Colombia has yet to create effective disincentives for writing checks against insufficient funds. Both countries must take certain actions to develop a system for electronic payment and the settlement of payments at the central bank: 1) draft new laws and regulations; 2) provide more systematic data collection and analysis of payment flows; 3) undertake more risk analysis and prevention in the central banks and supervisory agencies, and draft contingency plans for major failures; 4) reexamine the dual roles of the central banks and other government agencies in operating and supervising payment systems; 5) review check-clearing pricing policies; and 6) analyze the economics of automating check processing.

We seek to analyze the extent and sources of network externalities for the automated clearinghouse (ACH) electronic payments system using a quarterly panel data set on individual bank adoption and usage of ACH. We provide three methods to identify network externalities using this panel data. The first method identifies network externalities from the clustering of ACH adoption. The second method identifies them by examining whether banks in areas with higher market concentration or larger competitors are more likely to adopt ACH. The third method identifies them by examining whether the ACH adoption by small branches of large banks affects the adoption by local competitors. Using fixed effects and panel data these methods separately identify network externalities from technological advancement, peer-group effects, economies of scale and market power. We find evidence that the network externalities are moderately large.

Because the automated clearinghouse (ACH) has been found to have lower social costs than paper checks, the Federal Reserve has been promoting more widespread use of ACH by lowering ACH processing fees. In this paper we have obtained the first numerical estimates of ACH demand elasticities, a measure of the responsiveness of ACH demand to price changes. In order to determine how robust the estimates are, various methods were employed to estimate the demand elasticities. ; Our results show that the volume of ACH items processed by the Federal Reserve does respond to changes in per-item fees. We find that demand for ACH credit is elastic, while demand for ACH debit is inelastic. The difference most likely arises from high customer resistance to automatic payment deduction and from low market penetration of that service among companies. Demand for origination was found to be somewhat more elastic than demand for receipt. We then examined how volume growth initiated by a price cut affected unit costs. Given the relatively large scale economies found for ACH, volume growth leads to lower unit costs. However, to outweigh revenue lost as a result of a price decline, ACH volume would have to increase by an amount greater than our estimates indicate is likely. Consequently, a decline in per-item ACH fees would likely lead to lower net revenues.

This study overturns the conclusion of a 1990 study by David Humphrey and Allen Berger, which found that check float is responsible for the popularity of checks despite their high resource cost compared to electronic payment instruments. The new study examines recent data on the costs of checks and automated clearinghouse (ACH) payments. It finds that the value of check float has decreased significantly since the 1990 study and is no longer large enough to make checks more attractive than ACH payments. The study also questions whether the idea that float could be responsible for the persistent use of checks is reasonable given standard assumptions about the behavior of economic agents. The study ends by speculating on why checks are used more than less-costly alternatives and by encouraging policymakers to wait for researchers to adequately answer that question before intervening in the market for payment instruments.

This chapter treats electronic payments as an issue of technology displacement. Thus, the concerns are product design and development and the creation of a production-sales-support infrastructure. Rather than viewing the automated clearing house (ACH) as an alternative to checks and other contemporary payment mechanisms, we focus on technology displacement for several important segments of the payment market. This chapter considers two broad classes of use: successes, and opportunities yet to be realized, the latter being payment uses, such as corporate trade payments, where there is currently very little transaction volume.

For a while it seemed as if activity on next-generation channels such as mobile phones wasn't going to add up to a payments revolution. The heralded wireless application protocol launched, sputtered, and died. Online billpay done the "classic way" continued to grow, but had yet to reach the inflection point of broad adoption. The internet channel itself seemed under siege with each new report of phishing or fraud, and, for those yearning for the next step, Bluetooth seemed a techie and obscure path to travel. But just as industry handwringing began to set in, change hit hard and fast. At a recent retail banking trade show, for example, mobile phone-related announcements generated considerable interest. As the two following articles show--one on contactless card pay and one on cell pay--not only is consumer payments extending its reach "out of band," but providers are presenting new convenience options for consumers here, as some have done internationally. "The U.S. is a little island of difference in a world of contactless payments," said one executive. Yet early pilots in diverse areas including use of cell phones as an authentication device or a wireless-age coupon dispenser indicate a new day is coming. Paying by a wave of your card is looking good both short and long term Payment gurus have been touting the cashless, paperless economy for decades. And it's coming, albeit at a glacial pace. Today, direct automated clearing house deposits are welcomed in nearly every household. Online billpay is a staple financial service. Noncash payments exceed cash payments in the macroeconomy. Now card processors and banks have in their crosshairs a target they would likely have dismissed only a few years ago as out of reach and/or not worth reaching for; i.e., some $1.4 trillion in cash and paper checks that consumers used last year to pay for small-ticket items costing less than $25 or so. Current moves by big card-issuing banks indicate that "contactless" cards could be the key that opens up the market for noncash payments. The basic idea is to embed in a credit or debit card a tiny radio-frequency transponder and an associated computer chip which, when activated by an r-f signal from a point-of-sale (POS) terminal, sends back basic cardholder information that authenticates the card and directs payment to issuing banks. This RFID system performs all the functions of magnetic stripes and uses the same infrastructure that now links POS terminals to banks, so a merchant can r-f-enable an existing system by adding an RFID payment device to its POS terminal for as little as $100. Bankers don't have to add any new hardware. All the consumer does is place her card within about four inches of the retailer's card-reading device--hence the system's clumsy name, contactless payment. And that's going to effect $1.4 trillion worth of business? Advocates say yes. Last summer, the research firm Celent produced a report with the exuberant title, "Contactless and the dawn of a new payment era. How contactless payments are finally bringing the U.S. into the new century." Here's how they make their case: In 2005, consumers paid about $1.4 trillion to merchants in eight target industries that are characterized by high volumes of transactions, at low prices, in an environment that puts a high premium on fast, easy service. Traditionally, consumers in the target industries pay mostly in cash or by check. Beyond doubt, RFID systems can enhance the speed, convenience, and, some say, the fun of paying by waving a plastic card at a POS terminal as you pick up your cup of coffee. That could make you more likely to abandon habits of fumbling for the right amount of cash, holding up a checkout line while you write a check, or wasting a few seconds thinking about which way to orient the mag stripe as you swipe the card through the reader. Checkout speed and fun may seem trivial benefits, but it's often just such whimsical conveniences that shape consumers' shopping preferences. …

This report contains testimony given 27 October 1976. The author points out that the phrase 'EFT systems' is ill-defined. There are many such already in existence, including the automated clearing house, the cash terminal, and the point of sale terminal. Descriptive billing is a form of a EFT system; the national networks that are operated by organizations such as National Bank Americard are EFT systems. Each deals with payment exchange; each represents an implementation that depends very critically on electronics and computer technology. The authors main discussion is of what he calls 'the fully developed environment' in which the merchant and his bank plus the customer and his bank are electronically linked to complete a transaction. Systems of this kind are beginning to appear, but will become increasingly more important and will be accompanied by increasing problems of confidentiality, security, and privacy. The obvious problem in EFT systems is the unauthorized use of information by authorized recipients or by organizations holding it. To the extent that existing legislation deals with privacy, it attempts to set norms for proper usage of information.