CBO study of electronic payment systems now on Web

[Robert Hettinga <rah@shipwright.com>]

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Date: Mon, 29 Jul 1996 15:16:31 -0400
From: PHILIP WEBRE <philipw.nrd@cbo.gov>
To: rah@shipwright.com
Subject:  CBO study of electronic payment systems now on Web

The new Congressional Budget Office study on electronic payment systems (ASCII
or Word Perfect Formats available) is now available at:

gopher://gopher.cbo.gov:7100/1

The Executive Summary Follows:


                                                      July 1996


         EMERGING ELECTRONIC METHODS FOR MAKING RETAIL PAYMENTS


Financial intermediaries such as banks and credit card companies are
developing products that will enable consumers and businesses to pay
for retail, or small-dollar, purchases electronically.  Increasingly
cheaper computing power and advances in data communications technology
have made those new payment methods possible.  The Congressional Budget
Office (CBO) study Emerging Electronic Methods for Making Retail
Payments examines the effect the new forms of payment will have on the
market for retail payments and the issues they will raise for federal
policy.

  The two primary types of payment being advanced for use in retail
purchases are prepaid stored-value cards and on-line payments made with
personal computers through the Internet.  Stored-value cards will function
much like prepaid mass transit or phone cards but could substitute for
cash in small-dollar purchases.  Payments proposed for use over the Internet
will include both familiar and new methods.  Familiar methods use existing
credit cards and checking accounts that are suitably modified for secure
on-line use.  Breaking new ground, several companies have proposed or issued
types of on-line scrip, which essentially functions like privately issued
traveler's checks.

  This study assesses the market potential for stored-value cards and
on-line payments by analyzing both the current use of cash in the economy
and the specific markets commonly cited as likely candidates for such payment
methods.  An eventual market for stored-value cards of $20 billion yearly is
not inconceivable but will develop gradually.

  The introduction of electronic payment methods raises a number of policy
issues.  Existing laws and regulations, for example, do not clearly cover
some of the new methods, or cover them only under certain circumstances.
Questions arise as to whether the balances of stored-value cards and on-line
scrip will be covered by deposit insurance or be subject to reserve
requirements, and whether consumers will be protected by current regulations
that limit liability for unauthorized use of credit cards and electronic
fund transfers.  Even in areas that existing laws cover--such as antitrust
policy and law enforcement against money laundering, fraud, and tax
evasion--applying and enforcing those laws may be more difficult.

  Two major concerns are the effect of the new payment methods on monetary
policy and the effect of having nondepository institutions issue them.
Issuance by firms other than federally regulated depository institutions
raises competitive issues and concerns about the safety and soundness of the
financial system.  Given the expected small size of the market for electronic
payments, however, monetary policy and the financial system are unlikely to
be seriously affected.

  Questions about the study should be directed to Judith Ruud or Philip Webre
of CBO's Natural Resources and Commerce Division at (202) 226-2940.  The
Office
of Intergovernmental Relations is CBO's Congressional liaison office and can
be reached at 226-2600.  For additional copies of the study, please call the
Publications Office at 226-2809.




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-----------------
Robert Hettinga (rah@shipwright.com)
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