--- begin forwarded text 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 $20 billion yearly is not inconceivable but will develop gradually. The introduction of electronic payment methods raises a number of policy issues. Existing laws and regulations, for example, do not clearly cover some of the new methods, or cover them only under certain circumstances. Questions arise as to whether the balances of stored-value cards and on-line scrip will be covered by deposit insurance or be subject to reserve requirements, and whether consumers will be protected by current regulations that limit liability for unauthorized use of credit cards and electronic fund transfers. Even in areas that existing laws cover--such as antitrust policy and law enforcement against money laundering, fraud, and tax evasion--applying and enforcing those laws may be more difficult. Two major concerns are the effect of the new payment methods on monetary policy and the effect of having nondepository institutions issue them. Issuance by firms other than federally regulated depository institutions raises competitive issues and concerns about the safety and soundness of the financial system. Given the expected small size of the market for electronic payments, however, monetary policy and the financial system are unlikely to be seriously affected. Questions about the study should be directed to Judith Ruud or Philip Webre of CBO's Natural Resources and Commerce Division at (202) 226-2940. The Office of Intergovernmental Relations is CBO's Congressional liaison office and can be reached at 226-2600. For additional copies of the study, please call the Publications Office at 226-2809. --- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com) e$, 44 Farquhar Street, Boston, MA 02131 USA "'Bart Bucks' are not legal tender." -- Punishment, 100 times on a chalkboard, for Bart Simpson The e$ Home Page: http://www.vmeng.com/rah/