1150 Seventeenth Street, N.W., Washington, D.C. 20036
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What is e-money? Technology and innovation have transformed how consumers pay for the purchases they make. Far beyond the rise of credit cards, which now number over 576 million in the United States, consumers have embraced new technologies that facilitate convenient and secure electronic payments across a wide range of
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platforms. As a result, the popularity of cash and checks is waning as the accessibility of digital money soars. This conference explored how far these trends can extend and which reforms to current legislative and regulatory structures may be necessary to support continued payment innovation.
At this event, Joshua R. Floum, general counsel and corporate secretary for Visa Inc., discussed the future of electronic payments. Following his presentation, Geoffrey R. Gerdes, a senior economist in the payment system studies section of the Federal Reserve Board of Governors, analyzed current payment trends. Wayne A. Abernathy, executive vice president for financial institutions, policy, and regulatory affairs at the American Bankers Association, and payment law expert Robert G. Ballen of Schwartz & Ballen LLP discussed legal and policy issues facing providers of new electronic payment methods.
| 9:15 a.m. | Registration and Breakfast | |
| 9:30 | Keynote Address: | Joshua R. Floum, Visa Inc. |
| Panelists: | Wayne A. Abernathy, American Bankers Association | |
| Robert G. Ballen, Schwartz & Ballen LLP | ||
| Geoffrey R. Gerdes, Federal Reserve Board of Governors | ||
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| Moderator: | Alex Brill, AEI | |
| 11:30 | Adjournment |
American Enterprise Institute
WASHINGTON, D.C., April 23--Digital money continues to pervade new commercial spheres as the prevalence of cash and checks declines. On April 23, AEI assembled a panel of experts to discuss recent growth and future trends in the electronic payment system and to consider policy and legal issues relating to the expansion of electronic payment mechanisms.
AEI research fellow Alex Brill, who moderated the event, highlighted the often overlooked significance of digital currency to the U.S. economy. "Outside the economists that study [the payment system], the regulators and lawyers that practice in this area, and the executives who lead this industry, this topic receives relatively little public attention, but in fact it permeates the economy," he said. Comparing the transformation of the payment system to advances in transportation, he continued, "In the payment system, technology has reduced costs, sped up transaction times, and improved convenience. Digital money [offers] ways to pay safely, efficiently, and conveniently."
Joshua R. Floum, group executive of Visa Inc., delivered a keynote address, describing digital currency as a "transformative evolution" and placing it alongside other technologies such as mobile telephones and the Internet. Floum also highlighted the economic benefits of credit card adoption, citing a recent study by Moody's Economist.com that estimated debit and credit card usage contributed $1.1 trillion to the global economy between 2003 and 2008. Floum cited three ways in which digital currency has proved valuable: it lowers transaction costs; it reduces cash-only transactions, known as the "gray market"; and it increases efficiency, boosting confidence for both merchants and consumers.
While the economic benefits from digital currency are already significant, Floum argued that gains thus far "only [begin] to scratch the surface [of the] digital currency revolution." For example, only 25 percent of global transaction volume is represented by digital money. In order for the benefits of electronic payment systems to continue, Floum urged governments to protect "fair, market-based competition" and "resist the urge to put [a] finger on the scale in the marketplace."
Geoffrey Gerdes, a senior economist in the payment system studies section at the Federal Reserve Board of Governors, tracked the development of the current payment system and the rise of digital money over the past few decades, showing that debit and credit cards combined, as of 2006, "amounted to the largest payment instrument used in the U.S. economy." Gerdes highlighted the crucial role of global electronic infrastructure in the development of digital money, explaining that the growth of debit card usage was directly linked to the spread of terminals that could read them. By 2006, debit cards had overtaken credit cards as the most common instrument of electronic payment.
Robert Ballen, an attorney specializing in financial services, discussed the impact of regulatory changes on the development of electronic payment systems. The Check Clearing for the 21st Century Act (known as "Check 21") was enacted in 2003 and facilitated a process of transferring the images of checks electronically, which resulted in large savings for banks. Ballen emphasized that the legislation "did not dictate the specifics of the interbank exchange," which allowed for a smoother transition, and was a "win-win for everybody."
Ballen, along with Wayne Abernathy of the American Bankers Association, shared concerns over protecting the integrity of the payment system. Abernathy highlighted four standards that every payment system must meet: security, integrity, efficiency and reliability. "We want to make sure that the value received is the value we sent," he explained. Abernathy claimed that all payment systems today have problems, but "over time our payment systems have been performing better and better in all four categories." Specifically commenting on the electronic payment system, Abernathy observed a "growth in variety" of payment mechanisms that is increasing competition within the system to meet his four standards. The role of government regulation, a role appropriate for the Federal Reserve according to Abernathy, should be to "focus on integrity, without being prescriptive on what new systems should look like." In other words, it is important that regulations governing digital money allow innovation to continue to flourish.
--Tyler Marshall
Wayne A. Abernathy has been the executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association (ABA) since February 2005. Mr. Abernathy oversees ABA groups that deal with policy development, regulatory issues, bank general counsels, economics, securities and investment, and risk management. Before joining ABA, Mr. Abernathy served for two years as Treasury assistant secretary for financial institutions under President George W. Bush, receiving the Alexander Hamilton Award in recognition of his service. In that office, he was also a member of the board of directors of the Securities Investor Protection Corporation. Prior to his work at Treasury, Mr. Abernathy served in a number of positions at the Senate Banking Committee. Under Chairman Phil Gramm, he served as staff director of the committee and director of the Subcommittee on Securities from 1995 to 1998. From 1989 to 1994, Mr. Abernathy was a Republican economist for the committee. He previously worked as a senior legislative assistant for Senator Gramm from 1987 to 1989 and as an economist for the Banking Committee's Subcommittee on International Finance and Monetary Policy from 1981 to 1986.
Robert G. Ballen is the founder of Schwartz & Ballen LLP, where he represents major banks, thrifts, insurance companies, and securities firms in connection with their new products and services programs and interindustry and interstate expansion initiatives. He advises clients on financial services law and regulations and represents his clients before federal and state supervisory agencies, as well as Congress and state legislatures. Prior to founding Schwartz & Ballen LLP in 1995, Mr. Ballen was a partner in the Washington, D.C., office of the law firm of Morrison & Foerster LLP. From 1981 to 1985, he served in the general counsel's office of the Federal Reserve Board, where he was responsible for counseling the Federal Reserve Board on the legal issues arising in connection with its payments activities, including its Fedwire, check collection, and automated clearinghouse services. Mr. Ballen has lectured and written extensively on a multitude of banking and payments law matters, including authoring two books, Uniform Commercial Code Article 4A and the Automated Clearing House System (National Automated Clearing House Association, 1990) and Banks and Mutual Funds (American Bankers Association, 1987). He is a past chairman of the American Bar Association's Payments Subcommittee.
Alex Brill is a research fellow at AEI. Prior to joining AEI in 2007, he served for five years on the staff of the House Ways and Means Committee, where he was chief economist and senior adviser to the chairman. In this capacity, he led the staff in work on major tax, pension, trade, and health legislation and oversaw efforts to expand the analytical capability of the Joint Committee on Taxation's revenue-estimating process. In addition to providing legislative and policy counsel to the chairman, Mr. Brill advised committee members about the effects of various tax, trade, health, and Social Security proposals and general economic trends. Prior to his work for the committee, he served on the staff of the President's Council of Economic Advisers. Mr. Brill began his career in Washington as a research assistant at AEI. He studies a variety of tax policy issues and is also a Term Member at the Council on Foreign Relations.
Joshua R. Floum is Group Executive of Visa Inc., and is responsible for global government relations for the company, among other things. He is a member of the executive management team and sits on Visa Inc.’s governing operating committee. He has primary responsibility for advising management and the board of directors on global competition, legal, and regulatory issues. Floum has been the company’s principal voice on competitive issues, including interchange, and has testified three times before the House and Senate in connection with the company’s business practices. Mr. Floum was instrumental as an executive at Visa U.S.A. beginning in 2004 in the transformation of Visa from a group of bank associations into a global public company.
Geoffrey R. Gerdes is a senior economist in the payment system studies section at the Federal Reserve Board. As the lead economist in several major studies on payments conducted by the Federal Reserve System, he has had primary responsibility for analyzing trends in noncash payments in the United States. In addition, Mr. Gerdes contributed to two other recent Federal Reserve System payment surveys, one on cash payments to businesses and another on the effects of the Check 21 law. Mr. Gerdes also studies technological change and its effects on the efficiency of the payments system, infrastructure and productivity of check and cash services provided by the Federal Reserve Banks, and other issues related to payments system policy.
