Economies of scale in electronic funds transfer systems

Abstract

Virtually all of the technology that is necessary for a nationwide electronic funds transfer system (EFTS) has already been developed. An EFTS will probably consist of cash dispensers (CD's), automated tellers (AT's), point of sale (POS) switches and terminals, automated clearinghouses (ACH's), regional processing centers, and nationwide communication lines. 1 Retail banking machines (CD's, AT's, and POS terminals) are already linked to ACH's by telephone lines in several cities. The ACH's process batch transactions within a region. Separate POS switches may process 'on-line' transactions among consumers, financial institutions, and retailers within one market. Interregional transfers can be effected through regional switching and processing centers, which may be similar to the Federal Reserve System's regional check processing centers. The regional centers will be large data processing facilities connected by telecommunication networks. Nationwide transfers can be completed through telecommunication lines linking regional centers; the nationwide transfer process may operate like the Bank and Fed Wire services already do. Eventually it should become less expensive to transfer funds and settle most accounts electronically than by nonelectronic methods for two reasons. First, the costs of nonelectronic transactions are increasing rapidly. Among these costs are employee wages and salaries, postage, paper, and other expenses associated with processing paper checks. A 1974 Atlanta Payments Project Study (1974) suggested that a mature ACH System would process an electronic payroll deposit