The Retail Payments System and Internet Commerce

Abstract

The payments system is a linchpin of the modern economy. Transactions involving non-cash payment for goods, services, or the transfer of asset ownership rely on the payments system to effect payment. The development of electronic commerce as an extension of the way in which people carry out transactions will depend crucially on the development of efficient and secure payments methods capable of supporting electronic delivery. At the same time, the preferences of consumers regarding different payment methods, whether it is cash, credit cards, debit cards or stored-value cards, are determined by a complex mix of economic, behavioural, cultural, and institutional factors. Consumer preferences and attitudes towards different payment methods are an important factor that must be taken into account by firms offering their products and services on the Internet. Payments may be divided into two broad categories. The term “wholesale payments” is used to refer to very large value payments, typically interbank transfers related to the clearing and settlement functions of banks. “Retail payments” refers to all other payments, including consumer-to-business as well as business-to-business payments. While wholesale payments have been electronic since the 1960s, retail payments remain predominantly based on cash and paper (primarily cheques). In this chapter we focus on developments in the retail payments system, and particularly on its capacity to serve the requirements of consumers in Internet commerce. Because the development of electronic commerce technologies has been driven in large part by considerations of efficiency, it is essential that the supporting payments system be able to match the efficiency of the underlying transactions.