Abstract
Nonbank providers of payment services are important in the United States and appear to have become more prominent in recent years. This development, by itself, poses unique risks to the payments system. Associated with this change is a significant transformation in the mix of payment types away from checks and towards electronic payments, which introduces new risks to the payments system and potentially compounds the risks posed by increa sed reliance on nonbank providers of payment services. This paper reviews these recent developments in the retail payments system, discusses the associated risks, and presents an overview of the supervision of nonbank providers of payment services. Policies aimed at controlling risk in the retail payments system need to better address an increasing level of information asymmetries, externalities, and coordination problems. Policy tools such as standards setting, disclosure, clarifying legal responsibilities, and supervision can each play a role in improving control of payments system risk. To guide policy reforms, it would be useful to collect more information on the sources, extent and cost of disruptions to payment systems associated with nonbank payment providers.
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