Repricing Payments and Incentives for the Development of Electronic Funds Transfer

Although technological change has permeated the payments industry of the United States, the dominant means of effecting payments has not changed appreciably since the turn of the century. Sophisticated electronic funds transfer systems have been developed and, in fact, dominate in large-value transactions where avoidance of lost earnings on delayed receipt of funds can justify the cost of rapid clearing and settlement. Most payments, however, are still made by cash and paper checks distributed through extensive networks of financial institution branch-teller units linked by surface and air transportation. The collapse of this payments system under a mountain of paper was being predicted long before rising energy prices increased the relative costs of branches and transportation. Electronic funds transfer (EFT) is widely regarded as the technology that could replace paper and assure a more efficient payments industry.