A comparative analysis of the US and EU retail banking markets - Wsbi
A comparative analysis of the US and EU retail banking markets - Wsbi
A comparative analysis of the US and EU retail banking markets - Wsbi
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- ACH credits <strong>and</strong> debits: <strong>the</strong> statistics from <strong>the</strong><br />
Federal Reserve Bank merely consolidate credit<br />
<strong>and</strong> debit transfer transactions processed<br />
according to <strong>the</strong> rules <strong>of</strong> <strong>the</strong> ACH network<br />
(actually by NACHA, <strong>the</strong> National Automated<br />
Clearing House Association). In this category too,<br />
one will notice that debits enjoy a far more rapid<br />
growth than credits, admittedly fuelled by a<br />
certain volume <strong>of</strong> cheque conversion applications.<br />
This rapid overview clearly shows that <strong>the</strong> <strong>US</strong> <strong>retail</strong><br />
<strong>and</strong> commercial payments market is undergoing<br />
pr<strong>of</strong>ound change, with greater structural shifts in <strong>the</strong><br />
position <strong>of</strong> payment instruments than had been<br />
observed for decades. It is interesting to note that<br />
none <strong>of</strong> <strong>the</strong>se “newly favored” payment instruments<br />
(be it debit transfers or debit cards) builds on any<br />
new technology (if we exclude here <strong>the</strong> development<br />
<strong>of</strong> contactless cards, a promising advance yet still<br />
marginal in terms <strong>of</strong> total transactions). On <strong>the</strong><br />
contrary <strong>the</strong> technology underpinning <strong>the</strong>se payment<br />
instruments has also been around for decades.<br />
That <strong>the</strong>y now find rapidly greater acceptance is due<br />
to a change in customer preferences, induced on<br />
one side by a growing reliance on home <strong>and</strong><br />
electronic <strong>banking</strong> channels (in 2004 89% <strong>of</strong><br />
households used an electronic method as one <strong>of</strong><br />
<strong>the</strong>ir main ways <strong>of</strong> conducting <strong>banking</strong> business), on<br />
<strong>the</strong> o<strong>the</strong>r by concerted efforts <strong>of</strong> <strong>the</strong> <strong>banking</strong><br />
regulator <strong>and</strong> <strong>the</strong> <strong>banking</strong> industry to dematerialise<br />
payments in order to decrease payment systems<br />
costs, contribute to fraud reduction, <strong>and</strong> increase<br />
overall economic efficiency.<br />
The biggest driver for change <strong>of</strong> course could be<br />
provided by <strong>the</strong> “Check Clearing for <strong>the</strong> 21st<br />
Century Act” (or “Check 21”) enacted in 2003 <strong>and</strong><br />
which became effective in 2004. This law facilitates<br />
<strong>the</strong> move to electronic exchange by allowing cheque<br />
collecting banks to discontinue <strong>the</strong> paper flow <strong>and</strong><br />
exchange electronic images <strong>of</strong> <strong>the</strong> cheque instead. If<br />
required by <strong>the</strong> account owner this cheque image<br />
can be converted back to a paper document called a<br />
substitute cheque which <strong>the</strong>n enjoys <strong>the</strong> same legal<br />
status as <strong>the</strong> original cheque. While Check 21 beyond<br />
doubt contributes to cost reductions, as today <strong>the</strong><br />
end customer product is <strong>of</strong>ten still paper-based,<br />
some believe that bigger changes (including <strong>the</strong><br />
discontinuation <strong>of</strong> cheque usage altoge<strong>the</strong>r) are yet<br />
to come.<br />
These preliminary considerations would have<br />
benefited from <strong>the</strong> availability <strong>of</strong> more statistical<br />
data, in particular as regards on one side <strong>the</strong> number<br />
<strong>of</strong> cash transactions (compared to non-cash<br />
transactions), <strong>and</strong> <strong>the</strong> local or regional patterns that<br />
exist within <strong>the</strong> <strong>US</strong> as regards <strong>the</strong> use <strong>of</strong> <strong>the</strong> various<br />
payment instruments <strong>and</strong> channels. Regarding cash,<br />
as an indication, <strong>the</strong>re were at <strong>the</strong> end <strong>of</strong> 2004<br />
banknotes <strong>and</strong> coins in circulation (i.e. issued by <strong>the</strong><br />
Federal Reserve <strong>and</strong> Treasury) for a total value <strong>of</strong> <strong>US</strong>D<br />
754 billion (<strong>of</strong> which <strong>US</strong>D 35 billion were coins) – or<br />
<strong>US</strong>D 245 per capita. This compares with €550 billion<br />
banknotes in circulation in <strong>the</strong> eurozone – or €176<br />
per capita. These figures only provide a relative<br />
indication, due to <strong>the</strong> varying amounts <strong>of</strong> cash which<br />
are hoarded, <strong>and</strong> not circulating from an economic<br />
perspective. However, given ceteris paribus <strong>the</strong><br />
similarity <strong>of</strong> <strong>the</strong>se figures, this would allow <strong>the</strong><br />
assumption that for <strong>the</strong> purpose <strong>of</strong> this comparison<br />
<strong>the</strong> influence <strong>of</strong> cash can be ignored.<br />
6.3.1.3 Settlements <strong>of</strong> high value transactions<br />
in <strong>the</strong> <strong>US</strong><br />
6.3.1.3.1 Real time gross settlement system<br />
The Federal Reserve System owns <strong>and</strong> operates<br />
“Fedwire”, a real time gross settlement system<br />
which allows participants in <strong>the</strong> system to settle with<br />
finality in Central Bank money. Payments to <strong>the</strong><br />
receiving participant are final <strong>and</strong> irrevocable.<br />
In 2004 <strong>the</strong>re were some 125 million Fedwire<br />
payments effected by 9,500 participants for a total<br />
value <strong>of</strong> <strong>US</strong>D 470 trillion. Fedwire pricing conforms<br />
to <strong>the</strong> cost recovery principles laid down in <strong>the</strong><br />
Monetary Control Act.<br />
6.3.1.3.2 The National Settlement Service<br />
The Federal Reserve System also allows participants in<br />
private clearing arrangements (in 2002 over 70 cheque<br />
clearing houses, <strong>the</strong> ACH network with two operators<br />
as well as bank card processors) to settle with finality<br />
transactions on a net basis using accounts held at<br />
<strong>the</strong> Federal Reserve. During 2004 <strong>the</strong> netted value<br />
settled topped <strong>US</strong>D 20 trillion for over 15 billion<br />
transactions processed.<br />
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