Introduction
The US payment system has undergone rapid change, with paper checks increasingly giving way to electronic forms of payment. Some of the most dramatic changes have been seen in the automated teller machine (ATM) and debit card industries, which rose from obscurity to virtual ubiquity over the course of two decades.
The number of ATMs in service and the number of merchants who accept debit card payment increased rapidly and, at the same time, the industry infrastructure has undergone significant change, generally in the addition of third-party processors and the consolidation of networks through partnerships, mergers, and acquisitions.
A number of changes have also taken place in the pricing structure and strategies. There has been "substantial innovative activities" that leverage the electronic payment infrastructure to facilitate cashless transactions, such as the conversion of paper checks to electronic payments at the point of sale or enabling person-to-person payments via the Internet.
Issues and implications
The author identifies five key issues in the electronic payment industry: market concentration, economies of scope, pricing, access, and risk.
Market concentration: the consolidation of the industry from many small firms to a smaller number of large ones has helped to standardize electronic payments, eliminating the need for consumers to seek out a specific ATM or use their debit card with merchants that support transactions with a specific bank. But at the same time, the concentration in the marketplace has reduced competition and giving considerable power over consumers and others in the payment channel.
Vertical integration (and economies of scope): the expansion of electronic payments to provide a broader array of payment services is likewise a convenience to customers, but has given ownership of significant parts of the industry to companies that are not defined as "banks" and are not subject to the regulatory requirements of the banking industry - which has advantages in terms of innovation and efficiency, but raises questions about safety.
Pricing: The cost of ATM and debit card transactions have been a source of much annoyance to customers, who face surcharges for ATM transactions and PIN fees for debit card transactions. While it's acknowledged that some fee is due for service, customers chafe at paying to withdraw their own money from their own accounts, especially given that industry has promoted electronic payment as being less costly to themselves than other methods (live tellers and paper check processing) for which no fee is charged. Meanwhile, merchants are also displeased with increasing transaction costs for accepting electronic payments.
Access: In general, access to the payment system has become easier over time, particularly for independent merchants and the lower economic classes of consumer. However, access within the industry has not been as egalitarian, with larger banks and processing services enjoying economies of scale that enable them to obtain network services at a low per-transaction cost while smaller banks, with fewer transactions, find the cost structure disadvantageous.
Risk: The evolution of payment methods means that the established rules and regulations that are intended to mitigate risk in the banking industry are not necessarily suited to the new and emerging risks of electronic payments, and tend to be slow to adapt to provide the same mitigation to the new channel.
Scope and organization
The present book gathers information from studies of the ATM and debit card industry, highlighting significant economic and public policy issues.
The chapters that follow provide a general overview of the electronic payment industry, separate chapters on the idiosyncrasies of the ATM versus debit card methods of payment, and a consideration of the economic and public policy issues. The final chapter provides closing remarks and identifies areas in which there remains some concern, but in which additional research is necessary to better identify the issues.