 |
|
by Rosalind L. Fisher
Visa U.S.A.
While there has been much recent press attention to "electronic money" and the role of a host of new entrants into the business, I am proud to say that Visa and, most importantly, its member financial institutions, are playing--and must continue to play--a central role in the introduction and use of those electronic consumer payment services. I say "central role" for two different but equally compelling reasons.
First, Visa and its member banks have a solid track record of developing an array of payment products and services that meet consumer needs, and we are confident of our ability to continue to do so. Second, the integrity of the payment system, and public confidence in it, could be at risk if so called "electronic money" becomes nothing more than zeros and ones--digital signals--without the backing and involvement of regulated financial institutions.
The reason Visa and its member financial institutions must be involved in those evolving services has a public policy foundation: the integrity of the payment system and public confidence in it demands that regulated financial institutions be central players. While we must ensure such involvement, we caution that premature government regulation--or the failure to modify existing regulations to accommodate evolving technologies--could chill or halt the delivery of new financial products to consumers.
Evolving payment systems is the very core of the Visa mission on behalf of its members. In fact, the Visa organization is itself an example of that evolutionary process. By providing payment systems that offer consumers and merchants convenience, security and utility, Visa and its members have played a vital role in leading beneficial change in the way business is conducted around the world.
New and innovative technology is the underpinning for the evolution of payment systems. The ability of Visa and its member financial institutions to lead those changes has been enabled by our efforts to harness new technologies and leverage their benefits. While the Visa approach relies on technology, it is consumer and market driven. High tech dazzle only adds value when it provides solutions and products that consumers want and need. Visa and its members build products and services that work for their cardholders and merchants based on innovative technology.
Building solutions that work for consumers and merchants means focusing on much more than just technology--it means adding value and convenience to their lives and their businesses. It also means adding value while addressing issues of key importance. Questions of security, risk and privacy are all crucial factors in the development of payment products and services. Does this product offer security to consumers and merchants alike? Will it protect financial institutions and their customers from risk? Does it offer protection of data and privacy for its users? All of those questions must be answered and addressed before you have a business solution. And all of those factors are the crux of the goals of Visa and its members as we move toward the technology-driven payment systems of the future.
One of the key technologies that will move our payment system into the future will be that of the integrated circuit chip. Cards embedded with microprocessor chips are often referred to as "smart cards." The microprocessor can be used to store both financial and non-financial information. Visa's first application of this chip technology in the United States is a stored value card that we call Visa Cash. This card is prepaid with a set amount of value loaded onto the microchip and is an alternative to cash for consumers making small purchases, usually those under $20. Visa Cash will be introduced in the United States in Atlanta during this summer's Olympic Games. Other pilots are taking place now worldwide--in Australia, New Zealand, Canada, Spain, Argentina and Colombia.
Stored value cards will significantly benefit consumers, merchants, and others involved in payment transactions. Consumers will benefit from ease of use, convenience, and increased transaction speed compared to cash and checks. Merchants will benefit from reduced costs as a result of less pilferage, theft and vandalism, and reduced cash handling due to electronic payments.
Not all of the products and services being introduced by Visa and its member institutions are card-based. Electronic or remote banking is one of the most important initiatives in which exploding technology is enabling Visa and its members to build new product offerings that bring great value and benefit to consumers.
To truly benefit consumers, remote banking must first be accessible and easy to use. Choices such as the type of access device and user software must be left to the individual. For that reason, Visa's remote banking subsidiary, Visa Interactive, offers or is developing interfaces to almost every access device imaginable. From simple touch tone phones and screen phones to personal computers, personal digital assistants (PDAs) and interactive television, Visa is offering a myriad of options for member financial institutions to present to their customers.
Remote banking is only one area of online services into which Visa and its members are quickly moving. Electronic commerce over open networks such as the Internet is a technology-driven market that is exploding and Visa is working with its members to facilitate this rapidly evolving electronic marketplace.
While many are addressing various aspects of this developing market through exciting technology, Visa is building business solutions to meet that market's needs. Our first initiative in this area is to provide security for payments made over open networks such as the Internet. Regardless of the technology, the real game when transacting business over the Internet is knowing who you're doing business with. The groundbreaking efforts of Visa and Mastercard in working to build a standard for making transactions secure will allow consumers and merchants the confidence and protection they need to use this new commercial arena successfully. This security--and knowing who you're doing business with--will be key to the future of our country's payment system.
Those products and services will be offered by Visa's member institutions, which today are the major providers of payment system services to our nation's consumers. Confidence in those institutions and the payment services they provide is high, and for good reason. They are regulated by the federal financial institution supervisory agencies and are subject to regular examination by those agencies and state supervisors. Customers' funds are protected by the safety net of federal deposit insurance. As a result of those protections, the public has a high degree of confidence in our members and their products and services, which is essential for economic stability and growth.
Some electronic payment services may be offered through entities that are not subject to the same supervision and regulation as Visa's members. Their customers will not have the protection of the bank supervisory system. Furthermore, to the extent that those entities, as a result of not being regulated by bank supervisors, enjoy a competitive advantage over traditional financial institutions, they may worsen the disintermediation of traditional depositories. For that reason and because of the importance of developing electronic payment systems to the world economy and the importance of preventing abuse in these systems, it is significant to note that a recent report by the European Union's Working Group on EU Payment Systems proposed that only banks be allowed to issue stored value cards.
Visa also believes that providing new payment products and services through regulated and supervised financial institutions ensures significant safeguards that are not otherwise available. As stored value cards become an important medium of exchange, policymakers must be cognizant of the potential economic consequences that would result from a loss of public confidence in major unregulated, uninsured issuers. Law enforcement officials combating criminal activities like tax evasion, counterfeiting, and money laundering should consider the potential problems that could result from the development of stored value card systems that, unlike Visa's, may not generate a well-defined audit trail and could also result from systems whose record-keeping is not subject to periodic supervision and examination. Accordingly, we believe lawmakers should carefully examine the risks that are attendant with participation by these other entities in the payment system.
On the other hand, in view of the highly regulated environment in which our members operate and the numerous safeguards that are already in place with respect to depository institutions, we are concerned that additional regulation in this area will stifle the innovations that are being developed. Products and services such as those described here are in nascent stages and could be adversely impacted by over regulation. At the extreme, subjecting many of those products to government regulation could result in their premature death.
The potential application of the Electronic Funds Transfer Act and Regulation E to stored value cards is an excellent example of this. Regulation E requires that consumers get receipts for electronic funds transfers, such as ATM transactions. If applied to stored value cards, the product will lose its utility entirely for many of its essential applications. One of the most practical applications of the card will be at vending machines, parking meters and other facilities and merchants geared up to small dollar transactions. Stored value cards will not be economically viable if machines must be re-engineered to give the user a receipt for a 75 cent soda or 30 minutes at a parking meter.
Also, keeping in mind that one need not have a banking relationship to get a stored value card, that a name and address are not necessary and that value on a card may be used quickly, the periodic statement requirements of Regulation E also would destroy the product's utility. We are pleased that the Federal Reserve Board, in its recent proposed revision for Regulation E, has accommodated the special needs of stored value cards and similar products.
Laws and regulations should not be implemented unless they have been proven to be necessary and can be implemented without imposing excessive costs. Other countries have encouraged innovation by letting products take shape without undue interference. To encourage development and create an environment in which the United States can assume a leadership role in these endeavors, we need to do likewise. Our message is this: don't add to the regulatory burden of depository institutions. Rather, permit the public to continue to enjoy the benefits of new products and services that Visa and its members are bringing to the market.
Prepared for the Cato Institute's 14th Annual Monetary Conference, May 23, 1996, Washington, D.C.