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Payments Symposium —2000 and Beyond
June 6-7,2000
Federal Reserve Bank of Cleveland


Welcome and Symposium Overview
Jerry T Jordan
L. T A
8:30 a.m. to 9:00 a.m.
Wednesday, June 7,2000

[Ned Richardson will introduce Jerry Jordan]


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Thank you, Ned, and good morning everyone. I'm vprypleased to welcome you
to the Federal Reserve Bank of Cleveland, andte=aa&at= g going to b& a-very stimulating
event^/jt^htcmld i>ay r o/7/mtttKtrbe~a sliinulating^evont, bccaucc)l understand that many of
you had the pleasure last night of hearing Mark Johnson/^ice Chairman of CheckFree
Corporation/give his thought-provoking view of how the payments system might evolve.
This program - Payments Symposium.. .2000 andE
teyond-- is co-sponsored by
the Federal Reserve Bank of Cleveland and the three automated clearinghouse
associations that serve the financial institutions of the Fourth Federal Reserve District.
We are very pleased to be collaborating with them —the Central Regional Automated
Funds Transfer System

the MidAmerica Automated Payments System

.j[MARS); and the TRI-States Automated Clearinghouse Association (ERISACH) —not
only for this specific event, but day in and day out to increase the efficiency of the ACH
network, broaden its uses, and help the nation capture more of the benefits that are there
for the taking from greater use of electronic payments.
This symposium brings together a group of nationally-recognized payments
industry experts, corporations, and the leaders of financial institutions from throughout

this Federal Reserve District,

,L behalf of my colleagues in the Federal Reserve Bank of Cleveland, I
want to thank you for being our customers. We appreciate your business, and you can
rest assured that we will continue to work hard to meet your needs and provide excellent
customer service.

Let me turn now to the Federal Reserve's goal and role in the ongoing evolution
of the retail payments system. The overall mission of the Federal Reserve Bank of
Cleveland is "To enable the economy to achieve maximum sustainable growth...." We
contribute to economic growth and efficiency in three broad ways. First, our monetary
policy activities contribute to that goal by focusing on "preserving the purchasing power
of the dollar." Second, our work in banking supervision and regulation contributes to
efficiency and growth by "promoting a strong financial system." And third, our
payments system activities are aimed at "providing efficient and innovative payment
solutions to financial institutions, the U.S. Treasu^and the public."
I want to focus my remarks on a portion of that third area o f activity, specifically,
on the Cleveland Fed's activities and philosophy about the retail payments system.
is the Cleveland Fed doing to innovate and to facilitate change in the retail payments
system that will lead to greater efficiencies? Anc^what role should marketplace forces
play in bringing about those changes and efficiencies?


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I'm sure that all of us here agree that having an efficient and reliable payments
system is extremely important for ongoing prosperity. Each of you, in your own
organization, is working to provide your customers with payments services that are
convenient, reliable, and as low-cost as possible. Similarly, our Bank is active on many
fronts to improve the retail payments system.
For example, the Cleveland Fed, in collaboration with the Atlanta Fed, is leading
the Retail Payments Product Office for the Federal Reserve System. The purpose of that
Office is to coordinate the activities of the twelve Reserve Banks so that our product
development activities are more efficient and so that we can provide uniform and
seamless service to financial institutions that operate across district boundaries.

initiative. It proposes to greatly expand the role of the ACH and community banks as the
conduit for delivering billing information and payments between billers and consumers.
When this idea was discussed last month at a meeting of our Community Bank Advisory
Council, we found there was a lot of interest in pursuing such a joint approach. You will
hear much more about electronic bill presentment and payment during this symposium.
In addition, the Cleveland Fed has taken a major leadership role in the Federal
Reserve System's check modernization project. Although electronic payments are on the
ascendancy, we know that the use of paper checks is still growing and that paper is going
to be with us for many years to come. So, while we continue to vigorously promote
electronic payments, we are also initiating this four-pronged, multi-year effort to
modernize several aspects of the paper check system. You will have the opportunity to
learn much more about this major initiative from Sandy Pianalto later today.


A little over three years ago, the Cleveland Fed had a major leadership position in
a national study on the appropriate future role of the Federal Reserve in the payments
mechanism. We were instrumental in managing the Rivlin Committee's fundamental
review of the payments services the Federal Reserve provides to depository institutions.
That study reached two general conclusions: First, the Federal Reserve should
remain a provider of both check collection and ACH services with the explicit goal of
enhancing the efficiency, effectiveness, and convenience of both systems, while ensuring
access for all depository institutions. Second, the Federal Reserve should work closely
and collaboratively with providers and users of retail payment systems to enhance the
efficiency of check and ACH services, and to help evolve strategies for moving to the
next generation of payment instruments.
In creating the Federal Reserve System, Congress made the Reserve Banks a part
of the private banking sector, in contrast to the Federal Reserve Board of Governors in
Washington which is a federal government agency. This arrangement is unique; other
central banks around the world are government banks, and in many countries, the
commercial banks themselves are government banks. The private nature of the twelve
Reserve Banks is apparent in the facts that each has ks own stockholders, ks own board
o s jl
of directors, and ^ self-supporting, receiving no appropriations from Congress.
A key role of a Reserve Bank is to provide financial services in collaboration with
depository institutions. Throughout the 86 years since the Reserve Banks were
incorporated and opened for business, the specific nature of these services and
collaborations has varied as the payments system has evolved. For example, Reserve
Banks played a very active role in the establishment of the ACH network, but practically

no role in the development of credit cards. 4t-ts-elea*4hat the vast-majority-ofdepoaiUMy
institutions want the Reserve-B
\ andinnQvators4n4heretail pavmentssvstem.
Regarding the development o f thenext generation of payments instruments, we
believe that the private sector, that is, the Reserve Banks, depository institutions, and
other financial and non financial firms, will be the source of that development “
~Reserve3afiks and theother parts of.the private sector, through-collaboration nnd' ^competition, wiU be the wellspring of the innovations that yield increases in convenience,
reliability, confidence and efficiency in retail payments.
Ultimately, it is consumers who will decide which payment methods will be
popular in the future and how quickly these alternatives will be adopted. It is not the
Federal Reserve's role to dictate or mandate payment alternatives. Rather, the Fed wants
to be a facilitator and enabler as firms apply their ingenuity and business judgement to
developing better payment alternatives that consumers will embrace. In addition,
individual Reserve Banks will continue to develop new products and services for our
depository institution customers. And, rather than mandate that our new products be
used, we want our innovations to be judged in the marketplace on their benefits and
Of course, providers o f retail payment services face several significant challenges
in gaining widespread acceptance for emerging retail payment methods. Uncertainty
about the future direction of technology, multiple and competing ventures to introduce
new electronic payment methods, and inter-operability problems have made many
depository institutions reluctant to embrace these new payment methods. In addition,

there is uncertainty among consumers and businesses regarding the risks and liabilities
associated with any new payment method.
Check, cash, direct deposit, ATMs, credit cards, and debit cards all have a
supporting infrastructure comprised of technical standards, protocols, and legal rights and
responsibilities that are clearly stated and understood. Before innovative new payment
methods can gain widespread consumer acceptance, appropriate standards and protocols
must be agreed upon, legal rights and responsibilities established and clarified, and any
inadvertent legal and regulatory barriers removed.
We see one of our roles at the Federal Reserve as helping the financial services
industry resolve many of these issues. The Fed wants to foster cooperation and
information-sharing directed toward finding solutions to the challenges and impediments
that can hamper the transition to a more efficient payments system. The Fed also wants
to facilitate cooperation that is geared toward educating consumers about new payments
One focal point for this effort is the Fed's Payments System Development
Committee, which was established recently as a follow-on to the Rivlin Committee. Co­
chaired by Federal Reserve Governor Roger Ferguson and Boston Fed President Cathy
Minehan, the Committee is focusing on medium- and long-term public policy issues
surrounding the development of the retail payments system. Their mandate is to identify
barriers to future development of the payments system, and to recommend solutions to
the Board of Governors and other authorities.
This year, the Payments System Development Committee is focusing on three
related items: ^identifying barriers to greater use of electronic technologies to collect


checks; 2) assessing gaps in standards that may be inhibiting payments system
innovation; and 3) reviewing the legal underpinnings for converting checks to electronic
Next, I want to say a few words about the Cleveland Fed's Vision, which is to
become "the best example of a private enterprise serving the public interest" Our Vision
has three aspects. First, we want to be an effective leader and change agent in areas of
the financial industry where we add value. Most of our activities that I have been
describing fall into that category.
Second, we strive to conduct our payments system activities efficiently, while
charging prices that cover costs and return a reasonable profit. Over the last several
years, we have been changing our mind-set from that of a government bureacracy to that
of a business that must continuously strive for greater efficiency. And, we have made
great progress in doing more with less, faster, and more reliably. We have moved from
well back in the pack to being first or second every year among the twelve Reserve Banks
in terms of cost efficiency.
The third aspect of our Vision is that we work to develop business processes that
are aligned with our corporate goals and that support the needs of the financial
institutions that are our customers. Improving customer service is a primary focus. For
example, we have four user groups, one at each of our offices, that meet twice a year. In
those meetings, we seek to learn such things as how our customer service can be
improved and what our customers think about emerging technologies, and discuss topics
of industry interest, such as check fraud.


Let me turn now to this payments Symposium.. .2000 and Beyond,|which is part


of our effort to be an effective leader and change agent. fl3ioGeee£you whoJtnmRunc4aiQM6thati believe fewwntly that markets and fi% enteipAse comprise the best route to
prosperity. But more, much more, is needed to achieve^rosperity than just the^freedoms
to go into business, to buy in markets, and to sell haonarkets. Crucially important to
prosperity is a spirit o f cooperation ancjjnpttlal assistance. That spirit is what animates
what we - all of u^ ^e^doi^^«t€loday. We are all here voluntarily, to reason
togetherapd ttflearjjA(5nieach other, so that we and our customers and all of society can
ave a^ctail payments system that is more convenient, more reliable, and more efficient
Today's symposium provides a smorgasbord of ideas, information, and topics for
discussion. Included ar^sessions focused on payments industry trends and what you can
expect from the Federal Reserve^GMnrnf]; the evolution o f electronic payments j
------m]- the needs of ACH customer^ ? mjiis] ; an Ohio community bank's successful
conversion to imagin^fjRuiliej1 the collaboration between the Minneapolis Fed and
some Ninth District banks on electronic presentment image chec pjm hwfuj; a software
vendor’s perspective on electronic bill presentment and paymen)
billers' views on that same topitj^aniiil diEBwajjpn1; and the Fed's check modernization
project fPianafto].
The symposium will conclude with a give-and-take wrap-up session that
epitomizes the cooperative spirit and multi-sector involvement that are crucial for the
successful evolution o f the payments system.

Before I conclude my remarks, I'm going to take advantage of this opportunity
extendjpg two invitations. First, I hope that those of you who haven't visited this Federal
Reserve Bank in the last two years will take advantage of the oppoittmky-to tour our
facility after this symposium ends. This building in which we-arc. mooting, which was
constructed in 1923^is listed in the National Register of Historic Places. It is indeed an
architectural treasure of which we are extremely proud.
Two years ago, on the building's 75th anniversary, we celebrated the completion
of a multi-year renovation and modernization of the entire structure and all of its internal
utilities. Perhaps more important is that all of the building's architectural and artistic
treasures were thoroughly restored to their original condition. At the same time, we
constructed next door a state-of -the-art operations center where we conduct our check,
currency, and electronic payments activities.
We are extremely proud of both facilities and we enjoy showing them off,
especially to you, our primary constituents. If you go on the tour, you will understand
that our pride is well-founded.
My second invitation is to you and your boards of directors. I want you to know
that you are most welcome to bring your directors here for a board meeting. You can use
our board room for your meeting, have a luncheon in our executive dining room and, if
you want, have a presentation by one of our economists. And of course, we would be
delighted to give your directors a tour of our facility.
And now to conclude, I want to reiterate that we value you as customers, we
appreciate your business, and we thank you for participating in this symposium. I


encourage you to actively engage in today's interactive sessions by asking ja ngKI-—
questions and by sharing your opinions, your experiences, and your visions. Such an
open exchange of views is a crucial ingredient in the process of moving the payments
system toward its highest potential.

Now, let me turn the program back over to Ned Richardson.