| Booklet:
Retail
Payment Systems Section: Retail Payment Systems Overview Subsection: |
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Retail payments usually involve transactions between consumers and businesses. Although there is no definitive division between retail and wholesale payments, retail payment systems generally have higher transaction volumes and lower average dollar values than wholesale payments systems. This section provides background information on payments typically classified as retail payments. Consumers generally use retail payments in one of the following ways:
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Purchase of Goods and Services—Payment at the time the goods or services are purchased. It includes attended (i.e., traditional retailers), unattended (e.g., vending machines), and remote purchases (e.g., Internet and telephone purchases). A variety of payment instruments may be used, including cash, check, credit, or debit cards. |
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Bill Payment—Payment for previously acquired or contracted goods and services. Payment may be recurring or nonrecurring. Recurring bill payments include items such as utility, telephone, and mortgage/rent bills. Nonrecurring bills include items such as medical bills. |
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P2P Payments—Payments from one consumer to another. The vast majority of consumer-to-consumer payments are conducted with checks and cash, with some transactions conducted using electronic P2P payment systems. |
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Cash Withdrawals and Advances—Use of retail payment instruments to obtain cash from merchants or automated teller machines (ATMs). For example, consumers can use a credit card to obtain a cash advance through an ATM or an ATM card to withdraw cash from an existing demand deposit or transaction account. Consumers can also use personal identification number (PIN)-based debit cards to withdraw cash at an ATM or receive cash-back at some point-of-sale (POS) locations. |
A number of important trends in the past decade have influenced retail payment systems. One such trend is the rapid consolidation of providers of retail payment services. Credit issuers, merchant acquirers, processing companies, and check processors are consolidating as firms seek economies of scale. These changes have meant that some small and mid-sized financial institutions are exiting the business and outsourcing certain functions of the retail payments process to larger financial and nonfinancial institutions.
Another important trend is the shift from paper to electronic payments. Recent research has found that consumer use of electronic payments has grown significantly in recent years, and the trend will accelerate.
Debit and credit cards were one of the key drivers for much of the growth in electronic payments. Although on-line, or PIN-based, debit cards were introduced in the early 1980’s, rapid adoption has only occurred since the early 1990’s. Off-line, or signature-based, debit cards, introduced in the late 1980’s, have experienced significant growth since the mid 1990’s, and recent surveys have found that off-line debit card transactions have now overtaken on-line debit card transactions by almost a three-to-one margin.
ACH payments also have grown significantly. Consumers traditionally used checks for a large portion of bill payments in the United States. However, consumers are increasingly using direct bill payment through the ACH. Despite the increase in electronic bill payment, many consumers still rely on checks to make a significant portion of their bill payments. More recently, retail firms have employed check to ACH conversion processes to allow electronic settlement, thus reducing the number of checks that flow through the payment system.
Internet-based
bill payment systems are transaction origination platforms that allow
customers to initiate bill payments using existing payment systems. Depending
on the bill payment software, service provider, and payment receiver used,
the payment transaction may be processed as an electronic funds transfer
(EFT), ACH, or check.