22 February 2018
Visit www.avoka.com

Why do we use so many cheques?

30 August 2002  |  310 views  |  0 cheque book

Why are consumers, merchants, and financial institutions in the US so reluctant to embrace electronic payments even though automated payment networks, such as the credit card and automated clearing house (ACH) networks, have existed for more than 25 years. Sujit Chakravorti, a senior economist and Timothy McHugh, a senior analyst in the emerging payments and policy department at the Federal Reserve Bank of Chicago, look for answers.

The authors study the incentives underlying the payment network to examine why, unlike several other industrialised countries, the United States has been slow to abandon cheques.
Many observers claim that electronic payments are less expensive than cheques. However, these social cost comparisons usually ignore transition costs and the underlying incentives to each payment participant. Furthermore, the provision and usage of payment services exhibit network effects, more commonly referred to as the chicken-and-egg problem, which may impede the adoption of new payment technologies.
Even if electronic payments are less expensive and they can overcome the chicken-and-egg problem, consumers, merchants, and financial institutions may still be reluctant to move to electronic payments.
Chakravorti and McHugh analyse why this is so and explore actions by the Federal Reserve to improve the cheque processing system and whether this could possibly hinder the migration away from cheques.
Finally, the article discusses potential drivers to the adoption of electronic payments.» Download the document now 82Kb PDF

Comments: (0)

Comment on this story (membership required)

Related blogs

Create a blog about this story (membership required)

Solution source

Search by company or single key word