Policy issues for central banks in retail payments

March 2003

Foreword

Retail payments are mainly made by consumers and between commercial counterparties to purchase goods and services. As these markets evolve, there is also innovation in payment practices and evolution in the business strategies of payment service providers. Central banks are well aware that fostering the efficiency and safety of the medium of exchange in everyday life is an integral part of their responsibilities towards the general public. Public confidence in the currency could be endangered if retail payment systems were inefficient, impractical for users or unsafe. This report examines the policy issues that central banks face in the field of retail payments. It is the third in a series of three reports by the Committee on Payment and Settlement Systems of the central banks of the Group of Ten countries, which set up a Working Group on Retail Payment Systems to conduct this task.

The two previous reports describe the current landscape in retail payments in the G10 countries and Australia. The first, Retail payments in selected countries: a comparative study, published in September 1999, analyses retail payment instruments and end user markets. The second, Clearing and settlement arrangements for retail payments in selected countries, was published in September 2000.

The focus of this latest report is policy setting. The present involvement of the central banks in the G10 countries and Australia in retail payments demonstrates both common policy themes and significant institutional differences among the countries. The report expresses the common themes in the form of high-level public policy goals, noting their possible relevance also for other public authorities with an interest in the safety and efficiency of retail payments. It recommends certain minimum actions appropriate for all central banks to take to further these goals. It also identifies some other options for central banks, beyond the minimum, which may be an appropriate policy response in certain circumstances and which, depending on the institutional background, may be possible for some central banks.

The report was first issued in September 2002 as a consultation document and comments were invited on all aspects. In the light of comments received, the report has been revised in certain respects, mainly with a view to greater clarity. Its substance is largely unchanged. The CPSS is grateful to the members of the Working Group and its chairman, Carlo Tresoldi of the Bank of Italy, for their work in preparing this report and to the CPSS Secretariat at the BIS for their able support.

Tommaso Padoa-Schioppa, Chairman
Committee on Payment and Settlement Systems