Thus, the check writer and the receiver perceive the costs of using checks as low and have little incentive to seek an alternative. Moreover, alternative electronic systems run straight into the network problem. The value of signing on to a new electronic payment network, such as electronic bill paying system or a smart card, depends on a lot of people and businesses being able and willing to accept the payment. At the same time, people and businesses are unwilling to invest in new payment processing equipment unless they are sure a lot of payors will use it. Electronic systems also exhibit huge economies of scale.
Average costs plummet as volume rises, so small volume is a large handicap.
This vicious cycle makes it hard for any new system to get off the ground and even harder when there are several competing systems each claiming to be the great wave of the future. Without strong leadership and active consensus building across the diverse institutions and constituencies that make up the users and providers of retail payments, we may be stuck in this dilemma for quite a while. The retail payments system, like telephone service or electric power, clearly has some public utility aspects. There is a strong common interest in ensuring that the economy has a safe, reliable, accessible and efficient payments system, retail as well as wholesale. It was in part this strong common interest that prompted the Congress to create the Federal Reserve and to give it both operational and regulatory authority in the payments area.