, restructuring, like rapid technological change, may actually slow things down just because information technology people and their top bosses simply have too much to think about at once. coping with mergers, the year 2000, and the transition to the euro - - not to mention wild swings in the financial markets - - may not allow radical changes in payments technology to get much attention in the next year or two. • a third reason to expect acceleration of change in retail payments is the explosive growth of the internet and its increasing use for shopping and business transactions. the number of consumers and small businesses using the internet routinely for transactions that require payments could skyrocket if several different types of industries move in this direction at once. [UNK] it could quickly become “ normal, ” not only to shop for mortgage rates on the internet, but to apply for mortgage loans and get approved over the internet as well. [UNK] it could also become normal for potential college students of all ages to shop for colleges or course offerings over the internet and to apply and be accepted electronically as well. [UNK] it is possible that paying taxes, trading securities and making some kinds of purchases on the internet could become routine activities of a large fraction of the population quite quickly ( the way making phone calls and driving a car became routine quite quickly for earlier generations ). if this happens, the demand for electronic retail payments is likely to rise rapidly as well as to spill over into increased demand for ( or reduced resistance to ) electronic payments methods for non - internet transactions as well. • the key unknown here is how fast average people become comfortable with pcs, lose their anxiety about electronic transmission and storage of data and overcome the feeling that if something isn ’ t written on paper and saved in a drawer it isn ’ t real. • the usual assumption is that computer literacy is age - and income - related and that it will take a long time before older and less affluent ( or at least less educated ) people get comfortable with electronic payments and paperless transactions. but we could be in for some surprises as governments move quickly to electronic benefit payments, which mainly affect older and less affluent groups. aggressive efforts to improve computer instruction in low income schools, compensate for less rich educational environments with creative use of the internet, and prepare welfare families for modern clerical and data processing jobs could undermine some widespread assumptions pretty quickly, as could aggressive marketing of senior citizen computer access and services. the most rapidly growing demographic group currently on the internet is retirees. for all of these reasons, i would be

willing to bet that, despite the relatively slow pace of change in retail payments over the past several decades and despite americans ’ long - standing affection for the convenience, flexibility and familiarity of the paper check, we are likely to get to some sort of tipping point early in the next century ( less than a decade from now ) after which electronic retail payments quite quickly become the norm and the volume of checks falls rapidly. this does not mean that i see retail payments moving to some single electronic payment instrument that would substitute for the check in all or most of its uses. rather, i suspect we will see the evolution of several different systems, adapted to different kinds of payments that consumers and businesses make. some of these systems are in use already, some will be discussed today, others are not yet ready for prime time. some will be developed by the banking system, some by non - banks in cooperation, or even in competition, with depository institutions. so what will be the role of the federal reserve in all this? as you know, i chair a fed committee which is explicitly focussed on this question. we issued a report last january and are continuing to discuss how the fed can best contribute to the efficiency and safety of a retail payments system to which all depository institutions have access. the committee now consists of presidents mcdonough and minehan, governors kelley and ferguson and myself. you will hear from governor ferguson tomorrow afternoon. we see our role as working closely with the other participants in the payments process to help modernize the retail payments system and facilitate the transition over time to an efficient, convenient, and primarily electronic system. we spent quite a lot of time and energy last year discussing whether we should exit the business of processing check and ach payments. we decided to stay in and use our operational presence to help modernize both check and ach and to work actively with others to evolve a vision of a more efficient future payments system and help remove obstacles to its realization. in practice, what does that mean? first, it means increased efforts by the federal reserve banks - as providers of check and ach services - to develop new products that reduce costs and to price and market them effectively. in the first instance, that means focussing on ecp with truncation and imaging, in order to meet market demand and gain experience with different technologies. we hope to learn a great deal more about whether the wider use of these products can reduce the cost of check collection by substituting electronic technologies