participants in the retail and wholesale payments systems to better understand a variety of perspectives on key issues. we will continue to sponsor different types of forums as an important part of our public outreach activities. conclusion despite the many challenges associated with the rapid evolution i have discussed today, the united states continues to enjoy a safe, efficient, and reliable payment system. the strength of its financial institutions, as well as its payments and settlement systems, are the bedrock of the country ’ s financial infrastructure. as innovations occur in the payments system, market forces will determine which of these innovations will ultimately best serve the needs of consumers and businesses. we, at the federal reserve, need to continue to address barriers to innovation to give the private sector scope to experiment with new payment services, while we continue to fulfill our responsibilities to foster a robust payments system that protects and benefits its participants. at this time of strategic change, i believe that dialogue among payments system participants and users will help all of us identify and address issues of innovation and risk in a balanced and thoughtful manner. this conference is a welcome and constructive element in this important dialogue.

back - office systems to integrate the more complex aspects of electronic check receipt into their core banking and risk - management systems. we are beginning to see evidence that depository institutions are starting this reengineering process. generally, check 21 volumes at the reserve banks are increasing rapidly, reflecting the efficiency gains that will inexorably lead to the electronic processing of almost all checks in the not - toodistant future. the greater use of electronic payments has not been uniform across all market segments. a closer look at payment trends reveals that consumers and businesses may have different perspectives on electronic payments. businesses have been encouraging consumers to use electronic payment alternatives and have been the driving force behind the conversion of consumer checks into ach payments. in turn, consumers, recognizing the convenience of electronic payments, have allowed their checks to be converted into ach payments and have initiated an increasing number of their payments electronically. businesses, on the other hand, have been more cautious about having their own checks converted into ach payments or switching from paper to electronics. there are some obvious reasons for this behavior. first, businesses often have cash - management processes or legacy accounting systems in place that rely on paper checks. a payments conference hosted by the federal reserve in 2003 found that businesses face organizational and technical challenges in moving to electronics. for example, businesses may need to make significant investments in their back - office payment, billing, and accounting systems before they can use electronic payments more frequently. in addition, many businesses are reluctant, from a control perspective, to allow others to debit funds electronically from their accounts. if businesses can overcome these challenges, they should be able to make and receive a much larger portion of their payments electronically. at the same time, the financial incentives for businesses to make these changes will increase as the relative costs of electronic versus paper payments continue to shift in favor of electronic payments. challenges of payment system innovation in addition to low costs, successful innovations must satisfy at least three criteria : meet end - user needs, address network externalities, and provide sufficient controls over risks. to be successful, new payment instruments, and changes to existing instruments, must ultimately be more convenient and cost - effective for end users. consumers and businesses are not likely to modify their payment behavior unless they are shown how they will benefit from a change. a federal reserve board staff study conducted in 2002, “ the future of retail electronic payments systems, ” highlighted this observation. the study was based on interviews with payment system innovators,