Annual Report 2014 | Federal Reserve Bank of St. Louis


By David Sapenaro

Throughout its history, the U.S. payment system has undergone significant change, and today is no exception. Credit and debit cards are continuing to replace check writing. Online payments have connected consumers with merchants around the world. Mobile phones—in addition to becoming people's personal cameras, gaming consoles, calendars and video players—are emerging as a new method of paying for goods and services.

What Is the U.S. Payment System?

This report features the Federal Reserve's efforts to bring stakeholders together to examine improving the U.S. payment system, focusing on specific items such as speed, security and efficiency. But what exactly is the payment system?

A simple definition is the means by which funds are transferred between parties. This includes a wide range of forms—such as cash, check, credit/debit card, ACH and wire transfers—and the standards and protocols by which they are exchanged. This also involves numerous participants, including individuals, businesses, banks, rules and standards groups, technology solutions providers, payment network operators, emerging payment providers and the government, which work together to varying degrees to keep the payment system functioning.

Yet with all these advances in technology and convenience, inefficiencies remain in the U.S. payment system. The system's speed hasn't evolved to the capabilities that many consumers are beginning to demand. Security threats are constantly emerging and challenge the integrity of the system. Many of the new payment methods are lacking the ubiquity needed for widespread efficiencies.

These technological gaps are well-known, and worthwhile collaborations and research are underway by many stakeholders—such as individuals, banks, businesses, current operators and system innovators—to address these concerns. Still, a holistic view of what would benefit everyone is key. That's why the Federal Reserve has embarked on a project to bring these stakeholders together for an end-to-end look at how to improve the U.S. payment system. This project stems from the Fed's belief that a safe, efficient, secure and broadly accessible U.S. payment system is crucial to the U.S. economy and contributes to the nation's financial stability.

In early 2015, the Fed released a paper, "Strategies for Improving the U.S. Payment System," detailing the desired outcomes for payment system improvements over the next several years and the strategies the Fed will pursue with appropriate stakeholders to enhance the U.S. payment system. This paper was the result of years of work with these stakeholders to identify the gaps and opportunities present in the system. By no means is the paper the end of the work to be done. In fact, one could say the real work is just beginning.

David Sapenaro

David Sapenaro is the first vice president and chief operating officer at the Federal Reserve Bank of St. Louis. He recently completed his responsibility as the Federal Reserve's interim payments strategy director.

Back to Top