"Perspective on Payments" focuses on automated clearinghouse (ACH) systems for making electronic payments. It suggests that although ACHs benefit banks, businesses, and consumers, their growth is slowed by high fixed costs and coordination problems resulting from network externalities.
- Define the following terms used in the reading:
- automated clearinghouse (ACH) system
- network externality
- What are examples of typical transactions that can be made through an ACH?
- As the reading points out, the cost of making a payment through an ACH is significantly less than by check. Why, then, isn't usage of ACHs more widespread?
- What questions does the author ask to test the effect of network externalities on an individual bank's decision to invest in ACH technology? What answers are suggested?
- Why is the proportion of all payments made by ACH higher in Europe than in the U.S.?
Source: "Perspective on Payments." Joanna Stavins, Federal Reserve Bank of Boston Regional Review, 13(1), First Quarter 2003, pp. 6-9.
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