In October 1996 Fed Chairman Alan Greenspan appointed a committee to examine the future role of the Federal Reserve in Payment Services. In early 1998, the committee issued The Rivlin Report, named for the Vice-Chairperson Alice M. Rivlin. The bottom line of The Rivlin Report is a recommendation that The Federal Reserve continue as a provider of both check collection services and (ACH) Automated Clearing House services, and that it should take an active role in enhancing efficiency, effectiveness, and convenience for all depository institutions. Short of total privatization of check clearing, which had been discussed in some circles, this pronouncement is all mom and apple pie.
The report continues to provide additional recommendations that may go much further, and may be misunderstood by some. It recommends that the Federal Reserve banks continue their efforts to provide Electronic Check Presentment and Check Truncation services to meet "market demands." While it is clear that banks have good reason to process with both the Fed and Private Clearing Houses as efficiently as possible (market demands), it is less clear that consumers or even retailers are demanders of ECP.
The Rivlin Report also recommends that the Fed use their operational presence as major check collection intermediaries to facilitate the growth of ECP and truncation where "demand exists." But then it actually recommends creating the demand, suggesting that the Fed price electronic check services low enough to encourage the use of electronic check presentment and other electronic check services.
(Editor's Note: Can these savings find their way to retailers in sufficient quantity to pay for the equipment and services necessary to truncate checks?)
Without considering the Fed's current 25% stake of current check processing, the report also recommends that the Fed should play a more active role in the evolution of strategies to move to the next generation of payment instruments (whatever they may be).
POS ECP differs from truncation and electronic presentment because the latter originate at the originating financial institution. While some Point-of-Sale ECP proponents argue that DDA/MICR mismatch or ability to get to the DDA is limited and controllable, The Rivlin Report states that the Fed should address the technical ACH format related issues that limit the ability of depository institutions and corporations to receive and process vendor payment information.
I did find it interesting that the report mentions it is not yet clear whether the whole check system would benefit from moving toward ECP truncation, and the working groups studying this process should assess whether a coordinated move to ECP and truncation is feasible and cost effective.
