Also, the Fed won’t track every penny I spend, as I live in Chile. What I’d like is a way to send money to vendors, friends and family in the USA without the expense of wire transfers or PayPal and without making other people have to jump through the hoops imposed by bank systems like Chase QuickPay. It’s really silly that anyone can do a free interbank transfer in Venezuela and Chile and it’s still impossible in the USA. Faced with that market failure, I’m all for a quasi-government agency like the Fed stepping in and taking over the task.

In the developing world telecoms have “leapfrogged” financial services firms by creating payment systems that (initially) targeted the unbanked. As these payment & money-transfer systems took off a few things happened: (1) mainstream (i.e., the “banked”) users joined in, (2) merchants started accepting them at point-of-sale, (3) the telecom companies started to add features slowly transforming these simple services into sophisticated financial products. I’ve written about this in a few places, including here:

http://radar.oreilly.com/2009/09/mobile- banks-in-the-developing-world-prove-simp ler-is-better.html

I pay her in cash.

For what it’s worth, a sizable liquor store chain here in Texas (Spec’s) is an interesting example, as Spec’s offers a 5% “cash discount”, which is prominently displayed on every price label in store. For their purposes, PIN-based debit also counts as “cash” (I’m not sure of their policy on checks). I don’t know the origins of this discount, or if regulations specific to liquor stores had anything to do with the policy at some point in time, but it’s interesting since the discount is obviously greater than the cost of interchange.

Setty–do you really want a payment system where the Fed can track every nickel you spend on anything? Where that information could conceivably be considered a public record subject to FOIA (at some expense, I suppose)?

Felix–Why would ClearXchange be an improvement? A system where Visa and Mastercard have oligopoly pricing power is exchanged for one where Wells Fargo and BofA have that power? Given all that we know of Wells Fargo and BofA’s scrupulously honest and thorough business practices, that doesn’t seem like a great idea (see also: frying pan, fire).

@naiveideas – I think that merchants have plenty of reasons that they prefer paying the interchange cost to trying to move customers to other forms of payment (though they obviously still prefer lower interchange cost). Checks have drawbacks of fraud losses and the time required for customers to write checks, slowing down lines at retail. Cash has handling costs and “shrinkage” from employee theft, plus the loss of impulse buys that exceed the cash that customers are carrying on them.

Of course, the downside to the policy implementation for the government is that cash will also become much more attractive, and my guess is that from a sales tax/ income tax revenue perspective the government doesn’t want this to occur. After all, the real reason why my hair stylist doesn’t accept credit cards is not because of the interchange fee. It’s because he doesn’t want to pay income tax!