Innovative new technologies have drawn the public’s attention to payments, particularly mobile payments, in recent months. The number of mobile payments transactions, whereby a payment is initiated through a mobile device such as a smart phone, is expected to grow at an annual rate of 97% over the next few years. Businesses have taken note; 58% of global companies contacted in a 2011 KPMG survey have already put in place a mobile payments strategy.

Congress has also demonstrated increased interest in payments issues. The Senate Banking Committee and the House Financial Services Subcommittee on Financial Institutions and Consumer Credit have each commenced a series of hearings to examine how mobile payments could change the provision of
financial services. Additionally, Congress took an active role in the regulation of payments markets with its Dodd‐Frank provisions targeting remittance transfers (Section 1073) and debit card interchange fees (Section 1075, or the Durbin Amendment).

In the coming weeks, The Clearing House Banking Brief will address developments in and implications of the expanding mobile payments space. But before diving into mobile payments, this edition of the Banking Brief takes a look at the payments systems in place today. These payments systems not only provide the plumbing for our entire banking system, but in many cases are the rails over which mobile payments are transacted.

The Basics: What is a Payment?

A payment is composed of three principal components: communication, a transfer of value (settlement), and legal certainty. In the case of a cash transaction at the corner store, the handing of currency to the clerk in exchange for merchandise can embody the communication and transfer of value
and provide legal certainty. In the case of a payment initiated by a mobile device, the payment information might be communicated by a wireless network, the payment settled through the banking system, and legal certainty provided by an array of federal and state consumer protection laws.

Over the next few weeks the Banking Brief will examine the history, structure, and regulatory framework of the following payment forms:

• Cash and check
• Credit, debit, and prepaid cards
• ACH and wire, and
• Mobile payments.

The Clearing House is the nation’s oldest banking association and payments company established in 1853 to bring order to clearing and settlement between banks.