Payment systems in the US and Europe: efficiency soundness and challenges

Abstract

This article surveys the recent changes in and outlook for wholesale and retail payments in Europe and the US. We document a convergence in payments institutions and patterns of use, although differences in retail usage remain. An overarching theme of our survey is the importance of the differences in regulatory structure between the two areas. These differences are both a product of differing initial conditions and a catalyst for contrasting responses to current technological challenges. The Single Euro Payment Area (SEPA) is a major effort to unify the payment market and instruments in Europe, although substantial heterogeneity remains in some payments platforms. In the more unified US payment system, centralized programs for payment system improvement are much weaker and more preliminary. We examine the consequences of this difference on the responses to the most recent payment innovations – the so-called fintech revolution. Here the key regulatory challenge is to balance the concerns of the traditional providers of payments services within the financial industry with the needs of the newcomers, in order to obtain the right tradeoff between innovation and safety.