Central bank digital currency could improve payments, Fed says
WASHINGTON—The Federal Reserve has released a white paper on the potential creation of a central bank digital currency (CBDC), a welcome step according to the Merchants Payments Coalition (MPC).
However, the Fed warned that its long-awaited document was not “intended to signal that the Federal Reserve will make any imminent decisions” regarding a CBDC, but said that a “wave” of technological advances, including digital wallets and mobile payments, has led central banks around the world to consider the benefits and risks of issuing digital currency. The agency noted that the use of cash has fallen from 40% of US transactions in 2012 to 19% in 2020, as the use of credit and debit cards and other electronic payments has increased.
“A CBDC could potentially serve as a new basis for the payment system,” the newspaper said. It could be used “to make basic purchases of goods and services or pay bills”, could “support faster and cheaper payments” and “could reduce transaction costs”. In combination with instant payment initiatives like the FedNow service which is expected to debut next year, it “could reduce the costs and fees associated with certain types of payments.” Digital currency could also be loaded into digital wallets, as is the case with credit and debit cards, according to the newspaper.
The Fed document comes as swipe fee card networks and banks charge merchants for processing transactions continue to grow.
For Visa and Mastercard credit cards, which account for nearly 80% of the U.S. credit card market, swipe fees averaged 2.22% of the purchase price and totaled $61.6 billion in 2020, up 137% from the previous decade, according to the Nilson report. When all card types and brands are included, fees totaled $110.3 billion in 2020, up 70% year over year. The fees drive up the prices retailers have to charge and, according to payments consultancy CMSPI, equates to about $724 a year for the average American family.
MPC last week sent a letter to US antitrust regulators to review swipe fees charged by major US credit card companies after Amazon threatened to ban UK-issued Visa cards and sequentially reversed the decision.
In the United States, credit card swiping fees remain one of the highest operating costs for convenience retailers after labor, according to NACS state-of-the-art data. industry. Consumer preferences for more contactless transactions and the challenge of coin circulation in the summer of 2020 have led to record debit and credit card usage in convenience stores. In 2020, 74.6% of all transactions were paid for in plastic, and the overall card fee paid by the convenience store industry was $10.7 billion, according to NACS SOI data.