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Update Newsletter: Summer 2003

From the Director

Welcome to this third edition of Update, a regular publication of the Payment Cards Center intended to highlight recent PCC activities and relevant industry developments. Available also on our website, Update complements the broader and more robust content available at

The Payment Cards Center, which was established at the Federal Reserve Bank of Philadelphia in late 2000, was formed to develop insights and communicate on issues relevant to the payment cards industry. Its goal is to inform the active debates that surround many of the issues facing the industry and policymakers.

As evidenced by the varied agenda of topics addressed by the PCC in these first two years, it is clear that the payment cards arena is one of the more dynamic sectors in the financial services industry. The pace of change continues to accelerate. Payments innovation, competition and industry restructuring, regulatory and legislative developments, and changing consumer behaviors all translate into new opportunities and challenges to the wide range of constituents affected by these dynamics.

Promoting and supporting dialogue among payment cards stakeholders is central to the way the PCC executes its mission. This emphasis on structured outreach and dialogue with a variety of involved parties is a defining characteristic of this PCC. Industry perspectives represent a critical element of our outreach efforts and an important means to ensure that our agenda reflects current market realities. We continue to expand this dialogue by participating in industry forums as well as including industry representatives in our internal workshop series. Workshop discussions motivate written analyses, which we publish in our Discussion Paper series. As of this date, the PCC has posted 18 papers to its website. A full list of publications is featured later in this newsletter.

In developing our conference programs, we attempt to bring together a mix of industry, academic, and policy participants. One such recent event, "Innovations at the Point of Sale," PDF included not only payment providers but also payment specialists from merchant organizations, as well as staff from a number of Reserve Banks and the Board of Governors. A brief summary of this event is included in this issue of Update.

The Payment Cards Center is committed to supporting original research that increases our understanding of underlying payment industry dynamics. Our colleagues in the Bank's Research Department help focus our efforts in this regard as does the PCC's visiting scholars program. In recent months, several visitors to the Bank have participated in various Research Department and PCC activities. In this issue, we highlight two recent payment-cards-related papers now in the Research Department's Working Paper series.

The Bank's Research Department has a strong tradition of banking and payments research. This spring, the department hosted its third annual conference on consumer finance and payments. This year's event, which was held in association with the Journal of Banking and Finance, dealt with "Retail Credit Risk Management and Measurement." The conference brought together leading researchers in the field, and discussions benefited from inclusion of industry professionals and other Payment Cards Center associates.

Consumers play a central role in any study of payment cards activity. On one level, it is ultimately consumer behavior that determines the pace of adoption and extent of use of alternative payment vehicles. On another level, laws and regulations are developed to ensure that consumers are protected from abusive practices and their behaviors are motivated by informed decisions. The Payment Cards Center strives to provide insights on both levels.

Workshops and conferences regularly include consumer perspectives. In recent months, we have hosted visitors who have addressed a number of related topics, including credit card users' exit behaviors and accuracy and fairness issues in credit bureau reporting. In the future, the PCC's staff will work with colleagues in the Community Development Studies and Education Department to integrate the topic of payment card use into the Bank's financial literacy program. The PCC has built relationships with credit counseling services, interested academic researchers, and concerned issuers to better understand changing consumer payment dynamics. This spring, the Payment Cards Center worked with the Bank's Public Affairs Department to develop a cards-focused module, called "Swipe-It," in the Bank's new interactive exhibit "Money in Motion," described on page 11.

Although the Payment Cards Center is not responsible for defining Federal Reserve policy nor is it part of the System's supervision and regulatory functions, its mission focuses on promoting dialogue and analysis that helps inform policy debate. As such, our activities are oriented toward developing and communicating insights into a range of payment-card issues.

In this Update, we highlight two recent initiatives we believe have made relevant contributions to informing policy discussion. First is a summary of a discussion paper "Credit Card Pricing Developments and Disclosure," PDF written by PCC analyst Mark Furletti. The second is "Financial Privacy: Perspectives from the Payment Cards Industry," PDF a conference that brought together a range of practitioners and legal experts for a roundtable discussion. The full text of these papers is available on the PCC's website.

We hope you enjoy this issue of Update, and we thank you for your continued interest in and support of our efforts. We are eager to hear from readers who have comments or suggestions as to how we can improve our efforts to deliver a meaningful agenda.