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Update Newsletter: Fall 2011

2011 Discussion Papers

Our industry specialists have been busy writing for much of 2011. Here we provide abstracts to the five papers published by the center this year.*

Insolvency Risk in the Network-Branded Prepaid Card Value Chain

Philip Keitel
Published: September 2011

Summary: The result of a March 2011 workshop, this paper summarizes the information presented, including the ways in which consumers and businesses are protected from the insolvency of the issuing bank or a key participant. In addition, this paper highlights practices that have been developed in the industry to mitigate this risk.

Meeting the Demand for Debt Relief

Stephanie Wilshusen
Published: August 2011

Summary: Each year, millions of financially distressed consumers in the U.S. face a difficult choice among the debt relief options available to them. This paper describes the options available to borrowers who seek assistance in managing their debts and discusses the information and incentive problems associated with these options. It also reviews the trends that contributed to the breakdown of the repayment framework and the responses to these trends. Among the responses is a reconsideration of the regulatory structure of the debt relief industry. The paper concludes with a discussion of the importance for debt relief providers and policymakers to evaluate the efficacy of workout options and to develop a deeper understanding of how consumers make decisions about incurring and repaying debt. Wilshusen presented this paper at the Boulder Summer Conference on Consumer Financial Decision Making hosted by the Leeds School of Business at the University of Colorado-Boulder and at the World of Credit and Counseling Symposium, which was held at Magdalene College, Cambridge University.

Federal Regulation of the Prepaid Card Industry: Costs, Benefits, and Changing Industry Dynamics

Philip Keitel
Published: June 2011

Summary: On April 8-9, 2010, the Payment Cards Center hosted a conference that brought together leaders in the prepaid card industry, regulators, consumer groups, law enforcement agents, and industry researchers to discuss the economics of prepaid cards and the benefits and costs of their regulation from the standpoint of several different product categories. In particular, the conference examined ways in which prepaid card products can differ, how the industry has developed over time, ongoing industry dynamics, ways in which the usefulness of prepaid products to criminals might be limited, whether consumers who use prepaid cards are adequately protected, and the challenges facing regulators. This paper summarizes the highlights from the presentations given at the conference and the discussions that ensued.

The Electronification of Transit Fare Payments: Examining the Case for Partnerships Between Payments Firms and Transit Agencies

Philip Keitel
Published: April 2011

Summary: Several of the nation’s largest payment-card-issuing banks are working with public transit agencies to enable consumers to pay fares by using payment cards, and more such partnerships may be on the horizon. On April 23, 2009, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop to discuss the potential adoption of electronic payments by transit agencies from the perspectives of several subject matter experts from J.P. Morgan Chase & Co. James Lock, vice president and senior advisor, Treasury Services Global Advisory Solutions group; Jameson Troutman, strategy manager with Chase Card Services; and Krista Gallagher, from Chase’s retail banking team, attended the workshop. This paper looks at several electronic transit-fare payment models and the potential opportunities these models present to transit agencies and payments firms, such as the opportunity for transit agencies to reduce costs and to operate a more efficient payments infrastructure or the opportunity for the payments industry to increase consumers’ use of contactless payment technology. This paper also identifies significant obstacles to widespread adoption of systems that allow consumers to use their credit, debit, or prepaid cards to pay fares directly.

Getting Down to Business: Commercial Cards in Business-to-Business Payments

Susan Herbst-Murphy
Published: March 2011

Summary: Providing efficiency and cost-savings over paper payments (cash and checks), commercial payment cards are among the fastest growing card segments in recent years. Today, they account for nearly one in every five dollars spent using general-purpose payment cards. And since business and government payments are three times larger than consumer transactions, there is ample room for future growth. Adoption by government and small business has been especially noteworthy. Adoption among large companies, which account for half of commercial expenditures, has been more modest. This paper provides an overview of the commercial card product set, its successes and challenges, and the adaptations that have been made to meet market demands and expectations.