Payment Systems Electronic Authentication Michael Versace Retail Payments Office Federal Reserve Banks June 1999 Retail Payments Office Federal Reserve Bank of Boston 600 Atlantic Avenue P.O. Box 2076 Boston, MA

Growing Payments Market Transformation in the Payments System –Changing customer priorities –Technology advances and improvements –New participants –Blurring of financial industry boundary

Transformation Results Proliferation of payment vehicles Fragmentation of the value chain New competitors, new solutions, still old problems (e.g., authentication) Winners and losers

Commerce and Payments Technology enables current and new forms of commerce Payments follow commerce Payments technology must keep pace with commerce

Payment Systems Components A basis of value exchange –business contract, consumer purchase An accounting environment to record claims on value –ACCOUNTS and rules Logical and physical network to transfer claims on value

Electronic Authentication PINS evolve to more sophisticated solutions designed for commerce environments PKI comes in many flavors today –far too early in “market development” to rule out fundamental business processes Electronic authentication of monetary transfers using PKI ultimately links digital signatures to ACCOUNTS

Digital Signature Authority Authority models are business processes, not technologies Account authority retains the linkage between PAYMENT systems and CREDIT systems –effective risk management Account authority has the potential to preserve aspects of privacy

Account Authority Practice Concept being tested as part of Echeck in the US –Singapore, Canadian, other programs planned Rules for retail payment systems provide guidance on use of digital signatures, without certificates, when pre-existing relationships exist

Questions Michael Versace Program Manager - Emerging Payment Systems Federal Reserve Financial Services (617) Echeck Web site