Can the Fed be a Payment System Innovator?

The payment system is a communications industry in which Federal Reserve Banks, in their check collection activities, provide communication services. The history of government intervention in other communications industries offers lessons for the Fed in its efforts at payment system innovation. Intervention, when it employs barriers to competition in the interest of promoting widespread access to services, weakens the incentives of market participants to adopt new technologies. Conversely, removing barriers to competition promotes efficient innovation but may also require some retreat from the goal of universal access.