Authors:Kenneth N. Kuttner and James J. McAndrews

The swift growth of e-commerce and the Internet has led to the development of a new form of electronic funds transfer—the personal on-line payment—that uses web and e-mail technologies to initiate and confirm payments. This article describes this payment instrument and the trends that have given rise to it. The authors explain that personal on-line payment systems are already providing a convenient alternative to checks, money orders, and cash, and may replace credit cards for some small-scale retail e-commerce. However, issues such as the interoperability of diverse systems and the systems’ inherent risks will continue to be central. The authors also suggest that although personal on-line payment systems are not likely to have a great impact on monetary policy, they do raise regulatory issues associated with consumer rights and protection.