FROM THE OFFICE OF PUBLIC AFFAIRS

Good morning. And thank you for that warm introduction, Gary. I am pleased to be here today to kick off the Treasury Department's conference on electronic financial transactions. Let me first take a moment to thank my colleagues at Treasury who have worked so hard to make this conference happen: Greg Baer, Don Hammond, Michael Beresik, Joan Affleck-Smith, Sue Hart, Roger Bezdek, Cathy Donchatz, Joanne Franklin and Diane Johnson. All these individuals, and many others, deserve our warmest thanks for organizing this impressive event.

I have looked forward to this conference for quite some time and believe that the public policy issues being discussed here are important and timely. E-commerce cannot reach its full potential unless payment systems exist that allow consumers and businesses to pay for goods and services at the same time that they contract for them, and allow them to do so securely and reliably.

We live in an exciting time. New information technologies have ushered in an economic transformation as profound as that of the Industrial Revolution of the 19^th century. This Information Revolution has been a driving force behind our nation's unprecedented prosperity. We are in the midst of the longest economic expansion in our nation's history. By the end of this fiscal year, we will have achieved three straight years of unified budget surpluses, totaling just over $400 billion.

When this Administration took office in January 1993, there were fewer that 1,000 web sites on the Internet. Many people had not heard of the World Wide Web, let alone come to terms with e-mail, URLs or online shopping. Now, of course, these terms are part of our everyday language and the Internet is an integral part of daily life for many Americans. The most basic ways in which we interact and transact, educate and communicate are being transformed by the Information Revolution in ways we are only beginning to see today.

The Clinton-Gore Administration has worked hard to create an environment in which this Information Revolution can flourish, adding efficiencies and dynamism to our economy.

• We have helped to instill confidence in the Internet by ensuring that appropriate measures are taken to protect consumers, guard individuals' privacy and safeguard critical infrastructure components.
• We have fostered the legal and regulatory climate necessary to promote the growth of electronic commerce. On issues such as digital signatures, electronic payments and Internet taxation, the Administration is ensuring that our laws and institutions keep pace with the rapid changes in e-commerce technology.
• And as part of our efforts to promote the growth of the digital economy, the Administration has recognized the need to invest in educating and training our workers to bridge the "digital divide."

President Clinton and Vice President Gore have also used the Internet to make government work better for the American people. We have come a long way since Vice President Al Gore became the first nationally elected official to participate in a live, electronic town meeting six years ago. Americans are now using government web sites to file their taxes with the IRS. Every Cabinet department is online, using web sites to make information and services available to people at the click of a mouse. You can go online to apply for student loans, find new jobs and compare Medicare options. People are tapping into the latest health care research, browsing the vast collection of the Library of Congress and following NASA missions into outer space.

E-government involves access to government information and services 24 hours a day, 7 days a week, in a way that is focused on the needs of our citizens and businesses. Citizens can avoid traveling to government offices, waiting in line or mailing paper forms. The federal government is saving time and money by transacting business electronically and providing better services.

As part of the Administration's continuing efforts to shift government services to the Internet, the White House is launching Firstgov.gov, which President Clinton announced in his first web cast address in June. This is a customer-focused web site where citizens can find every online resource offered by the federal government at one easy-to-use location. This effort introduces a single point of entry to one of the largest and most useful collections of web pages in the world.

With regard to electronic financial services and transactions, the Administration has already taken two very important steps to put in place a framework for the future that lies ahead for the financial industry.

The first step was the landmark financial modernization act signed by the President last fall. This Act opened the door to greater innovation and competition by breaking down outdated barriers between banks and other financial service companies. It also took the first important steps toward the privacy protections necessary in an increasingly electronic financial world.

The second step was the "digital signatures" bill passed by Congress earlier this summer. This legislation removes legal impediments to conducting transactions online by preempting requirements for contracts, notices and records to be on paper, while preserving the protections that consumers enjoy in the paper world. It is a major milestone in the development of electronic finance.

Both the financial modernization legislation and the digital signature bill represent historic steps for the American financial industry. They represent this Administration's commitment to laying the groundwork for the rapid development of online financial services.

The Administration's efforts to promote the growth of e-commerce extend to the foreign policy realm, as well. The Internet has been a key factor driving the new global economy by permitting interactions across borders more easily then ever before. While much of e-commerce to date has focused on the U.S. economy, attention is turning more and more to the international implications of the Information Revolution. Whereas even a year ago, we were met with skepticism and fear of the Internet in international fora, this year both developed and developing countries are eager to embrace the internet and replicate for their countries some of the prosperity that the U.S. economy has enjoyed.

Yet, it is difficult for e-commerce to flourish in countries where the payment system is inadequate, government regulatory regimes may be severe, or telecommunications infrastructures may be outdated. Did you know that mainstream e-commerce companies, such as GAP.com, Nike.com or Walmart.com, often refuse to ship overseas at all because of the difficulties involved? The enormous potential of the new global economy and of e-commerce will remain unfulfilled if vast parts of the globe are left behind.

Toward this end, the Administration, through its "Cross-Sector Initiative," is identifying and eliminating barriers to international e-commerce by working with foreign governments to remove often severe regulatory and logistical barriers in the telecommunications, transportation, customs, payments and delivery service sectors. We are advising foreign governments that, in order to reap the benefits of the new global economy, they need to adopt new policies and laws that will encourage innovation, investment and the efficient delivery of goods ordered electronically. And countries have been remarkably receptive to this message. Previously, countries might have expressed little interest in our advice to improve civil aviation landing rights, for example. Now, when we tell them that such measures are essential to prepare themselves for the new global economy, they thank us-as one Middle Eastern country recently did-for providing just the argument needed to motivate their bureaucracies to implement reform.

At the Treasury Department, we recognize that it is important to lead by example, and thus we have invested much time and many resources in thinking about how we can adjust the way the government conducts its business to adapt to rapid advances in information technology. I am pleased to tell you that we have had significant success using new technologies. In some areas, we are ahead of the private sector.

Treasury, through the Financial Management Service (FMS), runs one of the largest payment collection systems in the world, with more than $1.5 trillion-or three out of every four dollars of U.S. government revenue-now collected electronically. In addition, three-quarters of all government benefit payments are now made electronically. So are sixty percent of payments to vendors.

We are the largest issuer of stored value cards in the Western hemisphere. This year we will issue close to a quarter of a million stored value cards at U.S. military installations throughout the world. FMS has stored value projects at Army and Air Force training sites throughout the U.S. And in May, FMS announced a project called EagleCash whereby stored value cards were issued to soldiers, civilians and contractors at U.S. peacekeeping bases in Bosnia.

We also are developing or testing a variety of new programs, including digital cash, secure Internet e-mail for the delivery of digital checks to vendors, and Automated Clearing House (ACH) debit authorizations over the Internet.

Sales of Treasury debt, both retail and institutional, also take advantage of new technologies. Auctions of Treasury securities are now entirely electronic, as the last paper bidders were recently moved to an Internet-based system. Consumers holding Treasury securities through the Treasury Direct program can make purchases or reinvest on line or through an automated phone system. Even Savings Bonds can now be purchased over the Internet.

Let me turn briefly to the specific topic of today's conference: electronic financial transactions. Payment represents both one of the Internet's greatest opportunities, as well as one of its greatest bottlenecks. Technology could ultimately provide us with the means to permit safe, secure on-line movement of money. On the other hand, without this capability, the growth of e-commerce will be hampered. In order for e-commerce to meet its potential, people need to be able to not only make purchases instantly online, but also to pay for those goods and services in a way that is convenient, secure and real-time.

We need payment systems that are safe, secure and reliable. We need payment systems that are viable for the large business-to-business transactions that are projected to drive the enormous growth projections for e-commerce in the coming years. We need payment systems for individuals to make purchases, pay their bills or pay one another-whether for an online purchase at Ebay or as a convenient way to reimburse a friend for the cost of last night's dinner. To date, such electronic forms of payment have not gained widespread acceptance. Only a limited amount of electronic commerce is actually being paid for online. In 1999, of the $146 billion in purchases that were either browsed or ordered online, less than $20 billion of that was paid for online.

Moreover, electronic payments are not limited to the Internet. In Europe, people are now able to use their mobile phones to pay for parking meters and vending machines rather than fumble in their pockets for change. Here in the U.S., five McDonald's restaurants in Santa Ana have reached an agreement with local authorities to allow motorists to zip through the drive-through lanes and have the customers' Fastrak electronic toll transponders billed rather than pay with cash. These are the kinds of exciting advances in digital money and mobile-commerce that will revolutionize our daily lives. And they are the kinds of exciting advances that you will hear discussed and debated today.

The rapid advances being made in the area of electronic financial transactions raise challenging public policy issues-such as privacy, security, standardization and access. Difficult though they may be, finding solutions to the various challenges of moving payments securely and efficiently online is essential if we are to see e-commerce grow to its full potential and see the concomitant benefits for consumers, businesses and our overall economy.

I hope that today's conference will confront some of the important and difficult issues in the area of electronic financial payments. For example:

• Credit cards are extremely expensive for merchants and on-line credit card fraud is nearly ten times that of signature-based credit card retail purchases. Nonetheless, they are widely desired by consumers and offer protections to consumers. How do the panelists see this dilemma being resolved?
• Electronic Check Presentment has been the "killer application" for e-commerce for the past decade, but has had a disappointing track record. How do the panelists view the realistic prospects for a viable ECP system?
• What institution do the panelists envision facilitating the development of products such as e-cash, e-checks, e-credit, digital signatures, etc.? The Federal Reserve Bank? A card association? A new institution?
• What "peer-to-peer" electronic payment mechanism, capable of supporting payments between individuals where there are no prior relationships, do the panelists envision emerging in the near future?

Today, you will have a unique opportunity to hear experts from the government and private sector offer their views on these challenges, as well as their visions for the future of the Information Revolution. This promises to be an educational and exciting day, and I am pleased that you could all make the time to be with us for it.