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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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January 20, 2020

We're Number 1! But Why?

A new paper Adobe PDF file formatOff-site link from the Kansas City Fed asks the question, why are U.S. card fraud rates higher than those of other developed countries? Economist Fumiko Hayashi found that even after EMV migration in 2015, the U.S. had a significantly higher in-person card fraud rate than did Australia, France, and the United Kingdom. In all three years studied—2012, 2015, and 2016—the U.S. in-person fraud rate was more than three times higher than that of the other countries (see the chart).

chart 01 of 01: In-Person Fraud Rates

She attributes these differences to three factors:

  • The United States had a smaller share of chip transactions. EMV migration in the United States didn't really begin until 2015, compared to years (even decades) earlier for the other countries. According to the Federal Reserve Payments Study, 2 percent of in-person general-purpose card payments used chip authentication in 2015; that share increased to 57 percent in 2018.
  • The other three countries use the multi-factor chip-and-PIN verification, which is a stronger method than what U.S. networks use: most chip transactions are chip only. For in-person general-purpose card payments in the United States in 2018, the Federal Reserve Payments Study found that 21 percent (17.8 billion payments) used chip-and-PIN.
  • U.S. cardholders are more likely to use credit cards, which typically have higher fraud rates than debit cards.

Hayashi's paper gives a snapshot of the four countries at three points in time. Another approach to doing a country-to-country comparison would be to make a moving picture depicting the aftermath of the adoption of EMV chips for in-person payments. My Retail Payments Risk Forum colleague Doug King, in a paper published Adobe PDF file format in June 2019, looked at the change in in-person fraud for Australia, France, and the United Kingdom and found that fraud rates for in-person transactions dropped after chip-and-PIN implementation. You can see in the figure above that U.S. in-person card fraud rates declined from 2015 to 2016, over the time of EMV implementation here.

Keep in mind that this post is a simplification of two complex papers. For example, Hayashi also analyzed remote card fraud rates. And Doug included some data from other nations. If you want more information, the Federal Reserve Payments Study has reported details on fraud for noncash payments Adobe PDF file formatOff-site link in the United States, cards included, and also authorization methods for in-person general-purpose card payments (see figure 6 in the 2019 Federal Reserve Payments StudyOff-site link). I invite you to read these reports.

January 13, 2020

My Madeleine Moment: A 1965 Penny

It's not often that reading a book related to my professional activities reminds me of my grandmother. Born in 1900, she regularly stuffed me with tapioca pudding. Decades before the Instapot, she mastered the pressure cooker. Always ready with a hug, she turned up on page 46 of Bill Maurer's How Would You Like to Pay? How Technology Is Changing the Future of Money.

My grandmother always carried a penny, loose, in her "pocketbook" for good luck. If she gave me a handbag or coin purse, there would be a penny inside. It was essential. I couldn't walk out the door without a penny for luck.

My Proustian moment came when I read Maurer's comment: "People working on new technologies of money tend to assume that money is just money. But money is so much more, besides." And up popped the penny, a memory buried for decades.

You may have childhood memories around the idea of money-as-more-than-money. An uncle who surreptitiously handed over a crisp bill, perhaps. Or adult memories—for example, the dry cleaner who refused to exchange two of my singles for one of his lucky $2 bills.

MaurerOff-site link, an anthropologist at the University of California, Irvine, posits that such extra-monetary characteristics of money are important for financial product design going forward. And, indeed, we've seen examples of form factors that add value. Doug King has reported that some consumers are enamored of metal credit cards. "They love how metal cards feel and they love the sound that they make when they drop them on a counter or table." My neighbor tells me that she feels cool tapping her watch to pay for groceries. Many consumers work hard to keep a pristine titanium card clean; some store it in a special pouch.

dollar art origami puppy

There's something more to this than a medium of exchange, a unit of account, a store of value, as Maurer notes when he describes the use of money in rituals around the world. He writes that people do "all sorts of things with money besides earn it, pay with it, and save it." Take, for example, my origami dog, pictured here.

How are financial institutions and fintechs incorporating ancient totems into product design so that the safest way to transact would also have this sort of intrinsic value-add? Let me know your thoughts.

January 6, 2020

Phone Payment Bingo

Let's play a game of mobile payments bingo. Say yes to all five and you win!

In the last three days, did you use your mobile phone to:

table 01 of 01: bingo card

Do your answers to these questions give you the idea that you are using your phone more and more to pay? If so, you're in line with the latest results from the Diary of Consumer Payment Choice.

As you can see below, using a phone to pay—especially to pay bills and other people—has increased as a share of payments in recent years. More payments are being made with phones.

chart 01 of 01: Share of payments made using a mobile telephone

  • In October 2016, 11 percent of bill payments were made via mobile phone; in 2018, 18 percent.
  • In October 2016, 5 percent of payments to another person were made via mobile phone, in 2018, 17 percent.

The Diary of Consumer Payment Choice records the daily payments behavior of U.S. consumers 18 and older. Consumers report not only whether or not they used a mobile phone but also if they used a computer or tablet—either remotely or in person—or snail mail to pay. They record the dollar amount of the payment, the payment instrument used (for example, cash, debit card), and the purpose or payee (utilities, grocery store). These consumer behavior data can be analyzed in the context of household income and demographic attributes.

You can read the full report online and download the data for analysis.

By the way, I couldn't complete my bingo card. My answers:

  1. No.
  2. Yes, 34-pound bag of dog food (using the web browser on my phone).
  3. Yes, coffee from my local barista (using a QR code).
  4. No.
  5. Yes, see my answers #2 and #3.

How about you? Did you win?

December 23, 2019

New Data Posted for Federal Reserve Payments Study

If you're looking for payments reading during the holidays, take a look at a new report, the Federal Reserve Payments Study 2019, which was published last Thursday on the Federal Reserve's websiteOff-site link.

The report finds that growth in card and ACH payments has accelerated.

Here are some key findings:
  • The number of ACH credit and debit transfers grew by 6 percent a year between 2015 and 2018, exceeding the 4.9 percent per year growth rate recorded for the period from 2012 to 2015.
  • Debit and credit card payments grew at an accelerated rate of 8.9 percent a year between 2015 and 2018, up from the 6.8 percent yearly rate of increase from 2012 to 2015.
  • For general-purpose cards overall, the value of remote payments in 2018 nearly equaled that of in-person payments.
  • More than half of in-person general-purpose card payments were chip-authenticated, up from 2 percent in 2015.
  • Payments made by check fell 7.2 percent a year from 2015 to 2018.

The 2019 Federal Reserve Payments Study covers card (credit, non-prepaid debit, and prepaid debit), ACH, and check payments and ATM withdrawals. In these days of fintech and new ways to pay with a phone or fingerprint, these core noncash payment types are used not only in traditional ways but also to make possible alternative payment methods and services.

We look forward to continuing the payments conversation with you on January 6, 2020, when I will be challenging you to a game of pay-with-your-phone bingo.