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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April 5, 2021
New Tools to Fight Online Fraud
When consumers shift payments channels, criminals do, too. We have discussed this point in post after post. We've also written on how the pandemic has had a seismic effect on digital payments during the pandemic. This chart sums up the growth pretty handily.
Even before the pandemic contributed to this spike, criminals had been using purloined payment card credentials and in-store or curbside pickup to take advantage of the growth in digital payments. (In-person pickup allows criminals to quickly put their hands on their ill-gotten gains.) To improve ecommerce security, the industry began developing technical specifications and protocols, and in late 2019, the Mobile Payments Industry Workgroup (MPIW) formed a working group to provide a better understanding of these protocols and specifications. This working group published its findings in an educational white paper just last month. (The MPIW was facilitated by the Federal Reserve Banks of Boston and Atlanta.)
Among these specifications and protocols the white paper explains is the 3-Domain Secure protocol, released in December 2018, and the initial Secure Remote Commerce specifications, published in June 2019 (both from EMVCo). It also discusses the WebAuthn specification, which came on the scene in March 2019 and was a product of the World Wide Web (W3C) consortium working with the Fast Identity Online (FIDO) Alliance. The white paper identifies the key challenges to adopting these protocols and provides guidance about how they may complement one another to enhance the security of the online and mobile channels.
All these fraud mitigation tools are in their early stages of adoption, with additional development and functionality to come. In the meantime, we hope that the white paper provides you with a solid foundation of knowledge of these new tools and how the industry continues its battle against fraudulent payment activity.
March 29, 2021
SNAP Continues to Pop
Over the last year, a number of our Take on Payments posts have expressed industry concerns about the impact that the major shift to digital payments propelled by the COVID-19 pandemic will have on the un- and underbanked population. While several governmental assistance programs have modified their programs to accommodate remote enrollment and ongoing participation, the actual use of these benefit funds was largely limited to in-store purchases of foods, drugs, and other items authorized by those programs. My colleague Catherine Thaliath authored a post last July reviewing how the Supplemental Nutrition Assistance Program (SNAP) had moved from a one -state, pilot program in 2019 to supporting online purchases by SNAP cardholders in six states by early 2020.
I'm excited to report that the expansion of SNAP's online ordering program has continued aggressively through the pandemic with the participation of 47 states and the District of Columbia. Only Alaska, Louisiana, and Maine are not currently participating in the digital payment program; Maine has plans to go live later this year. In most states, the major grocery retailers that were already supporting online ordering are participating. SNAP funds can be used only for the purchase of the eligible food items and not for delivery and any other convenience fees.
With the digital expansion of the assistance program, program administrators at the federal and state levels are well aware of the increased risk of fraudulent activity that comes with the buy-online-pick-up-in-store option (sometimes referred to as BOPIS). The SNAP program requires that online retailers support PIN entry, which helps to mitigate fraud risk. The retailers follow a number of traditional steps to ensure that the person picking up.
It is encouraging to see how agencies are adopting technology for social good in this challenging time.
March 22, 2021
Challenges and Changes in Financial Inclusion and Empowerment
Not so long ago, women faced limitations on their financial freedoms in areas we take for granted today. Opening a bank account, obtaining a credit card, or acquiring a mortgage or business loan in their own names was restricted. The norms of the day fostered inconsistent practices that left many women financially disadvantaged, disempowered, and dependent on a male relative. Fortunately, things are different today. Women are now drivers in the payments seat, making more than 90 percent of household purchases.
In honor of Women's History Month, let's take a look at the role of women in payments and how our financial options have evolved.
As recently as the 1960s, married women could not open bank accounts in only their names. A woman had to bring a male relative, usually a husband, to cosign. A single woman would need her father's signature.
In the 1970s, a married woman couldn't obtain a credit card or loan in her name without her husband as cosigner. Single women could be denied outright. Things changed in October 1974, with the Equal Credit Opportunity Act that allowed single, widowed, and divorced women to obtain a credit card or a loan without a male cosigner and without regard to race, religion, national origin, age, or marital status. Still, even when women could get credit cards, they often faced other penalties including paying a higher interest rate or had credit limits based on income that was discounted to 50 percent of their actual earnings.
Until the late 1980s, women couldn't get a business loan without a male cosigner. The Women's Business Ownership Act of 1988 amended the Small Business Act to assist the efforts of businesses owned and controlled by women to obtain loans on their own. Since then, women's business ownership has dramatically increased.
By 2019, women owned more than 11.6 million businesses (combined employer and nonemployer), employed more than 9 million people , and generated $1.9 trillion in annual sales. Now, women of color make up 89 percent of newly opened businesses each year, with 50 percent of all women-owned businesses owned by women of color. (See the Small Businesses of Color Recovery Guide for information on how communities can support small businesses of color as they recover from the economic crisis caused by the pandemic.)
Women's power in the field of finances continues to grow, with many women taking C-suite leadership roles in the areas of financial services and payments, including in fintechs. It is essential that we have women in these positions of leadership because women do hold such influence in household purchasing. Having payment systems and choices that make it easy, secure, and fast for women to exercise their purchasing power are the opportunities in the 21st century.
March 15, 2021
Teach Financial Literacy to Build Financial Inclusion
Many of you reading this have probably ventured down the online or mobile video rabbit hole—watching a video on your favorite website or app, which leads to binge watching. While not nearly as entertaining, I spent the better part of a recent day down the rabbit hole of banking and payments research. Having initially embarked on researching the un- and underbanked, cash usage, and prohibitions on cash bans by municipalities or governments, I was drawn to the topic of financial literacy—or, more shockingly, the lack of financial literacy in this country.
According to the 2018 FINRA Foundation's National Financial Capability Study (see pages 33–40), the U.S. financial literacy rate decreased from 42 percent in 2009 to 34 percent in 2018. This rate is based on the results of survey respondents' ability to correctly answer a series of five questions, plus one bonus question that requires a complex calculation, covering fundamental concepts of economics and personal finances. You can take the quiz here.
You can find a lot of material on the ability (or lack of ability) of financial institutions and other financial service providers to provide basic services such as deposits and payments to those considered un- or underbanked. A recent paper by my colleagues at the Atlanta Fed suggests that "instead of focusing on helping these people (the unbanked or underbanked) become banked to increase financial inclusion, a more effective approach could be giving cash users access to digital payment vehicles that don't depend on traditional banking accounts." I would suggest a different path. No doubt, multiple factors are at play, including access challenges, in keeping 7.1 million U.S. households (or 5.4 percent of the total population) unbanked and perhaps at risk of being left behind when it comes to digital payments. But how can those who are not financially literate make educated decisions on what financial services and products are best for them? Maybe the banks that can serve them are out there, but a lack of financial literacy keeps these people from understanding exactly how those banks can meet their needs. For example, can they compare the cost of maintaining a checking account and using a debit card to the cost of using a prepaid card and cash (which they could obtain through a check cashing service)?
It's time to focus efforts on teaching financial literacy in the United States through our education system. The Federal Reserve Bank of Atlanta recognizes the importance of financial literacy and offers the public and educational system numerous resources. Just as students must demonstrate proficiency in other basic courses, every high school student should be required to successfully complete a standalone course on personal finance to graduate. It's not enough to embed financial education in another class, such as consumer math. Currently, only six states—including Tennessee and Alabama, both in the Sixth District—require a standalone class, but it's high time for the rest to join.
Are you in favor of this idea?