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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 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 2, 2019

Making the Choice to Use Cash

FADE IN:

INTERIOR, VETERINARY HOSPITAL—LATE NIGHT (2019)

Male, 60ish baby boomer, in work clothes and yellow reflective vest approaches the desk.

"Picking up a prescription.'

"That's $15.17," says the receptionist.

Waiting puppy owner—off-the-clock Payments Risk Expert—slouched in plastic chair, swings around to face desk. She stares rapt at boomer in work clothes.

A moment's pause.

Boomer rummages deep in his right pants pocket, then the left. Crumpled bills appear in his fist. A dime, a nickel, and 2 pennies fall to the counter.

Payments Risk Expert leans back, satisfied, and smiles.

FADE OUT.

That was Yours Truly at the vet last month. Research based on data from the Diary of Consumer Payment Choice predicts that anonymous pet owner would be likely to choose cash and, in the moment, he did.

Oz Shy, senior policy adviser and economist at the Atlanta Fed, applied machine learning algorithms to examine some 17,000 in-person payments from the 2017 and 2018 Diary of Consumer Payment Choice. The decision tree that resulted (below) predicted the likely behavior of my boomer.

graphic 01 of 01: Who am I and how much am I paying?

Reading from left to right, you can see that the first fork occurs for payments above and below $10. For payments less than $10, U.S. consumers are most likely to choose cash (choices to use cash are represented by the green boxes).

The second fork, for payments of $10 or more, is determined by household income. For payments of $10 or more, people with household income greater than $110,000 are most likely to use a credit card (orange boxes show the choice to use a credit card).

The next fork again occurs for transaction value. For payments equal to $20, it's probable that consumers will choose cash. (In his paper Adobe PDF file format, Oz relates this choice to the denomination typically available from ATM withdrawals.)

Now age comes into play: For payments less than $20 (remember, $15.17), consumers 54 and older (boomers) choose cash.

Voila! The pet-owning baby boomer plays to type.

Oz's research illustrates the importance of transaction value for payment instrument choice. For in-person payments of less than $10, consumers—whatever their household income or demographics—are most probably going to use cash. And for larger transaction values, the decision tree also shows that income and age matter for the choice to use (or not use) cash and other payment instruments.

You can read the paper, "How Currency Denomination and the ATM Affect the Way We Pay," here Adobe PDF file format.

October 7, 2019

Payments Webinar October 10: Cash in the 21st Century

As I write this, I am drinking my morning cup of joe. For me, that means half caf/half decaf, then cut in half with microwaved nonfat milk. (Slurp.)

Day in, day out, I want it just that way. No sugar for me. Nonfat milk, not 2 percent. Black only when I open the door to an empty fridge.

Odds are, you're like me when it comes to coffee and payments. Your habits—and mine—are sticky. We've found something that works for us and—day in, day out—we take our coffees and choose to pay the same way. These are our preferences.

What happens when we change our minds about what we prefer? Shaun O'Brien at the San Francisco Fed has been looking into the relationship between our stated preferences for making in-person purchases and the payment instruments we use in the moment.

In an economic model that incorporates consumer demographics, household income, transaction characteristics, and the payee, Shaun finds that, over time, a change in stated preference eventually results in an increased probability of using a newly preferred payment instrument.

Note that word eventually.

For example, say I stated a preference for cash in 2016 and then switched to a stated overall preference for debit card in 2017. It might not be until 2018 that you would start to see a small change in my mix of payments, with relatively less use of cash and more of debit. Like a coffee habit, my preferred payments habit is slow to change. (Keep in mind that, as I have blogged previously, preference is one of a number of factors that are important, including, for example, what a payee is willing to accept.)

Whatever your morning beverage, I hope you'll join Shaun, the Atlanta Fed's Oz Shy, and me for the next Talk About Payments webinar, October 10, 2019.

We'll look at current data from the Survey and Diary of Consumer Payment Choice and new research—including Shaun's findings reported above—to investigate the 5 Ws and also the How of cash:

  • WHAT is happening with cash?
  • WHO uses cash?
  • WHERE do consumers use cash?
  • WHEN do consumers use cash?
  • WHAT might cause cash users to switch to another payment method?
  • HOW do consumers get cash?

This webinar is open to the public but you must register in advance to participate. (Registration is free.) You can register online. Once registered, you will receive a confirmation email with login and call-in information.

Date: Thursday, October 10, 2019
Time: 1–2 p.m. (ET)
Register now!

September 16, 2019

Is There a Generation Gap in Cash Use?

How different are millennials from boomers in their reported payment habits, especially regarding their use of cash? New data from the Survey of Consumer Payment Choice, out this month, lets us look at age segments using the interactive charts accompanying the report.

For example, in 2018, consumers overall made 17 payments a month in cash. Drilling down, consumers aged 25 to 34—that is, millennials—used cash for 15 payments per month. Consumers 55 to 64—the boomers—used cash for 18 payments a month.

It's good to put these numbers in context. Here's a fact that surprised me: the younger group makes more total payments per month (73) than does the older group (67). That means that, as a percentage share of all payments, the difference by age is more pronounced:

  • Millennials: 21 percent of their payments in cash
  • Boomers: 27 percent of their payments in cash

The differences are similar when we look at paper checks, which the younger group used for 2 payments per month (3 percent of their payments) and the older group for 4 payments per month (6 percent).

Chart 01 of 01: Payment method use by age range

You'll notice in the chart that payments instrument usage has been relatively stable for all the age groups since 2015.

Millennials' relatively lower use of cash doesn't mean, however, that the cashless society is going to arrive any time soon. In 2018, 85 of 100 consumers used cash in a typical month. And, in an analysis that incorporates a complete set of demographic variables plus income, differences by age could prove not so relevant. So, is there a generation gap in cash use? Yes. Does it mean the end of cash? No.

The charts at the website let you look at consumer payment choice by household income group and by the type of transaction. For example, you can examine how consumers' use of payment instruments is different for P2P payments than for bill payments. Check them out.