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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March 2, 2020
Back to the Future in Payments
The year 2000 feels like a long time ago. The dot-com boom was peaking. Some millennials were teens; the youngest were in pre-K. Grammy winner Billie Eilish was not born yet. I was using a flip phone—does anybody remember tapping the "5" three times to key in an "L"?
In payments, too, Y2K feels a long way away. Just look at the growth in the everyday ways to pay electronically: prepaid and nonprepaid debit cards, credit cards, and ACH transfers. From 2000 to 2018, these electronic payments in aggregate grew at a compound annual growth rate of 9.8 percent, from 29.9 billion payments to 159.7 billion, according to new data from the Federal Reserve Payments Study released in December 2019.
Nonprepaid debit cards, which represented 45 percent of these electronic payments in 2018, had the fastest growth since 2000 (12.8 percent a year). Standing at a mere 8.3 billion payments in 2000, nonprepaid debit card payments ballooned nearly nine times, reaching 72.7 billion payments in 2018. This total number of nonprepaid debit card payments in 2018 is approximately equal to the total number of noncash payments of all payment types (cards, ACH, and paper checks) reported for 2000 in the first triennial study: 72 billion.
This one fact encapsulates much that has happened in payments over the last two decades in the United States. Underlying this growth, we can see the effects of widespread acceptance of debit at the point of sale as well as consumers' willingness to use debit cards as the go-to payment choice for small-dollar-value payments. More recently, debit card growth can be linked to the growth of e-commerce, the decline of checks, the rise of electronic ways to pay bills, and the introduction of the smartphone and mobile commerce.
These facts and many more are available in the 2019 report of the Federal Reserve Payments Study. A link labeled "Accessible Version" sits under each figure—click that to see a table of the data underlying each chart. So, depending upon your particular area of interest in the way payments methods are used, the report should provide you with an in-depth look.
February 18, 2020
Am I Average? Adventures in Survey Research
The results of the 2018 Diary of Consumer Payment Choice, released in December 2019, show us that, as a percentage share of all types of payments by number, consumers use debit cards for 28 percent of payments, cash for 26 percent, and credit cards for 23 percent.
I can hear you thinking, "No, that can't be."
"Not in my household. We never use cash. And we always choose credit first to get the points." Your skepticism likely is related to the fact that the diary reports averages for a representative sample of U.S. consumers age 18 and older. That means that all sorts of people are included in the estimates of payment instrument use: highly educated and without a high school diploma, born in the United States and born elsewhere, 18-year-olds and 85-year-olds, people who live in cities and people who live in small towns.
Some of those people are a lot like you. Others, not so much.
For example, if you're reading the Take on Payments blog, I'd venture to guess that your household income was north of the U.S. median of $61,937 in 2018, the year this data was collected. And income matters a lot for consumer behavior.
Let's see what happens when we take income into account for payment instrument use, still using the data from the 2018 Diary of Consumer Payment Choice. Kevin Foster, survey expert at the Atlanta Fed, helped me with this analysis:
- Of payments reported by people in households earning less than $60,000, 32 percent by number were in cash, 31 percent with debit cards, and 15 percent with credit cards.
- Of payments reported by people in households earning more than $60,000, 22 percent were in cash, 27 percent with debit cards, and 28 percent with credit cards.
Note the heavy use of cash by the people in households earning less than $60,000 and the use of credit cards by the group earning more.
When I see data on consumer behavior—the percentage of people who dye their hair, for example—I can't resist asking myself, "Am I average?" Or even, "Am I above average?"—as are the residents of Lake Woebegone. Add a bit of demographic data, and my assessment of how "average" I am changes. Instead of the percentage of all people who dye their hair, compare me to the percentage of women older than 45 who dye their hair, for example.
From hair styling choices to payments choices, not only income but also demographic characteristics like age and gender are important for consumer behavior. That's why the data set for the Diary of Consumer Payment Choice includes a full set of demographic variables (such as age, education, and household size) as well as information about income and employment status. All the data, including a code book explaining all the variables, are available online. So feel free to slice and dice the data as much as you like.
February 3, 2020
Fuel Pump EMV Chip Liability Shift Looms Large
It has been quite some time since the Retail Payments Risk Forum has blogged about the state of the EMV chip in the United States. Perhaps the lack of coverage is a nod to the success and growth of EMV chip issuance and acceptance since the point-of-sale (POS) and ATM liability shifts that began in 2015 and 2016, respectively. The Federal Reserve's newly released payments study found that 57 percent of in-person card payments in 2018 used chip authentication compared to 2 percent in 2015. Talk about phenomenal progress over a three-year period! Yet there is more to do, and 2020 will be a big year for closing a big gap—EMV chip acceptance at the fuel pump, or what the industry generally calls automated fuel dispensers (AFDs).
In October, all of the global card networks' liability shifts will be implemented for AFDs. As a brief reminder, this liability shift means that petrol retailers will now be responsible for incurring the fraud losses on all non-EMV-chip-authenticated transactions initiated by EMV cards at their pumps. According to several industry associations that represent the convenience and petroleum store industry, this liability shift date will be a challenge for many station operators to meet given a limited availability of EMV-compatible AFDs as well as the technicians to install and certify the machines as EMV ready.
Through the years, the Risk Forum has stressed that criminals tend to gravitate to the easy targets when it comes to committing card fraud, or really any fraud in general. Card skimmers at AFDs pulling data off a card's magnetic stripe have been a major problem for decades. I have no doubt that the fraudsters are fully aware of the impending liability shift and will be stepping up their AFDs attacks in 2020 before the window of counterfeit card opportunity closes. Those retailers who are delaying their EMV migration or are unable to migrate by the liability shift date will become giant bulls' eyes. Expected card fraud losses in 2020 for the industry are not inconsequential—one industry association has estimated losses of $451 million. I should also note that the costs faced by the industry to migrate to EMV are also significant, at an estimated $3.9 billion.
After witnessing the successful rush by the industry to implement EMV chip at the POS and ATM, I am confident that the AFD EMV chip implementation ahead of the October liability shift will be a success, but all involved will definitely experience challenges. My confidence stems from the positive momentum I have seen from everyone involved in the payments industry working together for the common good to mitigate card fraud. With counterfeit card fraud losses through June 2019 down by over 60 percent since September 2015, I look forward to seeing even more decreases in counterfeit card fraud following this year's AFD liability shift.
January 27, 2020
Mobile Banking Nearing Ubiquity
In June 2019, eight Federal Reserve districts,1 led by the Federal Reserve Bank of Boston's Payment Strategies Group, surveyed financial institutions (FI) based in their respective districts about their current and planned mobile banking and mobile payment service offerings. The survey defined mobile banking as the use of a mobile phone to connect to a financial institution to access bank or credit account information (including to view balances), transfer funds between accounts, pay bills, set up account alerts, locate ATMs, deposit checks, and more. The term mobile payments described the use of a mobile phone to pay at the point of sale, remotely for a retail item (or items) using near field communication or a quick response code, or via mobile app or web for digital content, goods, or services (such as transit, parking, or ticketing).
You can find the full 2019 Mobile Financial Services Survey report, including the survey questionnaire, on the Boston Fed website. This collaborative survey effort previously took place in 2014 and 2016.
The survey found that 96 percent of the respondents currently offered or planned to offer mobile banking services. (As expected, most of the respondents who indicated they had no plans to offer mobile banking—18 of the 23—were the smallest FIs [those with assets under $50 million]). Support for mobile payment services had increased significantly since the 2016 survey, going from 24 percent to 43 percent in 2019, with an additional 26 percent planning to support mobile payments within two years.
Especially interesting to me were the responses to a new survey question regarding FIs' plans to issue contactless payment cards. Many of the largest FIs began issuing contactless cards in 2019. The survey found that while only 5 percent of respondents were issuing contactless cards, 21 percent plan to do so within two years and an additional 18 percent plan to issue them in the next two to five years. As the chart shows, although nearly two-thirds of the smallest FIs indicated no plans to offer a contactless card, a relatively high percentage (43%) of the larger FIs also indicated no plans to do so. I am curious to see how these plan responses change, if any, in future surveys.
A total of 504 financial institutions responded—337 banks and 167 credit unions (CUs)—which represented 6 percent of all banks and 3 percent of all CUs in the United States. It is important to note that none of the top 100 banks by asset size and only four of the top 100 CUs by asset size are included in the survey. Almost half of the responding CUs have assets under $100 million. The distribution of survey respondents (displayed in the chart below) helps us better understand the development of mobile financial services in the mid- and small-sized FIs.
The Boston Fed's Payment Strategies Group will present a webinar on the full survey report later this year. We will be sure to keep Take On Payments readers apprised of those plans. In the meantime, if you have any questions regarding the survey or the results, please be sure to contact me.
1Atlanta, Boston, Cleveland, Kansas City, Minneapolis, Philadelphia, Richmond, and San Francisco
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