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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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August 31, 2020

Household Income and Consumer Payment Behavior

Let's take a look at U.S. consumers' ownership and use of payment instruments from two ends of the household income distribution. You can do this yourself with interactive charts depicting data from the 2019 Survey of Consumer Payment Choice, where you can slice and dice consumer payments behavior by income and age segments.

Payment instrument ownership is highly correlated with income, a difference that is pronounced in the case of credit cards: only 53 percent of households with income less than $40,000 own a credit card, compared to 93 percent of households with income of $75,000 or more, according to the 2019 survey. As the Atlanta Fed's Oz Shy points out in a recent working paper, "Low-income consumers are not only constrained with spending, but also with the type and variety of payment methods available to them."

Just like payment instrument ownership, payments instrument use varies with income. In the 2019 survey, the practices of consumers in the lower-income and higher-income categories are mirror images of each other:

  • Consumers in households earning less than $40,000 made 30 percent of their payments in cash and 15 percent with credit cards. "Payments" include purchases, bill payments, and payments to another person.
  • Consumers in households earning $75,000 or more made only 16 percent of payments in cash and 32 percent with credit cards. These consumers made more payments overall: 82 a month compared to 55 for consumers in households earning less than $40,000.

These two groups comprise roughly similar shares of U.S. households: 36 percent of households have income less than $40,000, and 40 percent, $75,000 or more, according to the Federal Reserve Survey of Household Economics and DecisionmakingOff-site link. You can compare the behavior of the middle third of U.S. households on the web page of the Survey of Consumer Payment Choice.

May 18, 2020

Why the Decline in Average Value of Remote General-Purpose Card Payments?

The COVID-19 pandemic is affecting many aspects of our lives: interactions with friends and family, jobs, shopping habits—grocery shopping in particular. Lots of us have been speculating about those groceries, making predictions about ecommerce growth in the long run and also about how the composition of ecommerce sales could change.

Data from the Federal Reserve Payments Study give us a benchmark for thinking about remote card payments during and after the pandemic. For example, the average dollar value of remote card payments can suggest ways that consumer behavior has changed in recent years. And going forward, future data collection could give insights into behavior during the health crisis.

The average value of general-purpose card payments conducted remotely fell faster than the average value of in-person general-purpose card payments in the most recent three-year period for which data is available, 2015 to 2108. Remote payments by general-purpose credit, debit, or prepaid cards averaged $98 in 2018, compared to $121 in 2015. The chart shows the drop in average values.

Chart 01 of 01: General Purpose Card Average Payments Values Remote versus In-person

What's going on here? Various factors likely play into this change in average dollar value. Here are three.

First, more and more people are shopping and paying bills remotely, which includes online. This measurement—"How many people make card payments remotely?"—is broad. It could be that people on the margin, those who have recently started making online payments, are different from others. Maybe they are older. Less card-centric. Less wealthy. Maybe they still are most comfortable writing paper checks for their biggest bills. These individual characteristics could reduce the average dollar value of their online payments compared to others.

Second, people who shop and pay bills remotely are doing it more frequently. This measurement—"How much are remote payers paying?"—is deep. For example, compared to the number of payments you made online during a typical month in 2015, think about the number you made in 2018. Are you making more? Are you paying online more intensively?

Third, people already making remote payments could be more willing to make what my colleague Jessica Washington calls "micropayments" with cards. When shopping online, do you buy a toothbrush one day, a pack of gum the next, and a candy bar on day three? Do you buy digital goods: a music download, the in-app purchase of virtual goods, access behind a news paywall? These tiny payments could be pushing down the average dollar value.

All three of these factors could be in flux right now. They could be changing due to the mix of things we are buying, our income and employment status, changes in household members, payees' willingness to accept different payment methods, etc. etc. etc. This bigger picture is important for payments choice.

Going forward, our short-term reactions to the pandemic—buying groceries online, for example—may or may not equal long-term change in remote purchasing behavior. The Federal Reserve Payments Study continues to collect data related to these behaviors. More data about payments trends is available in the 2019 report of the Federal Reserve Payments StudyOff-site link.

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.

chart 01 of 01: Number of card and ACH payments in billions

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 StudyOff-site link. 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.