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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October 26, 2020
Will the Pandemic Change B2B Check Usage?
When I was in college, my first on-campus job was as an assistant in the university's accounting department. One of my responsibilities was to manually collate checks with their associated invoices, stuff them into envelopes, and drop them off in the outgoing mail bin before the 5 p.m. pickup. The entire process was so tedious and time-consuming that I couldn't help but wonder why a technology-focused school was still using outdated accounting systems and making payments using paper checks.
Well, as it turns out, checks are still the go-to form of payment for many businesses, particularly when paying other businesses. The 2019 Electronic Payments Survey by the Association for Financial Professionals found that checks, at 42 percent, were the most popular payment method for business-to-business (B2B) transactions In addition, the Atlanta Fed's latest Check Sample Survey (CSS) , which examined check usage by U.S. consumers and businesses in 2018, showed that the majority of B2B payments were bill payments by both number and value.
While digital payments are rapidly growing in popularity with consumers, the rate of adoption among businesses (specifically for B2B payments) appears slower, primarily because companies are deterred by the complex restructuring involved with digitizing their accounts payable (AP) systems. While it may not make sense for every business to adopt digital AP platforms, there are some benefits—it's less labor-intensive and, even though costs to convert to digital could be substantial, the platforms are faster. Some major global card networks have rolled out automated AP solutions, streamlining the entire B2B bill payment process. The Fed, in collaboration with other stakeholders, is currently working to address issues and barriers that make it challenging for businesses to adopt electronic payments.
Getting rid of paper checks certainly does not mean that B2B check fraud will be totally eliminated, but it is an important first step. According to the 2018 CSS, about 56 percent of the value of fraudulent checks was from B2B bill payments; by number, 14 percent was B2B bill payments. Not only do businesses have an increased need for secure, digital accessibility because of the pandemic, but also digital AP platforms could reduce health risks since employees no longer have to be physically present in the office to process and mail checks.
Although innovating for B2B payment processing began long before the onset of the COVID-19 crisis, perhaps the pandemic will serve as the catalyst that transforms the way businesses transact with other businesses at a much faster rate. It will be interesting to see what the future holds for B2B check usage as some businesses feel pressured by the public health emergency to adopt digital accounts payable systems. Are the days of stuffing envelopes finally coming to an end?
August 3, 2020
A Checkup on Checks: New Data on Business and Consumer Use
When did you last go to the dentist? OK, maybe too personal. How about this: when and why did you last write a check? For me, it was in December, for my annual purchase of Tag-a-Longs from my niece's Girl Scout troop. My check use is infrequent, but sometimes a check is still my go-to payment instrument. Even though the Federal Reserve Payments Study has found that the number of check payments in the United States declined from 41.9 billion in 2000 to 14.5 billion in 2018, U.S. businesses and consumers—like me—continue to use checks for all kinds of reasons, according to the 2018 Check Sample Survey (CSS) report, just published by the Atlanta Fed. The CSS reports check use by businesses and consumers based on a sample of checks cleared by the Federal Reserve in 2018.
Previous iterations of the CSS, which has been conducted since 2001, the 2018 survey estimated percentage shares of checks paid both by purpose (bill, POS, income, casual, and indeterminate) and by payer and payee (business and consumer). In 2018, for the first time, the report includes data about checks returned, allowing for detailed analysis of returns by reason code, including possible fraud. Checks returned are items that the paying depository institution has chosen not to honor and which the Federal Reserve subsequently returns to the depositing institution.
Among the findings:
- Just over half of checks are written by consumers.
- Businesses are the recipients of two-thirds of checks.
- The median value of a check written by a consumer is $116; by a business, $357.
- Checks written by businesses made up three-fourths of total check value.
- Checks returned for insufficient funds, which also include uncollected funds holds (funds on deposit but not yet available for withdrawal), were two-thirds of return items by number and half of return items by value.
Want to know more? Join us on Thursday, August 27, from 2 to 3 p.m. (ET), when I and my Retail Payments Risk Forum colleagues delve into the CSS findings in greater detail on our Talk About Payments webinar. You must register in advance to participate. Once you've registered, we'll send you a confirmation email with the access information. (There is no fee for the webinar.)
And before that next dentist visit, why don't you "do-si-do" on over to the Atlanta Fed website and see the report for yourself. You can download the report and Excel data tables and explore, drill down, and be part of the August 27 webinar discussion. Hope to see you there!
June 8, 2020
Are Contactless Cards Having Their Moment?
This could be the moment Doug King has been waiting for. In February 2017, Doug blogged, "Wouldn't it be nice to tap and pay?" Back then, he reported his disappointment at not being able to use his "cool" card with contactless functionality. Today, my favorite consumer advice website is calling contactless payments "the wave of the future." And according to Visa, 31 million Americans tapped a Visa contactless card or digital wallet at the point of sale in March 2020, up from 25 million in November 2019. MasterCard projects that approximately 70 percent of its U.S. customers will have contactless cards by the end of 2022.
Dave Lott wrote last year that the speed of contactless card payments could make them as desirable—if not more desirable—than mobile payments. As Dave pointed out, "consumer payments is largely a total sum environment," so the rise of contactless could cannibalize other forms of payments like mobile. Continuing this line of thinking, I have been wondering if any rise in contactless card use could have an impact on the use of cash.
"Protect yourself while shopping," advises the Centers for Disease Control. "If possible, use touchless payment (pay without touching money, a card, or a keypad)."
Until a few months ago, the answer was clear: probably not much of an impact. Let's take a look at consumer behavior and survey responses in the pre-coronavirus environment.
- First, an April 2020 paper examined the behavior of 21,000 Swiss cardholders between 2016 and 2018. In the aftermath of receiving a contactless debit card, the Swiss cardholders increased their use of debit cards overall, especially for small-value payments. But the increase among the Swiss consumers was small. Most of the increase occurred among people who already were using their debit cards to pay. And Swiss account holders who used cash a lot—the researchers call them "cash lovers"—didn't change behavior. The researchers report that the average effect of receiving a contactless card was "underwhelming."
- Second, in response to a hypothetical question in fall 2019 , U.S. consumers reported they would likely in the future use contactless cards to pay at grocery stores, gas stations, and department stores—payees with a high proportion of card payments already. In other words, consumers would not change their choice of payment instrument; rather, they would change their choice of authorization method (tapping instead of dipping a card). Again, underwhelming when we think about any potential impact on cash.
But that was then. In spring 2020, the future is murkier. Do you think consumers' ideas about and use of contactless cards would be different today?
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.