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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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.
December 23, 2019
New Data Posted for Federal Reserve Payments Study
If you're looking for payments reading during the holidays, take a look at a new report, the Federal Reserve Payments Study 2019, which was published last Thursday on the Federal Reserve's website.
The report finds that growth in card and ACH payments has accelerated.Here are some key findings:
- The number of ACH credit and debit transfers grew by 6 percent a year between 2015 and 2018, exceeding the 4.9 percent per year growth rate recorded for the period from 2012 to 2015.
- Debit and credit card payments grew at an accelerated rate of 8.9 percent a year between 2015 and 2018, up from the 6.8 percent yearly rate of increase from 2012 to 2015.
- For general-purpose cards overall, the value of remote payments in 2018 nearly equaled that of in-person payments.
- More than half of in-person general-purpose card payments were chip-authenticated, up from 2 percent in 2015.
- Payments made by check fell 7.2 percent a year from 2015 to 2018.
The 2019 Federal Reserve Payments Study covers card (credit, non-prepaid debit, and prepaid debit), ACH, and check payments and ATM withdrawals. In these days of fintech and new ways to pay with a phone or fingerprint, these core noncash payment types are used not only in traditional ways but also to make possible alternative payment methods and services.
We look forward to continuing the payments conversation with you on January 6, 2020, when I will be challenging you to a game of pay-with-your-phone bingo.
November 25, 2019
We Are Thankful For...
Several years ago, I began the practice of making a list around Thanksgiving of things I am thankful for. I was pondering what I might include on my list this year while I was stuck in traffic behind an awful wreck I was thankful I wasn’t involved in. And then the idea hit me that maybe we at the Risk Forum should create our own list focused on what we are thankful for in payments.
To keep the list at proper blog length, I asked each Risk Forum member to name just one item. Without further ado, the Risk Forum presents to you our 2019 Thanksgiving week "What we are thankful for in payments" list.
- Nancy Donahue, project manager: I’m thankful that my debit card has only been breached once this year and although the criminal lived it up at several fast food restaurants and c-stores, it was less than $100 total and I got my money back!
- Claire Greene, payments risk expert: I am thankful that direct deposit lets me put my finances on autopilot. I’ve split my paycheck into different accounts: one for retirement, one for the mortgage, one for saving, and one for everyday expenses.
- Douglas King, payments risk expert: I am thankful for the ability to pay via self-checkout at my local grocery store and receive cash back when using my debit card.
Pictured from left: Jessica Washington, Douglas King, Nancy Donahue, Dave Lott, Catherine Thaliath, Julius Weyman; Not pictured: Claire Greene
- Dave Lott, payments risk expert: I am thankful for law enforcement and other security professionals who work diligently to protect the integrity of our payments system.
- Catherine Thaliath, project management expert: I am thankful for credit card rewards programs. It is nice to get rewarded with cash back or even a free plane ticket just by using your credit card for everyday purchases!
- Jessica Washington. payments risk expert: I am thankful for payments industry collaboration. This year I have seen improvements in fraud information sharing across stakeholders; partnerships between fintechs, financial institutions, and payment networks to promote financial inclusion; and working groups embracing emerging payment innovations.
- Julius Weyman, vice president and forum director: I am thankful that I can write a check where it makes sense; pay online where it makes sense; get paid via ACH (no choice in that, but wouldn’t choose otherwise); pull bills from a real wallet (not the fake kind) and pay that way, where it makes sense; and use a card (and get rewards), which almost always makes sense and is the one I use the most.
And we are thankful for YOU: our readers of Take On Payments and supporters of the Risk Forum. We sincerely appreciate your comments, kudos, and criticism, and hope that you all find value in the information we provide and share. As we enter into these crazy last weeks of 2019, we wish you and yours a wonderful holiday season.
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