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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December 7, 2020
2020: The Year in Payments
Each year, the Risk Forum produces a year-in-review webinar. Every Risk Forum member helps plan the webinar, bringing together everyone's unique expertise and perspectives. During the year, each of us engages with a different area of the payments industry and initiatives, which leads to good-natured debate when it comes time at year's end to rank important payment topics. (If you are an avid follower of our blog, you might be able to guess who is pulling for which topics.) This year was a little different, though. We could not think about payments without also considering the heaviness and impact of the COVID-19 pandemic.
Our 2020 webinar will dig into key payment issues that are responses to the pandemic, or opportunities or challenges resulting from the pandemic. The goal is to share our analysis of the data collected over the past year, parse out trends that may have started during the pandemic but might be here to stay, and engage with our audience on where focus should be as we prepare to turn the page on this year and start a welcomed new year.
We will first answer this question: How have businesses' and consumers' payments behaviors adapted over the course of the year? There have been plenty of headlines covering retail trends both in-person and online or e-commerce. The Risk Forum will share details and data about retail payment trends while unpacking the nuances of the underlying technologies that facilitate retail payments. Also in this category are person-to-person and business-to-business payment trends, which we'll highlight, too.
New to the year-end webinar agenda is a focus on cash and coin. We'll share data on consumer cash usage and holdings along with unintended consequences, such as how currency demands have affected ATM operations. Another aspect of currency is how demand for cash this year has caused a coin supply distribution issue, sometimes incorrectly referred to as a coin shortage. The Forum will address the myths about the coin supply distribution issue and share insights from the work by the U.S. Coin Task Force.
These conversations about retail trends and currency demand are followed by another critical discussion, this one about financial inclusion opportunities that have been accelerated by the pandemic. The Atlanta Fed is working to emphasize how digital payment innovations can affect cash-based and vulnerable populations. We will highlight how recent events such as the distribution issues related to stimulus money and general financial support among family and friends have brought additional attention to financial inclusion. We will also share our research on this topic and talk about what steps we are taking toward creating solutions.
Not new to the agenda, unfortunately, will be coverage of fraud challenges. This year, we'll talk about scams that are capitalizing on pandemic responses. There have been several big fraud trends, relating to Paycheck Protection Program loans and Economic Impact Disaster Loans, unemployment benefits, fundraisers for fake charities, and PPE supplies (counterfeit). Rest assured: we will also highlight advancements in fraud defense tools, especially in ecommerce.
Please join us for the 2020 Year-in-Review webinar, our last Talk About Payments webinar for the year. This session will take place on December 17 from 1 to 2 p.m. (ET). To participate in the webinar, you must register in advance (there is no charge).
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?