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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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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 websiteOff-site link. This collaborative survey effort previously took place in 2014Off-site link and 2016Off-site link.

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.

Chart 01 of 02: Contactless card issuance by asset size

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.

Chart 02 of 02: Distribution of respondents by asset size

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

November 18, 2019

Will Payments Be Getting REAL?

When someone tells you to "get real," they mean you'd better understand the true facts of a situation. Well, you better get REAL if you want to enter a federal building or fly on a commercial aircraft after October 1, 2020. Unusual for such major federal legislation, the REAL in the REAL ID Act of 2005 isn't an acronym but an all-caps word intended to emphasize that states must adopt minimum federal standards for the documents required to obtain a driver's license or state-issued ID card. The act also prohibits federal agencies from accepting noncompliant IDs for any type of official business.

The good news is that most states have been issuing driver's licenses and ID cards that for a number of years have complied with the REAL ID Act, so more than likely your ID is already compliant. How can you tell? Look for a gold or black star in the upper right corner of your card. In my state, the Georgia Department of Motor Vehicles has been issuing compliant licenses and cards since July 1, 2012, and estimates that more than 96 percent of registered Georgia driversOff-site link have a compliant license. However, three states—New Jersey, Oklahoma, and Oregon—only came into compliance in early October after being granted a number of extensions.

state of Georgia sample driver's license that is compliant with REALIDSo much time—15 years—has passed between passage of the act and the final compliance deadline because 25 states mounted legal challenges to the act's constitutionality, often claiming that it was essentially establishing a national ID card or abridging state's rights. These challenges were all defeated, but the Department of Homeland Security was required to announce a number of compliance extensions to give the states time to change their processes.

In reality, you do not have to have REAL ID-compliant identification to access federal services or commercial flights. A passport will suffice, although I think a state-issued license or ID card is more convenient. The REAL ID, however, does not substitute for a passport for international travel.

This websiteOff-site link has a great deal of background and interesting information about the REAL ID program and the states' implementation. You can also find READ ID information on the websites of most state motor vehicle departments.

You might ask: so what? What does this change have to do with payments and risk? While the REAL ID Act technically affects only a citizen's interactions with federal agencies, it's quite possible that financial institutions will begin requiring a compliant driver's license or ID card as an acceptable form of documentation in compliance with their Customer Identification Program.

Are you ready? Get REAL!

October 21, 2019

Looking for Partners in Safer Payments

The Federal Reserve Bank of Atlanta is currently identifying financial technology companies (fintechs) involved in payments. Our goal is to build relationships with these companies so we can understand their issues and challenges.

The Federal Reserve's mission for payments is to ensure an effective and efficient system. In pursuing this mission, the Atlanta Fed focuses on the accessibility, integrity, and confidentiality of payments. We play a significant role in this mission by virtue of being an operator of ACH and check clearing as well as a payments researcher.

We are also at the center of an important regional hub of fintech activity. In Georgia, there are 120 fintech companies employing more than 38,000 workers. According to the Technology Association of Georgia, the top 20 Georgia-based fintech companies generate $72 billion in revenues annually, and 70 percent of all domestic card transactions flow through Georgia-based fintechs, earning this region the nickname of "Transaction Alley."

In addition, venture capital investment in fintech contributes to Atlanta being ranked as the 13th most important fintech hub in the world and fourth in the United States (behind San Francisco, New York, and Chicago), according to the University of Cambridge's 2018 Global Fintech Hub Index .

Given our expertise, our role in payments toward furthering the Federal Reserve’s mission, and our location, the Atlanta Fed, in partnership with fintech companies in Transaction Alley, has a unique opportunity to have a real impact on advancing safety in this innovative payments space.

Fintechs in payments aim to produce useful and profitable payments-related products and services but may lack awareness of consumer compliance and rights or the importance of development practices that culminate in safe and secure products and services. Our work will focus on safer payments innovation for payments used by consumers.

The Atlanta Fed is also interested in experimenting with innovative technology used by fintech companies where we believe the technology could solve our business problems or be beneficial to us. This experimentation will give us first-hand experience and deep knowledge of fintech-developed technology and therefore an understanding of the contribution and impact the technology has on the payments ecosystem.

Through this work, we hope also to advance economic mobility and resilience, another priority for the Atlanta Fed. Our desire is to engage fintechs with products or solutions that provide low-cost, accessible options to advance financial inclusion and improve consumers' financial health.

Together with the payments fintech industry, we can bring clarity regarding the impact of fintech solutions on the payments system. So we encourage the fintech payment innovators to partner with the Atlanta Fed to understand payments risk and create safer payments solutions.

Get in touch with me at Mary.Kepler@atl.frb.org to start the conversation.

September 23, 2019

Designing Disclosures to Be Read

Have you ever wondered if consumers actually look at disclosures for payment services? And if they do look at them, how much time do you think they spend reading them? If the average adult reads around 250 words per minute and a disclosure page contains 1,000 words—likely a low estimate—then a consumer would spend four minutes on the page before clicking accept or reject. I am confident that a more realistic estimate of time consumers spend on these pages falls far short of the time required to read the legally required consumer protection information. How many of us just click on the "I Accept" button without reading the disclosure? Maybe it's time to come up with a better way to disclose.

I believe that disclosures are one of the more dreaded elements in designing, launching, and managing financial services. If you haven't experienced the dread first hand, you can find evidence of it in the countless comment letters submitted by payments stakeholders and posted to the Federal Register when a proposed rule could affect disclosure terms. The work and expense of delivering disclosures at precisely the time required by law are completely wasted when consumers fail to read them.

The goal of disclosures is to educate consumers on a product's terms and conditions, to define their responsibilities, and to ultimately protect them from financial harm or surprises. With this information, consumers can make informed decisions. We should hope consumers comprehend and retain the critical information provided.

Opportunities exist to present important consumer protection information in ways that are far more easily digestible than a thousand-word disclosure in a four-point font. For instance, a gamification model could ask the consumer direct questions related to fees in pop-up windows with animated visual representations of the scenarios. You can brainstorm to come up with messages, jotting down quick ideas—for example, "You chose instant transfer, the fee is $1, Accept or Decline." Or, "Help us monitor your transactions daily, instant transfers will be $0, Accept or Decline." A large font and short words can quickly articulate the key points and big risks. Moreover, building the disclosure logic into the technology better protects the consumer.

Here's some good news—you now have the support of the Consumer Financial Protection Bureau (CFPB) to test your innovative solutions in making disclosures likelier to achieve their aim. The CFPB's Office of Innovation recently issued new policies to encourage innovation. For example, the office instituted a trial disclosure program and has committed to granting or denying applications for these trials within 60 days of submission. Accepted applicants will have up to two years to test their disclosures. They will also have access to state and global regulators through the CFPB's affiliation with the Federal Financial Institutions Examination Council, the Global Financial Innovation Network, and the newly formed American Consumer Financial Innovation Network.

Applicants and disclosures need not be company- or product-specific, although that is an option. Service providers, trade associations, consumer groups, or other third parties may also use the trial application program. Group applications could help spread trial disclosure development costs such that smaller entities would be able to afford to participate in the program. Such intention has been evidenced in the CFPB's Office of Innovation's first "No-Action Letter," issued to more than 1,600 HUD housing counseling agencies, stating that it will not take enforcement action with agencies that enter into "certain fee-for-service arrangements with lenders for pre-purchase housing counseling services."

Have you considered redesigning a payment product or service disclosure that consumers will be likelier to read? Apply to test it , and good luck!

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