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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July 20, 2020
Innovation with an Eye on Safety: Let Your Voice Be Heard!
Balancing safety and innovation in banking and payments is critical. The Federal Reserve Bank of Atlanta recognizes this so has been focusing its efforts on a safer payments innovation strategic initiative. In fact, the Atlanta Fed's 2019 annual report highlights this initiative, which includes meeting with fintech entrepreneurs and bankers to share information. Earlier this year, the Atlanta Fed hosted the Federal Reserve System's first "innovation office hours" to talk with entrepreneurs and bankers on topics such as payments security, regulation, and financial inclusion. Of primary concern to many of the participants of these office hours was regulatory compliance and clarity.
In June, the Office of the Comptroller of the Currency (OCC) issued an advance notice of proposed rulemaking on digital activities and other banking issues related to digital technology or innovation. The notice encourages all OCC-supervised institutions—national banks, federal savings associations, and federal branches and agencies of foreign banks—to respond. If you are among these, take this opportunity to let your voice be heard.
It's our job and the job of the OCC and other regulatory agencies to ensure the safety and soundness of banks and the payments system. But we also recognize that innovation is important when it comes to delivering services to consumers and businesses, and we know we are living in a changing technological environment that is bringing in entrants from outside traditional banking. So that the payments system can achieve balance in safety and innovation, it is critical that the regulatory agencies have an ongoing dialogue with those affected by laws, rules, and regulations.
Some of the topics the OCC is requesting comment on include:
- How is distributed technology used or potentially used in activities related to banking?
- What are the issues that are unique to smaller institutions regarding the use and implementation of innovative products, services, or processes that the OCC should consider?
- What are the new payment technologies and processes that the OCC should be aware of and the potential implications of these technologies and processes for the banking industry?
Input from those affected by existing and new rules and regulations will help us create an environment where financial institutions can harness new technologies in a way that makes them competitive yet safe. Do your part to help create a regulatory environment that promotes safety and allows innovation to flourish. Reply to the OCC by the August 3 deadline.
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 website. This collaborative survey effort previously took place in 2014 and 2016.
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.
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.
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 drivers 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.
So 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 website 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.