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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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November 12, 2019

Financial Solutions for the Younger Generation

Earlier this year, I wrote a post about how millennials tend to be risk-averse when it comes to making financial decisions. Because millennials grew up watching various financial crises, such as the dot-com collapse and the Great Recession, they may have formed a negative attitude toward financial-risk-taking and an overall distrust in the financial system. I’d referred to a 2017 surveyOff-site link that showed that millennials are more afraid of credit card debt than of dying. This speaks to a need for more focused financial education tools and advisers to help young people—millennials and Gen Zers alike—increase their financial literacy and gain more trust in the financial system.

I recently attended Finovate 2019, a conference where technology startups showcased their latest fintech innovations in seven-minute demos. Industry leaders shared their insights on various topics in financial services, investing, insurance, and biometrics, to name a few. As a millennial, I found what resonated with me the most were all the developments targeted to my age group, from fractional investment apps to interactive robo advisers that aim to make the entire banking experience less intimidating.

One of the biggest financial burdens that millennials face today is paying off massive amounts of student loan debt. An NPR articleOff-site link states that "student loan debt in the United States has more than doubled over the past decade to about $1.5 trillion." In fact, millennials and Gen Zers have become so crippled by student loan debt that they are delaying and even forgoing the American dream of becoming homeowners because they perhaps mistakenly view it as taking on additional debt, despite all the benefits of owning a home. Similarly, they view credit cards as just another way to take on debt, not as an opportunity to build up or improve their credit.

But now, thanks to startups like those at Finovate, apps and other software are now addressing the student loan debt problem by providing advice to families on the cost and return on investment of college, based on career and salary, as well tools that project financial aid packages for each school. One intriguing millennial- and Gen Z-focused app showcased at the conference was a gamified money management app that rewards users in real cash for saving or achieving a financial goal. Another was a financial literacy app that breaks down complex financial concepts into a quiz format and rewards users with cash or gift cards when they complete the quiz.

It is encouraging to see fintechs and even banks taking notice of the financial needs of the younger generations and developing products and services that better cater to their unique expectations, in a fun, creative way. Could these apps help these young people shift from their current, risk-averse mindset and give them greater confidence in the financial system so that they can take more risks with their money and ultimately build more wealth? Let us know.

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!

August 12, 2019

At the Intersection of FinTech and Financial Inclusion

Technological innovation is booming, and many financial institutions and financial service providers, including mobile phone providers, are increasingly adopting financial technology, or fintech, to offer easier and faster payments to consumers. In other words, the consumers who have traditional banking services such as checking and savings accounts naturally have access to solutions such as online or mobile bill pay, account and P2P money transfers, and customized saving options. But what about the people who don't have a bank account?

According to the Federal Reserve's Report on the Economic Well-Being of U.S. Households in 2018, approximately 6 percent of adults do not have a bank account, and approximately 22 percent are either unbanked or underbanked (having a bank account but relying on alternative financial services). How does the payments industry make sure that, in the words of the World Bank, all "individuals and businesses have access to useful and affordable financial products and services that meet their needs"? How can the industry help boost financial inclusion, which is "a key enabler to reducing poverty and boosting prosperity" (also in the words of the World Bank)?

Banking status chart

Join us for the Atlanta Fed's latest episode in our Talk About Payments webinar series on Thursday, August 22, from 1 to 2 p.m. (ET). A panel of payments experts will focus on how fintech aims to improve financial inclusion by giving people who are un- or underbanked access to the payments system. Panel members will also discuss current research on financial inclusion and programs intended to support economic mobility.

Panel members are:

  • Dr. Sophia Anong, associate professor, financial planning, housing and consumer economics, University of Georgia
  • Nancy Donahue, Federal Reserve Bank of Atlanta
  • Catherine Thaliath, Federal Reserve Bank of Atlanta

Participation is free, but you must register in advance. After you've registered, you'll receive a confirmation email with the login and toll-free call-in information. We hope you and your colleagues will join us and be part of the discussion as we delve into the ways financial technology is helping to meet the needs of the underserved.