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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February 1, 2021
How Have Our Own Payment Habits Changed?
During our December webinar, Nancy Donahue, Jessica Washington, and I spent a good portion of the time discussing how the COVID-19 environment has changed how consumers shop and pay. In September, I reached out to my fellow Risk Forum colleagues and asked them if they had experienced or noticed any changes in their own shopping and payment habits during this year of the panedmic. While this was far from a scientific survey or sample, I found my colleagues' responses interesting and want to share with you how their payment and shopping practices evolved during the past year.
S: Shopping every weekend was a pastime for me and my best friend and has been for years. Since COVID, we have not set foot into a mall, which consequently cut my spending to $0. I have purchased a few necessary items online such as gifts or medications but have focused solely on paying off debt and saving during this time. Haircuts and styling have also been excluded—those usually occurred every 6 weeks and were my only cash transactions.
C: Grocery shopping has switched to completely online. I used to go to the pet store to buy dog food and treats but once the pandemic started, I switched to a subscription service, where they automatically deliver the food to the house every two months. I used to never buy clothes or shoes online because I wanted to try them on first. I've made some clothing purchases online over the last few months and so far, they've all worked out great. I may never step foot in a shopping mall again even after the pandemic ends! I have been tipping much more at salons and restaurants (with my card because I never have cash on me).
N: I have quit using cash completely and was previously a heavy cash user for daily purchases. I haven't had any folding money for six months. This change in behavior was not the result of COVID concerns per se, but more a lack of need for pocket change when my movements are largely confined between the bedroom, home office, and kitchen. Online shopping has increased exponentially to include groceries and restaurant takeout and all other home goods.
J: A dramatic reduction in gas expenses and card use owing to it. We previously went out to eat only occasionally, but now look for excuses or opportunities to do so. These opportunities aren't numerous as many of our favorite restaurants have limited to no capacity for dine in. We tip heavily when we do eat out, always with folding money.
M: I am shopping less for all categories except food. Grocery and carryout spending have increased. My tipping for restaurant carryout has increased. I try to keep a stash of $5 and $10 bills for the tipping. Prior to COVID, tips were usually included on the card charge.
D: Less frequent in-person grocery store visits and increased online ordering. Also, generous tips to food service personnel at our favorite restaurants where we are doing takeaways.
C: I stopped taking mass transit, so I have been tapping to pay less often. Instead of ordering in person and paying via mobile app (QR scan) at my favorite coffee shop, I have been preordering and tipping in the app. My grocery shopping habits are unchanged as I had been buying groceries online for the past five years.
D: I have been using contactless payments with the digital wallet on my phone substantially more often and am using it wherever it's offered. I have also started to use online shopping and delivery for groceries, although I still find myself making multiple trips to the grocery store each week.
It's pretty obvious that the Risk Forum members are behaving like many of the rest of U.S. consumers, with a major shift from in-person to remote shopping . One area where this is especially true is in grocery shopping. Just as many of us have shifted to (or maintained, for the early adopter among us) buying groceries online, this has been a significant shift for many American households. One survey found that as of June, over one-third of U.S. households had used online ordering to buy some of their groceries. I also love the human touch that my colleagues have shown during this time through actively increasing their tipping to the service individuals who are serving them.
January 11, 2021
A Penny for Your Thoughts
Happy 2021 to all our readers! Our Take On Payments posts in 2020 frequently dealt with two aspects of currency, both COVID-related: the hygienic safety of handling currency and the coin circulation disruption. My colleagues also addressed these issues during our year-end "Payments In Review" webinar .
As I've researched the coin circulation issue, I've frequently visited the website of the U.S. Mint, since it's the part of the U.S. Treasury responsible for the production of circulating and commemorative coins as well as precious metal bullion coins (gold, silver, platinum, and palladium). The Mint is also the custodian for the country's gold and silver reserves.
Can you name all the Mint facilities currently operating? Most people I have asked can easily name Philadelphia, Denver, and San Francisco. Would you have included West Point, New York? Better known for the nearby military academy, West Point has a facility that was established in 1938 as a depository for bullion. It began producing pennies in 1973 and became an official Mint facility in 1988. Today, the "W" mint mark can be found on circulating quarters.
What about the conversation that arises from time to time on discontinuing the penny? Canada stopped producing its penny in 2012 and adopted a round-up/round-down phasing-out program in February 2013, when the Royal Canadian Mint stopped distributing the penny. The Canadian government's reasons for the action are similar to arguments made by U.S. penny opponents: pennies are excessively costly to produce relative to their face value, consumers have increasingly hoarded them, they are said to be bad for the environment, and they impose handling costs on retailers, financial institutions, and the economy in general.
According to the Mint's 2019 Annual Report, it cost 1.99 cents to produce and distribute a penny that year. Often overlooked in the penny discussion is the fact that the 2019 cost of producing and distributing a nickel at 7.62 cents also exceeded its face value. It will be interesting to see how workplace modifications in response to the pandemic affected these costs. Overall, however, the Mint makes a profit in its overall operations due to seigniorage, which is the difference between the face value and the cost of producing circulating coinage. In 2019, the Mint transferred $540 million to the Treasury General Fund because of seigniorage.
You can read about all this and more on the Mint website. You can also take a tour of the facilities. While physical tours of production facilities of the Mint are currently closed due to COVID restrictions, the website offers virtual tours of the Philadelphia Mint and the coin production at the San Francisco Mint.
I hope you found this information interesting and that it made cents (pun intended). The Federal Reserve continues to monitor consumer cash usage during the COVID pandemic through various research channels and will be reporting on updated findings later this year. As to the 1¢ piece, a penny for your thoughts!
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).
November 16, 2020
What Might Stormy Weather Mean for Banking Status?
Life is bad gloomy misery everywhere
Stormy weather just can't seem to get myself together
I'll be here all the time
These days, many of us are singing the 1933 song "Stormy Weather." That's because we all are engaged in a massive natural experiment:
- What were our preferences and behaviors before the weather turned stormy?
- How will they change—or not—after the sky clears?
Researchers sometimes call such a sharp demarcation a "treatment." When something dramatic happens, we want to know—ASAP—the long-term implications. It's hard to wait for the data to come in.
Echoing Catherine Thaliath a couple of weeks ago, I suggest you ground your speculations in what you know. For example, the Federal Deposit Insurance Corporation's (FDIC) recent Survey of Household Use of Banking and Financial Services (formerly, the FDIC National Survey of Unbanked and Underbanked Households) released prepandemic data last month:
- 124.2 million U.S. households had bank accounts in 2019, at 94.6 percent of households the highest shares since this FDIC survey began in 2009.
- The increase in the share of banked households from its low point in 2011 was mostly associated with improvements in their socioeconomic circumstances.
After examining these historical data, the FDIC report concludes that the unbanked rate is likely to increase from its prepandemic level as a result of income or job loss. This conclusion is alarming given that access to digital payments has become even more essential in our COVID world of physical distancing. A recent Atlanta Fed paper advocated that there could be other ways to give cash users access to "digital payment vehicles that don't depend on traditional bank accounts." So now could be the time for this sort of innovation—for example, the expansion of cash-in/cash-out networks that let consumers convert benjamins, five spots, and other folding stuff into digital money and back.
Back to speculation: What could changes in banking status mean for payments? Perhaps some households will face challenges in accessing payment methods linked to a bank account. Entrepreneurs could find new opportunities for innovations in prepaid cards. Developers might rethink the foundation of apps intended to assist low- and moderate-income consumers. What are your ideas?
Harold Arlen composed the music to "Stormy Weather." Arlen also composed "Over the Rainbow," which promises that we'll wake up "where the clouds are far behind us." As that beloved ballad advises, remember that today in payments is not the future of payments. Our short-term choices during COVID are only one piece of imagining the future.