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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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March 9, 2020

The Cash Battle Escalates

On the first day of a conference I recently attended, I participated in a town hall panel on the "right to choose cash." And on the last day, I presented key findings on cash usage from the Federal Reserve's Diary of Consumer Payment Choice (DCPC).

Between these bookend sessions, there were numerous remarks and discussions in other sessions and during networking breaks about how consumers' use of cash is changing. I heard the phrase "war on cash" quite a bit, although I think "battles against cash" is more accurate. Not surprisingly, the conference was the ATM Industry Association's annual conference.

For an industry whose primary product is currency, we can understand the importance of this topic to the ATM owner and operators.

There is no question that technology has permitted businesses that previously were cash-only to now either exclude cash or allow payment cards. Vending machines, mass transit fares, and parking meters—which all used to be cash-only—are prime examples of this transition. Since we have no federal law requiring businesses to accept cash, a few scattered private business owners have refused to take it. They cite the costs of handling cash and the security risks of robbery and employee theft as major disadvantages. Of course, every payment method has its advantages and disadvantages. On the positive side, cash payments are immediate and final, and are highly convenient, especially in natural disasters when electrical and connectivity infrastructure is disrupted.

Cash acceptance also has societal implications. The DCPC results show that unbanked households used cash for almost 62 percent of their payments, compared to 27 percent for underbanked households and 20 percent for fully banked households. (Unbanked households don't have checking or savings accounts, while underbanked households have accounts but also get financial products and services outside of the banking system.)

Additionally, lower income correlates to higher cash usage, as the chart shows.

Chart 01 of 01: Payment Shares by Income, October 2018

It is largely because cash-exlcusion practices can harm the un- and underbanked and low-income households that politicians have introduced or enacted legislative action to ban businesses from refusing to accept cash. Massachusetts has had such a ban since 1978 and was recently joined by New Jersey as well as the cities of San Francisco, Philadelphia, Washington, DC, and New York City. The states of Oregon, Wisconsin, New Hampshire, and Vermont have seen similar bills introduced. At the federal level, H.R. 2650, the Payment Choice Act, has received bipartisan sponsorship (28 Democrats and 8 Republicans) and now sits in the House Financial Services Committee.

Federal Reserve Bank of Atlanta president Raphael Bostic in recent remarks noted that some of the new ways business owners are conducting business are biased in that they lock out those who still use cash. He suggested that perhaps the definition of financial inclusion needs to be expanded to include the notion that every person should be able to use anywhere the payment channels they rely on for their transactions.

Take On Payments will continue to follow these cash battles.

January 13, 2020

My Madeleine Moment: A 1965 Penny

It's not often that reading a book related to my professional activities reminds me of my grandmother. Born in 1900, she regularly stuffed me with tapioca pudding. Decades before the Instapot, she mastered the pressure cooker. Always ready with a hug, she turned up on page 46 of Bill Maurer's How Would You Like to Pay? How Technology Is Changing the Future of Money.

My grandmother always carried a penny, loose, in her "pocketbook" for good luck. If she gave me a handbag or coin purse, there would be a penny inside. It was essential. I couldn't walk out the door without a penny for luck.

My Proustian moment came when I read Maurer's comment: "People working on new technologies of money tend to assume that money is just money. But money is so much more, besides." And up popped the penny, a memory buried for decades.

You may have childhood memories around the idea of money-as-more-than-money. An uncle who surreptitiously handed over a crisp bill, perhaps. Or adult memories—for example, the dry cleaner who refused to exchange two of my singles for one of his lucky $2 bills.

MaurerOff-site link, an anthropologist at the University of California, Irvine, posits that such extra-monetary characteristics of money are important for financial product design going forward. And, indeed, we've seen examples of form factors that add value. Doug King has reported that some consumers are enamored of metal credit cards. "They love how metal cards feel and they love the sound that they make when they drop them on a counter or table." My neighbor tells me that she feels cool tapping her watch to pay for groceries. Many consumers work hard to keep a pristine titanium card clean; some store it in a special pouch.

dollar art origami puppy

There's something more to this than a medium of exchange, a unit of account, a store of value, as Maurer notes when he describes the use of money in rituals around the world. He writes that people do "all sorts of things with money besides earn it, pay with it, and save it." Take, for example, my origami dog, pictured here.

How are financial institutions and fintechs incorporating ancient totems into product design so that the safest way to transact would also have this sort of intrinsic value-add? Let me know your thoughts.

January 6, 2020

Phone Payment Bingo

Let's play a game of mobile payments bingo. Say yes to all five and you win!

In the last three days, did you use your mobile phone to:

table 01 of 01: bingo card

Do your answers to these questions give you the idea that you are using your phone more and more to pay? If so, you're in line with the latest results from the Diary of Consumer Payment Choice.

As you can see below, using a phone to pay—especially to pay bills and other people—has increased as a share of payments in recent years. More payments are being made with phones.

chart 01 of 01: Share of payments made using a mobile telephone

  • In October 2016, 11 percent of bill payments were made via mobile phone; in 2018, 18 percent.
  • In October 2016, 5 percent of payments to another person were made via mobile phone, in 2018, 17 percent.

The Diary of Consumer Payment Choice records the daily payments behavior of U.S. consumers 18 and older. Consumers report not only whether or not they used a mobile phone but also if they used a computer or tablet—either remotely or in person—or snail mail to pay. They record the dollar amount of the payment, the payment instrument used (for example, cash, debit card), and the purpose or payee (utilities, grocery store). These consumer behavior data can be analyzed in the context of household income and demographic attributes.

You can read the full report online and download the data for analysis.

By the way, I couldn't complete my bingo card. My answers:

  1. No.
  2. Yes, 34-pound bag of dog food (using the web browser on my phone).
  3. Yes, coffee from my local barista (using a QR code).
  4. No.
  5. Yes, see my answers #2 and #3.

How about you? Did you win?

December 23, 2019

New Data Posted for Federal Reserve Payments Study

If you're looking for payments reading during the holidays, take a look at a new report, the Federal Reserve Payments Study 2019, which was published last Thursday on the Federal Reserve's websiteOff-site link.

The report finds that growth in card and ACH payments has accelerated.

Here are some key findings:
  • The number of ACH credit and debit transfers grew by 6 percent a year between 2015 and 2018, exceeding the 4.9 percent per year growth rate recorded for the period from 2012 to 2015.
  • Debit and credit card payments grew at an accelerated rate of 8.9 percent a year between 2015 and 2018, up from the 6.8 percent yearly rate of increase from 2012 to 2015.
  • For general-purpose cards overall, the value of remote payments in 2018 nearly equaled that of in-person payments.
  • More than half of in-person general-purpose card payments were chip-authenticated, up from 2 percent in 2015.
  • Payments made by check fell 7.2 percent a year from 2015 to 2018.

The 2019 Federal Reserve Payments Study covers card (credit, non-prepaid debit, and prepaid debit), ACH, and check payments and ATM withdrawals. In these days of fintech and new ways to pay with a phone or fingerprint, these core noncash payment types are used not only in traditional ways but also to make possible alternative payment methods and services.

We look forward to continuing the payments conversation with you on January 6, 2020, when I will be challenging you to a game of pay-with-your-phone bingo.

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