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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 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 ServicesOff-site link (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.

July 13, 2020

Pinching Pennies? Put Your Coins to Work

Here's an easy way to do your two bits to get the economy moving.

Got any quarters sitting in a mug on your kitchen counters? Pennies napping between the couch cushions? Dimes lounging in the back of a drawer?

It's time to get those coins moving again! You can think of coin circulation as the spinning wheel on an exercise bike, tracking from consumers to retailers to financial institutions to the Federal Reserve to financial institutions to retailers to consumers and around again. As in-person retailers around the United States restart their businesses, they need to restock the till. But where are those coins? The bicycle wheel is not currently spinning well because many coins went home with consumers in mid-March and have yet to get back into circulation.

Since March, financial institutions have not been depositing as much coin with the Federal Reserve, which is responsible for coin distribution. In addition, to assure the safety of its workforce, the U.S. Mint has slowed coin production. Those two factors mean that the Fed's coin inventory is below normal. Therefore, since mid-June, the Fed's 28 cash offices have changed the way they allocate coinOff-site link among financial institutions. The allocations are based on past order volume and the Mint's current production. Order limits vary by denomination.

But there are plenty of coins out there. The U.S. Treasury estimates that the total value of coin in circulation is $47.8 billion, up slightly from $47.4 billion as of April 2019. To ease the situation, these coins need to get up off the couch and get some exercise. Early this month, the Fed established the U.S. Coin Task ForceOff-site link, with participants from the Mint, financial institutions, armored carriers, retailers, and coin aggregators to get coin moving. The focus of the task force is to quickly identify ways to increase coin circulation.

How can you help? Bring your stash to a bank or retailer, and they'll be happy to see you. One bank is sponsoring a raffle for coin depositors; another is paying a premium to account holders who bring in lots of coin (#getcoinmoving). Or pour your hoard of pennies, nickels, dimes, and quarters into a coin machine to restart that spinning wheel while putting greenbacks in your pocket.

June 8, 2020

Are Contactless Cards Having Their Moment?

This could be the moment Doug King has been waiting for. In February 2017, Doug blogged, "Wouldn't it be nice to tap and pay?" Back then, he reported his disappointment at not being able to use his "cool" card with contactless functionality. Today, my favorite consumer advice websiteOff-site link is calling contactless payments "the wave of the future." And according to VisaOff-site link, 31 million Americans tapped a Visa contactless card or digital wallet at the point of sale in March 2020, up from 25 million in November 2019. MasterCard projects that approximately 70 percent of its U.S. customers will have contactless cards by the end of 2022.

Dave Lott wrote last year that the speed of contactless card payments could make them as desirable—if not more desirable—than mobile payments. As Dave pointed out, "consumer payments is largely a total sum environment," so the rise of contactless could cannibalize other forms of payments like mobile. Continuing this line of thinking, I have been wondering if any rise in contactless card use could have an impact on the use of cash.


"Protect yourself while shoppingOff-site link," advises the Centers for Disease Control. "If possible, use touchless payment (pay without touching money, a card, or a keypad)."

Until a few months ago, the answer was clear: probably not much of an impact. Let's take a look at consumer behavior and survey responses in the pre-coronavirus environment.

  • First, an April 2020 paperOff-site link examined the behavior of 21,000 Swiss cardholders between 2016 and 2018. In the aftermath of receiving a contactless debit card, the Swiss cardholders increased their use of debit cards overall, especially for small-value payments. But the increase among the Swiss consumers was small. Most of the increase occurred among people who already were using their debit cards to pay. And Swiss account holders who used cash a lot—the researchers call them "cash lovers"—didn't change behavior. The researchers report that the average effect of receiving a contactless card was "underwhelming."
  • Second, in response to a hypothetical question in fall 2019 Adobe PDF file formatOff-site link, U.S. consumers reported they would likely in the future use contactless cards to pay at grocery stores, gas stations, and department stores—payees with a high proportion of card payments already. In other words, consumers would not change their choice of payment instrument; rather, they would change their choice of authorization method (tapping instead of dipping a card). Again, underwhelming when we think about any potential impact on cash.

But that was then. In spring 2020, the future is murkier. Do you think consumers' ideas about and use of contactless cards would be different today?

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.