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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 coin 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 Force, 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.
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.
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.
Maurer, 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.
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:
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.
- 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:
- Yes, 34-pound bag of dog food (using the web browser on my phone).
- Yes, coffee from my local barista (using a QR code).
- Yes, see my answers #2 and #3.
How about you? Did you win?
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