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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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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.

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.

December 2, 2019

Making the Choice to Use Cash

FADE IN:

INTERIOR, VETERINARY HOSPITAL—LATE NIGHT (2019)

Male, 60ish baby boomer, in work clothes and yellow reflective vest approaches the desk.

"Picking up a prescription.'

"That's $15.17," says the receptionist.

Waiting puppy owner—off-the-clock Payments Risk Expert—slouched in plastic chair, swings around to face desk. She stares rapt at boomer in work clothes.

A moment's pause.

Boomer rummages deep in his right pants pocket, then the left. Crumpled bills appear in his fist. A dime, a nickel, and 2 pennies fall to the counter.

Payments Risk Expert leans back, satisfied, and smiles.

FADE OUT.

That was Yours Truly at the vet last month. Research based on data from the Diary of Consumer Payment Choice predicts that anonymous pet owner would be likely to choose cash and, in the moment, he did.

Oz Shy, senior policy adviser and economist at the Atlanta Fed, applied machine learning algorithms to examine some 17,000 in-person payments from the 2017 and 2018 Diary of Consumer Payment Choice. The decision tree that resulted (below) predicted the likely behavior of my boomer.

graphic 01 of 01: Who am I and how much am I paying?

Reading from left to right, you can see that the first fork occurs for payments above and below $10. For payments less than $10, U.S. consumers are most likely to choose cash (choices to use cash are represented by the green boxes).

The second fork, for payments of $10 or more, is determined by household income. For payments of $10 or more, people with household income greater than $110,000 are most likely to use a credit card (orange boxes show the choice to use a credit card).

The next fork again occurs for transaction value. For payments equal to $20, it's probable that consumers will choose cash. (In his paper Adobe PDF file format, Oz relates this choice to the denomination typically available from ATM withdrawals.)

Now age comes into play: For payments less than $20 (remember, $15.17), consumers 54 and older (boomers) choose cash.

Voila! The pet-owning baby boomer plays to type.

Oz's research illustrates the importance of transaction value for payment instrument choice. For in-person payments of less than $10, consumers—whatever their household income or demographics—are most probably going to use cash. And for larger transaction values, the decision tree also shows that income and age matter for the choice to use (or not use) cash and other payment instruments.

You can read the paper, "How Currency Denomination and the ATM Affect the Way We Pay," here Adobe PDF file format.

October 7, 2019

Payments Webinar October 10: Cash in the 21st Century

As I write this, I am drinking my morning cup of joe. For me, that means half caf/half decaf, then cut in half with microwaved nonfat milk. (Slurp.)

Day in, day out, I want it just that way. No sugar for me. Nonfat milk, not 2 percent. Black only when I open the door to an empty fridge.

Odds are, you're like me when it comes to coffee and payments. Your habits—and mine—are sticky. We've found something that works for us and—day in, day out—we take our coffees and choose to pay the same way. These are our preferences.

What happens when we change our minds about what we prefer? Shaun O'Brien at the San Francisco Fed has been looking into the relationship between our stated preferences for making in-person purchases and the payment instruments we use in the moment.

In an economic model that incorporates consumer demographics, household income, transaction characteristics, and the payee, Shaun finds that, over time, a change in stated preference eventually results in an increased probability of using a newly preferred payment instrument.

Note that word eventually.

For example, say I stated a preference for cash in 2016 and then switched to a stated overall preference for debit card in 2017. It might not be until 2018 that you would start to see a small change in my mix of payments, with relatively less use of cash and more of debit. Like a coffee habit, my preferred payments habit is slow to change. (Keep in mind that, as I have blogged previously, preference is one of a number of factors that are important, including, for example, what a payee is willing to accept.)

Whatever your morning beverage, I hope you'll join Shaun, the Atlanta Fed's Oz Shy, and me for the next Talk About Payments webinar, October 10, 2019.

We'll look at current data from the Survey and Diary of Consumer Payment Choice and new research—including Shaun's findings reported above—to investigate the 5 Ws and also the How of cash:

  • WHAT is happening with cash?
  • WHO uses cash?
  • WHERE do consumers use cash?
  • WHEN do consumers use cash?
  • WHAT might cause cash users to switch to another payment method?
  • HOW do consumers get cash?

This webinar is open to the public but you must register in advance to participate. (Registration is free.) You can register online. Once registered, you will receive a confirmation email with login and call-in information.

Date: Thursday, October 10, 2019
Time: 1–2 p.m. (ET)
Register now!