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.
Comments are moderated and will not appear until the moderator has approved them.
Please submit appropriate comments. Inappropriate comments include content that is abusive, harassing, or threatening; obscene, vulgar, or profane; an attack of a personal nature; or overtly political.
In addition, no off-topic remarks or spam is permitted.
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 website is calling contactless payments "the wave of the future." And according to Visa, 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 shopping," 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 paper 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 , 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?
May 26, 2020
Some Seek Peace of Mind with Contactless
The COVID-19 pandemic has created a keen awareness of the need for enhancing personal practices to prevent the spread of the virus. The CDC has encouraged social distancing, face-mask wearing, frequent hand washing and sanitizing, and daily surface cleaning and disinfecting. When it comes to people buying things in person, it is that last guideline that has sparked widespread discussion about whether one type of payment method is safer than another.
Some stakeholders have been promoting contactless transactions as the most hygienic method of in-person payment. The consumer can perform such transactions with a minimal amount of contact with a payment terminal, either through a mobile pay wallet application or a contactless payment card—as long as the merchant has enabled the payment terminals with near-field communications technology. This post will focus on mobile contactless payments that began in the United States in late 2014, with the introduction of the Apple Pay digital wallet, followed shortly by the Google and Samsung pay wallets. Thus far, consumer use of mobile digital wallets has been anemic. Some research has found that mobile payments represented only 3 percent of U.S. retail sales in 2019.
Financial inclusion is a particular concern for the Atlanta Fed. Past Take On Payments posts have discussed the state of un- and underbanked households in the United States and efforts to make financial services more readily available and affordable. The mobile phone—in particular, the smartphone—is a key part of inclusion. Smartphones allow access to secure, low-cost banking services. Given the recent promotion of mobile contactless payments, here are some recent statistics from the Pew Research Center on mobile phone ownership that I want to share with you.
According to a survey conducted in early 2019, 96 percent of U.S. adults had a mobile phone, and 81 percent of that group had a smartphone. As you might expect, younger adults were more likely to own a smartphone than older adults.
Specifically related to the financial inclusion issue is the disparity in smartphone ownership based on household income. Ownership among households earning less than $30,000 annually was only 71 percent compared to 90-plus percent for those with more than $50,000 in annual income. Type of community also made a difference. Adults in rural areas had an ownership level of 71 percent compared to 83 percent for those in suburban and urban areas.
These statistics are a strong reminder of the message my colleague Claire Greene gave in a recent post that I am not the "average" consumer. Similarly, just because I have a smartphone and you have one, we can't make assumptions about ubiquitous smartphone ownership. Consequently, some digital payment services may lock out people who use cash. As the industry moves forward with enhanced and sometimes preferred payment options, we should remember Atlanta Fed president Raphael Bostic's suggestion that financial inclusion should mean that the consumer should be able to pay how they want to pay.
May 18, 2020
Why the Decline in Average Value of Remote General-Purpose Card Payments?
The COVID-19 pandemic is affecting many aspects of our lives: interactions with friends and family, jobs, shopping habits—grocery shopping in particular. Lots of us have been speculating about those groceries, making predictions about ecommerce growth in the long run and also about how the composition of ecommerce sales could change.
Data from the Federal Reserve Payments Study give us a benchmark for thinking about remote card payments during and after the pandemic. For example, the average dollar value of remote card payments can suggest ways that consumer behavior has changed in recent years. And going forward, future data collection could give insights into behavior during the health crisis.
The average value of general-purpose card payments conducted remotely fell faster than the average value of in-person general-purpose card payments in the most recent three-year period for which data is available, 2015 to 2108. Remote payments by general-purpose credit, debit, or prepaid cards averaged $98 in 2018, compared to $121 in 2015. The chart shows the drop in average values.
What's going on here? Various factors likely play into this change in average dollar value. Here are three.
First, more and more people are shopping and paying bills remotely, which includes online. This measurement—"How many people make card payments remotely?"—is broad. It could be that people on the margin, those who have recently started making online payments, are different from others. Maybe they are older. Less card-centric. Less wealthy. Maybe they still are most comfortable writing paper checks for their biggest bills. These individual characteristics could reduce the average dollar value of their online payments compared to others.
Second, people who shop and pay bills remotely are doing it more frequently. This measurement—"How much are remote payers paying?"—is deep. For example, compared to the number of payments you made online during a typical month in 2015, think about the number you made in 2018. Are you making more? Are you paying online more intensively?
Third, people already making remote payments could be more willing to make what my colleague Jessica Washington calls "micropayments" with cards. When shopping online, do you buy a toothbrush one day, a pack of gum the next, and a candy bar on day three? Do you buy digital goods: a music download, the in-app purchase of virtual goods, access behind a news paywall? These tiny payments could be pushing down the average dollar value.
All three of these factors could be in flux right now. They could be changing due to the mix of things we are buying, our income and employment status, changes in household members, payees' willingness to accept different payment methods, etc. etc. etc. This bigger picture is important for payments choice.
Going forward, our short-term reactions to the pandemic—buying groceries online, for example—may or may not equal long-term change in remote purchasing behavior. The Federal Reserve Payments Study continues to collect data related to these behaviors. More data about payments trends is available in the 2019 report of the Federal Reserve Payments Study.
February 18, 2020
Am I Average? Adventures in Survey Research
The results of the 2018 Diary of Consumer Payment Choice, released in December 2019, show us that, as a percentage share of all types of payments by number, consumers use debit cards for 28 percent of payments, cash for 26 percent, and credit cards for 23 percent.
I can hear you thinking, "No, that can't be."
"Not in my household. We never use cash. And we always choose credit first to get the points." Your skepticism likely is related to the fact that the diary reports averages for a representative sample of U.S. consumers age 18 and older. That means that all sorts of people are included in the estimates of payment instrument use: highly educated and without a high school diploma, born in the United States and born elsewhere, 18-year-olds and 85-year-olds, people who live in cities and people who live in small towns.
Some of those people are a lot like you. Others, not so much.
For example, if you're reading the Take on Payments blog, I'd venture to guess that your household income was north of the U.S. median of $61,937 in 2018, the year this data was collected. And income matters a lot for consumer behavior.
Let's see what happens when we take income into account for payment instrument use, still using the data from the 2018 Diary of Consumer Payment Choice. Kevin Foster, survey expert at the Atlanta Fed, helped me with this analysis:
- Of payments reported by people in households earning less than $60,000, 32 percent by number were in cash, 31 percent with debit cards, and 15 percent with credit cards.
- Of payments reported by people in households earning more than $60,000, 22 percent were in cash, 27 percent with debit cards, and 28 percent with credit cards.
Note the heavy use of cash by the people in households earning less than $60,000 and the use of credit cards by the group earning more.
When I see data on consumer behavior—the percentage of people who dye their hair, for example—I can't resist asking myself, "Am I average?" Or even, "Am I above average?"—as are the residents of Lake Woebegone. Add a bit of demographic data, and my assessment of how "average" I am changes. Instead of the percentage of all people who dye their hair, compare me to the percentage of women older than 45 who dye their hair, for example.
From hair styling choices to payments choices, not only income but also demographic characteristics like age and gender are important for consumer behavior. That's why the data set for the Diary of Consumer Payment Choice includes a full set of demographic variables (such as age, education, and household size) as well as information about income and employment status. All the data, including a code book explaining all the variables, are available online. So feel free to slice and dice the data as much as you like.
Take On Payments Search
- account takeovers
- bank supervision
- banking regulations
- card networks
- check fraud
- consumer fraud
- consumer protection
- credit cards
- crossborder wires
- data security
- debit cards
- emerging payments
- financial services
- financial technology
- identity theft
- law enforcement
- mobile banking
- mobile money transfer
- mobile network operator MNO
- money services business MSB
- online banking fraud
- online retail
- payments fraud
- payments innovation
- payments risk
- payments studies/research
- payments systems
- Payment Services Directive
- phone fraud
- remotely created checks
- risk management
- Section 1073
- skills gap
- social networks
- supervision and regulation
- thirdparty service provider
- Unfair and Deceptive Acts and Practices UDAP
- wire transfer fraud
- workforce development
- workplace fraud