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 Services (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.
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.