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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December 7, 2020
2020: The Year in Payments
Each year, the Risk Forum produces a year-in-review webinar. Every Risk Forum member helps plan the webinar, bringing together everyone's unique expertise and perspectives. During the year, each of us engages with a different area of the payments industry and initiatives, which leads to good-natured debate when it comes time at year's end to rank important payment topics. (If you are an avid follower of our blog, you might be able to guess who is pulling for which topics.) This year was a little different, though. We could not think about payments without also considering the heaviness and impact of the COVID-19 pandemic.
Our 2020 webinar will dig into key payment issues that are responses to the pandemic, or opportunities or challenges resulting from the pandemic. The goal is to share our analysis of the data collected over the past year, parse out trends that may have started during the pandemic but might be here to stay, and engage with our audience on where focus should be as we prepare to turn the page on this year and start a welcomed new year.
We will first answer this question: How have businesses' and consumers' payments behaviors adapted over the course of the year? There have been plenty of headlines covering retail trends both in-person and online or e-commerce. The Risk Forum will share details and data about retail payment trends while unpacking the nuances of the underlying technologies that facilitate retail payments. Also in this category are person-to-person and business-to-business payment trends, which we'll highlight, too.
New to the year-end webinar agenda is a focus on cash and coin. We'll share data on consumer cash usage and holdings along with unintended consequences, such as how currency demands have affected ATM operations. Another aspect of currency is how demand for cash this year has caused a coin supply distribution issue, sometimes incorrectly referred to as a coin shortage. The Forum will address the myths about the coin supply distribution issue and share insights from the work by the U.S. Coin Task Force.
These conversations about retail trends and currency demand are followed by another critical discussion, this one about financial inclusion opportunities that have been accelerated by the pandemic. The Atlanta Fed is working to emphasize how digital payment innovations can affect cash-based and vulnerable populations. We will highlight how recent events such as the distribution issues related to stimulus money and general financial support among family and friends have brought additional attention to financial inclusion. We will also share our research on this topic and talk about what steps we are taking toward creating solutions.
Not new to the agenda, unfortunately, will be coverage of fraud challenges. This year, we'll talk about scams that are capitalizing on pandemic responses. There have been several big fraud trends, relating to Paycheck Protection Program loans and Economic Impact Disaster Loans, unemployment benefits, fundraisers for fake charities, and PPE supplies (counterfeit). Rest assured: we will also highlight advancements in fraud defense tools, especially in ecommerce.
Please join us for the 2020 Year-in-Review webinar, our last Talk About Payments webinar for the year. This session will take place on December 17 from 1 to 2 p.m. (ET). To participate in the webinar, you must register in advance (there is no charge).
November 23, 2020
QR Codes or NFC: Winner, Winner, Chicken Dinner?
It may be more appropriate to talk about turkey dinner this time of year, but some of my colleagues and I are arguing about whether one form of contactless payment or another is going to win the chicken dinner.
Earlier this year, my colleague Claire Greene posted about contactless payments and the difficulty a friend encountered when attempting to use a mobile wallet for in-person contactless payments. My colleagues and I have written other posts about the push to issue dual contact-contactless credit and debit cards that use near-field communications (NFC). This technology permits encrypted data transmission using an electromagnetic radio field over a short distance (less than two inches) between two NFC-enabled devices. While contactless card issuance has largely been limited to credit card portfolios, NFC has been a standard feature in most smartphones manufactured over the last decade, permitting the loading of debit and credit cards into the payment wallets. Despite the high penetration of the functionality on the consumer side, several major merchants have resisted enabling this technology at their points-of-sale because of the cost of doing so and card network acceptance rules, but that resistance seems to be waning. Moreover, consumer use of contactless payments has remained low. The 2019 Diary of Consumer Payment Choice (DCPC) indicates that contactless payments represented only about 3 percent of the average consumer's monthly credit card in-person payments.
Competing with NFC technology is the quick response (QR) code. Developed in 1994 by Japanese engineer Hara Masahiro to provide a more efficient way than barcodes for tracking auto parts in an automobile assembly plant, the QR code for payments applications is ubiquitous in China and Japan, and rapidly growing in many other Asian-Pacific countries. It has achieved great popularity with several major U.S. coffee and food chains for their proximity-payment and loyalty-program applications. The 2019 DCPC showed that 6 to 7 percent of the average consumer's stored-value card payments were completed using some contactless method, presumably many of these using QR-code technology. Recent developments have triggered an increased interest in QR codes for payments and a wide variety of other applications. In May, PayPal announced it was supporting the use of QR codes in its app for the purchase and sale of goods in 28 countries including the United States. CVS Pharmacy announced that, before the end of 2020, it would be integrating PayPal and Venmo QR codes in its checkout system in its 8,200 U.S. locations before the end of 2020.
The COVID pandemic has sparked renewed interest in QR codes because of their contactless nature. Guests at restaurants can scan a QR code to call up menus, place their order, and pay for their meal. Museum patrons can get more information about an exhibit or artwork. Some major broadcast networks and product brands are including QR codes in their on-air advertising to provide an interactive session with consumers—the QR code takes them to a website featuring a product or a specific show. All the major social media platforms are supporting the use of QR codes to follow accounts.
For the merchant, QR code technology is easier and less costly to implement than is NFC as long as the merchant can display a QR code for the customer's phone to read. Only software development is required; no additional hardware has to be purchased. The industry association supporting non-FI-owned ATMs is working to develop standards for the use of QR codes on ATM screens to support cardless ATM transactions.
From my perspective, it is still the early days for QR code adoption by consumers in the United States, outside of some proprietary retailer programs, but the increasing rate at which consumers will be encountering the technology in their everyday routine holds promise. Merchants consistently report they want to offer payment methods their customers prefer to use. So will one of the contactless technologies win out over the other, or will they coexist? Let us know what you think as we drop the breaded chicken pieces in the fryer and stir the country gravy.
November 2, 2020
Payments in the Time of COVID: November 19 Webinar
Chatting with my mother-in-law about shopping online for groceries: "Your father-in-law ordered five bananas. We got five bunches. I'm making lots of banana bread."
Perhaps you have experienced the surprises of online shopping for food: Chocolate-covered peanuts instead of raisins. One apple instead of one bag of apples. And like my mother-in-law, unexpected baking opportunities.
Maybe you have experienced the joys of online shopping for food: Placing an order from bed. Avoiding the 10 percent kid tax when your shopping assistant begs for some grocery novelty. Unexpected baked goods.
The anecdotal evidence above implies that the prevalence of in-person shopping is changing. Many of us have become more flexible about grocery shopping, with less desire to individually examine every pepper or loaf of bread in the age of COVID.
Like our personal experiences, recent data collected for the Survey and Diary of Consumer Payment Choice also imply a shift in in-person shopping for goods and services. For example, in October 2019, 96 percent of consumers reported making an in-person payment at least once in a typical month. In April and May 2020, during the pandemic shutdown, just 34 percent of consumers had made an in-person payment at least once in the prior 30 or 60 days. (The particular time period depended on when respondents answered the question, which began, "Since March 10, 2020....")
However you do your shopping, I hope you'll join me and Kevin Foster from the Atlanta Fed alongside Shaun O'Brien from the Cash Product Office at the San Francisco Fed for the next Talk About Payments webinar, November 19, 2020, at 1 p.m. (ET). We'll look at pre- and during-pandemic data from the Survey and Diary of Consumer Payment Choice to get an understanding of how consumer payments behavior has changed. Are we shopping in person? When we do shop in person, how do we pay? We also will examine the jump in U.S. currency in circulation beginning in March and consumers' holdings of cash during COVID.
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. We hope you will join us on November 19 where you will have an opportunity to ask questions about the results of the research.
P.S. Last week on Thursday, the Federal Reserve released detailed data about noncash payments in the United States from 2012 to 2018. This data release provides detailed allocations of aggregate data from the 2019 Federal Reserve Payments Study, previously reported in December 2019. A spreadsheet with 11 tabs for accounts, cards, and payment instrument use as well as a release note describing the data sources and allocations are included.
August 10, 2020
Contactless Pay: A True Life Story
A few weeks ago, my friend decided it was time to start using to her phone to pay at the in-person point of sale. On her first foray into the land of contactless pay, she shopped at four stores that promoted their ability to accept contactless card and mobile payments. My friend's experiences show that while the technology may be ready, the human interactions could still use some work.
- Store #1, one of the largest retailers in the United States: Yes, we take mobile payments but not your mobile wallet. Download our app and then we can deal.
- Store #2, grocery chain with more than 1,000 stores: Yes, we take contactless mobile payments. But we want you to use our electronic pen to sign at the terminal.
- Store #3, top-5 grocery store: Yes, our reader can accept your phone signal. Now, touch a button to select debit or credit.
- Store #4, neighborhood retailer: Finally, a transaction where there was no physical interaction between the phone and the terminal or between my friend's hand and the terminal.
My friend's experiences—where only one of four transactions was fully contactless—illustrate that not only for consumers but also for merchants, contactless pay isn't as easy as flipping a switch. Any change in payments protocol is tricky because of the network of participants in the payments ecosystem:
- Card issuer. For contactless mobile payments, the card issuer has to offer consumers the ability to store their payment card information in a mobile wallet. For contactless card payments, the card issuer has to provide the contactless card (with four ripples on the front). Of the three credit cards and one debit card in my physical wallet, just one credit card is contactless on this summer day 2020. In June 2019, the Federal Reserve Mobile Financial Services Survey asked banks and credit unions about their plans to issue contactless-enabled cards. More than half (56 percent) of the total respondents reported they had no plans to issue contactless cards. For financial institutions with assets under $100 million, about two-thirds indicated they had no plans to issue a contactless card. The major card networks began promoting contactless card issuance and customer usage in mass media channels even before the COVID-19 pandemic and have continued to do so.
- Merchant. For contactless payments of either sort, the merchant has to enable terminals with the contactless technology. Then, as indicated by my friend's saga above, merchants need to set policies and train cashiers to support a customer's use of the technology. Several large merchants that previously had refused to accept contactless mobile transactions have recently announced plans to accept such transactions in the near future, but there are still some major holdouts.
- Card holder. Consumers adapted fairly quickly to the change from swiping their magnetic-striped card at the terminal to inserting their EMV chip card. And tapping or waving is faster than inserting a chip card, as long as what people expect to be a simple wave of the phone or card does not entail more work to complete the transaction (as in my friend's case). Faced with warnings about virus transmission through physical objects, consumers look ready to see benefit from contactless mobile or card pay.
The decisions of all these parties will be relevant for what happens next. Merchants are more likely to offer the contactless option as they see other merchants offering it. Consumers are more likely to use it as they see other consumers using it and as they gain confidence the transaction will work. Financial institutions, especially the smaller ones, may issue these cards as no-touch becomes more the norm and they feel the competitive pressure. Perhaps the stars are beginning to align with increased card issuance and merchant acceptance.