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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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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.

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.

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:

table 01 of 01: bingo card

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.

chart 01 of 01: Share of payments made using a mobile telephone

  • 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:

  1. No.
  2. Yes, 34-pound bag of dog food (using the web browser on my phone).
  3. Yes, coffee from my local barista (using a QR code).
  4. No.
  5. Yes, see my answers #2 and #3.

How about you? Did you win?

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.