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 1, 2021
How Have Our Own Payment Habits Changed?
During our December webinar, Nancy Donahue, Jessica Washington, and I spent a good portion of the time discussing how the COVID-19 environment has changed how consumers shop and pay. In September, I reached out to my fellow Risk Forum colleagues and asked them if they had experienced or noticed any changes in their own shopping and payment habits during this year of the panedmic. While this was far from a scientific survey or sample, I found my colleagues' responses interesting and want to share with you how their payment and shopping practices evolved during the past year.
S: Shopping every weekend was a pastime for me and my best friend and has been for years. Since COVID, we have not set foot into a mall, which consequently cut my spending to $0. I have purchased a few necessary items online such as gifts or medications but have focused solely on paying off debt and saving during this time. Haircuts and styling have also been excluded—those usually occurred every 6 weeks and were my only cash transactions.
C: Grocery shopping has switched to completely online. I used to go to the pet store to buy dog food and treats but once the pandemic started, I switched to a subscription service, where they automatically deliver the food to the house every two months. I used to never buy clothes or shoes online because I wanted to try them on first. I've made some clothing purchases online over the last few months and so far, they've all worked out great. I may never step foot in a shopping mall again even after the pandemic ends! I have been tipping much more at salons and restaurants (with my card because I never have cash on me).
N: I have quit using cash completely and was previously a heavy cash user for daily purchases. I haven't had any folding money for six months. This change in behavior was not the result of COVID concerns per se, but more a lack of need for pocket change when my movements are largely confined between the bedroom, home office, and kitchen. Online shopping has increased exponentially to include groceries and restaurant takeout and all other home goods.
J: A dramatic reduction in gas expenses and card use owing to it. We previously went out to eat only occasionally, but now look for excuses or opportunities to do so. These opportunities aren't numerous as many of our favorite restaurants have limited to no capacity for dine in. We tip heavily when we do eat out, always with folding money.
M: I am shopping less for all categories except food. Grocery and carryout spending have increased. My tipping for restaurant carryout has increased. I try to keep a stash of $5 and $10 bills for the tipping. Prior to COVID, tips were usually included on the card charge.
D: Less frequent in-person grocery store visits and increased online ordering. Also, generous tips to food service personnel at our favorite restaurants where we are doing takeaways.
C: I stopped taking mass transit, so I have been tapping to pay less often. Instead of ordering in person and paying via mobile app (QR scan) at my favorite coffee shop, I have been preordering and tipping in the app. My grocery shopping habits are unchanged as I had been buying groceries online for the past five years.
D: I have been using contactless payments with the digital wallet on my phone substantially more often and am using it wherever it's offered. I have also started to use online shopping and delivery for groceries, although I still find myself making multiple trips to the grocery store each week.
It's pretty obvious that the Risk Forum members are behaving like many of the rest of U.S. consumers, with a major shift from in-person to remote shopping . One area where this is especially true is in grocery shopping. Just as many of us have shifted to (or maintained, for the early adopter among us) buying groceries online, this has been a significant shift for many American households. One survey found that as of June, over one-third of U.S. households had used online ordering to buy some of their groceries. I also love the human touch that my colleagues have shown during this time through actively increasing their tipping to the service individuals who are serving them.
January 25, 2021
Resolve for Better Data Privacy
On the heels of a year that saw, among other things, ransomware attacks occurring about every 11 seconds and a significant supply chain breach affecting 18,000 public and private entities, better data privacy should top our collective list of New Year's resolutions. But if this wasn't among our resolutions, we still have National Privacy Day on January 28 to remind us of the need to be vigilant.
Frank Sinatra sang to us in "Love and Marriage" that you can't have one without the other. Likewise, you can't separate data privacy from data protection. Organizations that place a high value on data privacy implement strong data protection measures. Without doing so, privacy can't be assured.
The National Cyber Security Alliance, sponsor of National Data Privacy Day, has created calls to action employing a few basic privacy concepts that individuals and businesses can follow to keep data safe online.
For individuals: Own Your Privacy
- Personal info is like money: Value it. Protect it. Beyond personally identifiable information, this extends to e-commerce purchases, IP address, and location.
- Keep tabs on your apps. Don't just click "OK" on those pop-ups asking to access your location, contact lists, photos, and other personal data. Consider why it is needed and how it will be used and stored. Also, closely examine links and attachments in text messages and emails to keep malware and viruses off your mobile device.
- Manage your privacy settings. Revisit the data access permissions on your apps and web services.
For businesses: Respect Privacy
- If you collect it, protect it. Consider the data your business collects, the business purpose it serves, the way it is stored (such as data encryption), and the length of time it is stored.
- Adopt a privacy framework. Establish a privacy culture in your organization that manages risk and promotes transparency.
- Conduct an assessment of your data collection practices. Evaluate their adherence to applicable privacy regulations.
- Remember that transparency builds trust. Promote transparency with customers in the collection, use, and sharing of their personal data.
- Maintain oversight of partners and vendors. Ensure that third-party service providers share your priority for data privacy and protection.
As many of us will likely continue to work remotely well into 2021—and will likely continue our heavy use of the internet and e-commerce adopted last year—the new year provides a good opportunity to examine apps and behaviors that could put your data privacy at risk. For me, this includes reviewing locations where my payment information and other personal data are stored.
How will you resolve to better protect your data in 2021?
January 19, 2021
Can the USPS Improve Financial Inclusion?
During the nationwide discussion regarding the distribution of the personal economic impact (stimulus) payments, the subject of having the United States Postal Service (USPS) offer basic banking services again surfaced—an idea that has been raised numerous times in the recent past. The premise is that the USPS, with its 34,000-plus retail locations, could provide a convenient and low-cost financial services channel for the estimated 7 million unbanked and 24 million underbanked households.
As I began to research this issue, I was surprised to learn that the USPS had provided savings deposit accounts in the past. In 1910, Congress created the Postal Saving System, which began operating on January 1, 1911. The program was designed to get money being held by families into circulation. It found particular favor with new immigrants who were familiar with postal office savings programs in their native countries. An individual could open a savings account with a minimum of $1 (equivalent to approximately $27 today), later raised in 1956 to $5. However, to help customers save lower amounts, the program offered a postal savings card. Customers would purchase postage savings stamps in 10 cent increments and affix them to the card. Once the customers accumulated stamps worth at least $1, they could deposit the card or redeem it for cash.
Initially, the maximum account balance was $500, but that was raised to $1,000 in 1916 and then to $2,500 in 1918. And until May 1916, the deposit limit was $100 per month. Interest was paid on the account at the rate of 2 percent. The USPS deposited the funds in local banks and earned 2.5 percent. The post office used the difference to cover the cost of the operating the program. In her book How the Other Half Banks, author Mehrsa Baradaran writes that the postal savings program "was the most successful experiment in financial inclusion in the United States. More effective than any other philanthropic or mutual effort to bank the poor, postal banking brought millions of new immigrants and rural dwellers into the U.S. banking system all at once. One of the central aims of the postal banks was also the most difficult to measure: teaching habits of thrift and saving to the poor."
At its peak during World War II, the program's deposits reached $3.4 billion ($40.6 billion today adjusted for inflation) with more than four million depositors. As interest rates paid by financial institutions after the war exceeded the rate of the USPS savings program, the program's popularity began to decline. It officially ended on July 1, 1967, with about $50 million in unclaimed deposits that was later turned over to states for holding and distribution under escheatment rules.
Today, Japan and a number of EU countries have successful postal banking programs. On the other side of the coin, Canada stopped its century-old postal banking program in 1969.
In 2014, the USPS Office of Inspector General issued a white paper, "Providing Non-Bank Financial Services for the Underserved ," that identified specific services that the USPS could partner with a financial institution on to offer reloadable prepaid cards, domestic and international money transfers, and possibly small dollar loans. The USPS today issues domestic and international postal money orders and cashes postal money orders and U.S. Treasury checks with certain limitations.
So what does the USPS management have to say about offering banking services? This 2016 statement still appears on their website.
The Postal Service's mission is to provide the American public with trusted, affordable, universal mail service. Our core function is delivery, not banking.
To the extent our research concludes that we can legally provide additional services at a profit and without distracting from our core business, we would consider these. However, public policy and regulatory discussions must be addressed before the Postal Service invests in an area outside our core function.
Advocates for the USPS offering financial services argue that providing these basic banking services could be a win-win situation for unbanked/underserved consumers and also bring in additional revenue for the agency. An Atlanta Fed white paper (September 2020) titled "Digital Payments and the Path to Financial Inclusion" lists public banking as a potential option for increasing financial inclusion. What do you think?
January 11, 2021
A Penny for Your Thoughts
Happy 2021 to all our readers! Our Take On Payments posts in 2020 frequently dealt with two aspects of currency, both COVID-related: the hygienic safety of handling currency and the coin circulation disruption. My colleagues also addressed these issues during our year-end "Payments In Review" webinar .
As I've researched the coin circulation issue, I've frequently visited the website of the U.S. Mint, since it's the part of the U.S. Treasury responsible for the production of circulating and commemorative coins as well as precious metal bullion coins (gold, silver, platinum, and palladium). The Mint is also the custodian for the country's gold and silver reserves.
Can you name all the Mint facilities currently operating? Most people I have asked can easily name Philadelphia, Denver, and San Francisco. Would you have included West Point, New York? Better known for the nearby military academy, West Point has a facility that was established in 1938 as a depository for bullion. It began producing pennies in 1973 and became an official Mint facility in 1988. Today, the "W" mint mark can be found on circulating quarters.
What about the conversation that arises from time to time on discontinuing the penny? Canada stopped producing its penny in 2012 and adopted a round-up/round-down phasing-out program in February 2013, when the Royal Canadian Mint stopped distributing the penny. The Canadian government's reasons for the action are similar to arguments made by U.S. penny opponents: pennies are excessively costly to produce relative to their face value, consumers have increasingly hoarded them, they are said to be bad for the environment, and they impose handling costs on retailers, financial institutions, and the economy in general.
According to the Mint's 2019 Annual Report, it cost 1.99 cents to produce and distribute a penny that year. Often overlooked in the penny discussion is the fact that the 2019 cost of producing and distributing a nickel at 7.62 cents also exceeded its face value. It will be interesting to see how workplace modifications in response to the pandemic affected these costs. Overall, however, the Mint makes a profit in its overall operations due to seigniorage, which is the difference between the face value and the cost of producing circulating coinage. In 2019, the Mint transferred $540 million to the Treasury General Fund because of seigniorage.
You can read about all this and more on the Mint website. You can also take a tour of the facilities. While physical tours of production facilities of the Mint are currently closed due to COVID restrictions, the website offers virtual tours of the Philadelphia Mint and the coin production at the San Francisco Mint.
I hope you found this information interesting and that it made cents (pun intended). The Federal Reserve continues to monitor consumer cash usage during the COVID pandemic through various research channels and will be reporting on updated findings later this year. As to the 1¢ piece, a penny for your thoughts!