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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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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 switchOff-site link. 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 readyOff-site link 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.

August 3, 2020

A Checkup on Checks: New Data on Business and Consumer Use

When did you last go to the dentist? OK, maybe too personal. How about this: when and why did you last write a check? For me, it was in December, for my annual purchase of Tag-a-Longs from my niece's Girl Scout troop. My check use is infrequent, but sometimes a check is still my go-to payment instrument. Even though the Federal Reserve Payments Study has found that the number of check payments in the United States declined from 41.9 billion Adobe PDF file formatOff-site link in 2000 to 14.5 billionOff-site link in 2018, U.S. businesses and consumers—like me—continue to use checks for all kinds of reasons, according to the 2018 Check Sample Survey Adobe PDF file format (CSS) report, just published by the Atlanta Fed. The CSS reports check use by businesses and consumers based on a sample of checks cleared by the Federal Reserve in 2018.

Previous iterations of the CSS, which has been conducted since 2001, the 2018 survey estimated percentage shares of checks paid both by purpose (bill, POS, income, casual, and indeterminate) and by payer and payee (business and consumer). In 2018, for the first time, the report includes data about checks returned, allowing for detailed analysis of returns by reason code, including possible fraud. Checks returned are items that the paying depository institution has chosen not to honor and which the Federal Reserve subsequently returns to the depositing institution.

Among the findings:

  • Just over half of checks are written by consumers.
  • Businesses are the recipients of two-thirds of checks.
  • The median value of a check written by a consumer is $116; by a business, $357.
  • Checks written by businesses made up three-fourths of total check value.
  • Checks returned for insufficient funds, which also include uncollected funds holds (funds on deposit but not yet available for withdrawal), were two-thirds of return items by number and half of return items by value.

Want to know more? Join us on Thursday, August 27, from 2 to 3 p.m. (ET), when I and my Retail Payments Risk Forum colleagues delve into the CSS findings in greater detail on our Talk About Payments webinar. You must registerOff-site link in advance to participate. Once you've registered, we'll send you a confirmation email with the access information. (There is no fee for the webinar.)

And before that next dentist visit, why don't you "do-si-do" on over to the Atlanta Fed website and see the report for yourself. You can download the report Adobe PDF file format and Excel data tables Adobe PDF file format and explore, drill down, and be part of the August 27 webinar discussion. Hope to see you there!

July 27, 2020

SNAP Gets Snappier and Offers Ecommerce and Fraud Prevention

In April 2019, the USDA launched the Supplemental Nutrition Assistance Program (SNAP) online purchasing pilot programOff-site link, which allows participants to purchase groceries online. What began as a two-year pilot program in one state with a gradual rollout to additional states is now available in 40 states (with five additional states granted approval and in the planning phase). The COVID-19 public health emergency, which has made access to online grocery shopping critical, expedited the program's deployment. The USDA also rolled out the Pandemic Electronic Benefits Transfer (P-EBT) program as a SNAP extension. With P-EBT, children in low-income households continued to receive the free or reduced-priced meals that they would normally have received in school during the 2019–20 school year.

This is certainly a positive move toward advancing ecommerce inclusion. However, more ecommerce transactions present more fraud risks and opportunities for criminals. (My colleague Doug King blogged a few years ago about fraud risks SNAP was already experiencing, including trafficking.) To mitigate some of these ecommerce risks, the Department of Agriculture's (USDA) Food and Nutrition Service (FNS), which administers SNAP, has increased security for online EBT card use. SNAP benefits and P-EBT benefits are both delivered on PIN-enabled EBT cards that function like prepaid debit cards. Retailers must use a USDA-approved, third-party processor that offers secure PIN-on-glass entryOff-site link for online purchases. When customers transact online using their EBT card, they must enter their EBT PIN to complete their purchase. In addition, retailers must successfully meet the FNS's stringent technology and testing requirementsOff-site link.

Unfortunately, these technology and testing requirements to integrate a secure online purchasing environment with the grocer's EBT benefits system are extensive and cannot be done overnight. As a workaround until retailers can fully integrate their systems, the USDA recommendsOff-site link that SNAP customers take advantage of existing services like "pay at pickup," where customers place grocery orders online and pay with their SNAP EBT card when they get their groceries—which allows them to follow both social distancing and ecommerce fraud-prevention guidelines.

The USDA's SNAP Fraud FrameworkOff-site link offers states resources to help them proactively identify potential fraud and suggests best practices on fraud prevention and mitigation. You can learn more about the USDA's efforts to manage fraud risk by visiting their websiteOff-site link

July 20, 2020

Innovation with an Eye on Safety: Let Your Voice Be Heard!

Balancing safety and innovation in banking and payments is critical. The Federal Reserve Bank of Atlanta recognizes this so has been focusing its efforts on a safer payments innovation strategic initiative. In fact, the Atlanta Fed's 2019 annual report highlights this initiative, which includes meeting with fintech entrepreneurs and bankers to share information. Earlier this year, the Atlanta Fed hosted the Federal Reserve System's first "innovation office hours" to talk with entrepreneurs and bankers on topics such as payments security, regulation, and financial inclusion. Of primary concern to many of the participants of these office hours was regulatory compliance and clarity.

In June, the Office of the Comptroller of the Currency (OCC) issued an advance notice of proposed rulemaking on digital activities and other banking issues related to digital technology or innovation. The notice encourages all OCC-supervised institutions—national banks, federal savings associations, and federal branches and agencies of foreign banks—to respond. If you are among these, take this opportunity to let your voice be heard.

It's our job and the job of the OCC and other regulatory agencies to ensure the safety and soundness of banks and the payments system. But we also recognize that innovation is important when it comes to delivering services to consumers and businesses, and we know we are living in a changing technological environment that is bringing in entrants from outside traditional banking. So that the payments system can achieve balance in safety and innovation, it is critical that the regulatory agencies have an ongoing dialogue with those affected by laws, rules, and regulations.

Some of the topics the OCC is requesting comment on include:

  • How is distributed technology used or potentially used in activities related to banking?
  • What are the issues that are unique to smaller institutions regarding the use and implementation of innovative products, services, or processes that the OCC should consider?
  • What are the new payment technologies and processes that the OCC should be aware of and the potential implications of these technologies and processes for the banking industry?

Input from those affected by existing and new rules and regulations will help us create an environment where financial institutions can harness new technologies in a way that makes them competitive yet safe. Do your part to help create a regulatory environment that promotes safety and allows innovation to flourish. Reply to the OCC by the August 3 deadline.

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