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COVID-19 RESOURCES AND INFORMATION: See the Atlanta Fed's list of publications, information, and resources; listen to our Pandemic Response webinar series.

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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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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 video file.

As I've researched the coin circulation issue, I've frequently visited the website of the U.S. MintOff-site link, 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!

January 4, 2021

Two Sides of the Same Story: Electronic P2P Growth in the 2010s

My colleague, T, got married last month. To celebrate, our group at the Atlanta Fed offered best wishes over a video chat and chipped in on a gift. Dispersed to home offices in Georgia, Alabama, Tennessee, and Massachusetts, here's how we anted up:

  • 62 percent used a P2P payment app
  • 25 percent paid with a paper check
  • 13 percent paid with cash

The two-thirds of us who chose an electronic way to pay seem to be aligned with the zeitgeist. For the third quarter of 2020, various P2P payment apps reported strong growth in payment volume. These results could be due to recommendations to social distance that have us worried about getting close enough to a payee to hand over the payment.

Even before COVID-19, however, P2P services were taking off in the United States. During the latter half of the 2010s, Fed survey data show the growth of electronic P2P from the perspectives of both the financial services side and the consumer side of payments execution.

First, the financial services side. According to the Federal Reserve Payments StudyOff-site link (FRPS), the number of noncash payments through person-to-person and money transfer (P2P&MT) services more than doubled from 2015 to 2018, increasing from 397 million to 841 million (25 percent year-over-year growth). Most of the growth came from payments initiated from websites and apps on mobile devices. Mobile P2P, for example, was up 275 percent over the three-year period. This category aggregates data from the various P2P services to give a picture of all U.S.-domiciled P2P and MT transfers handled by the covered providers but overlooks similar transactions internal to a depository institution or not made on a named P2P or MT system.

chart 01 of 02: p2p and money transfer payments by channel in millions

When we think of P2P, splitting the bill at a restaurant comes to mind. The average value of these payments reported in the FRPS, however, tells a different story. The average value of P2P payments drifted down from $446 in 2012 to $349 in 2015 to $246 in 2018—still quite high for a bite to eat. Other uses, such as providing financial support to a family member, repaying a roommate for a portion of the rent, or paying a household employee, are likely important, although smaller-value payments are increasing.

Second, the consumer side. Data from the Survey of Consumer Payment Choice (SCPC) show the whole wallet—that is, cash, paper check, and money order as well as card and digital payments from an account. Consumers also report multiple cards and accounts from (potentially) multiple providers, giving context for payment choice and, like the FRPS, aggregating information from multiple industry sources. As recently as 2017, the SCPC found that 71 percent of consumers' P2P payments were made with a paper payment instrument (cash, check, or money order). By 2019, the share of paper P2P had dropped to 55 percent. One-quarter of P2P payments were comprised of digital payments from an account, which are initiated through online banking by providing a routing and account number to the payee, or through an app such as PayPal, Venmo, or Zelle (which themselves may be executed by a card, ACH payment, or balance stored in a digital wallet). The increase in digital payments from an account and the sharp decline in paper payments reinforces what we've already seen from the financial services providers.

chart 02 of 02: p2p payments by consumers percentage shares by payment instrument

To learn more about these data on your own, check out the detailed data releaseOff-site link of the 2019 Federal Reserve Payments Study or play around with the interactive charts to the Survey of Consumer Payment Choice.

December 14, 2020

Fighting Financial Crimes outside Financial Institutions

Take On Payments is taking a short break and will return on January 4 in the new year.

You don't have to know anything about money laundering to know that it doesn't involve someone running a bundle of dirty cash through the washing machine, or even laundromats more generally. Well, it does, but only in the metaphorical sense. Money laundering refers to the act of legitimizing ill-gotten gains—that is, "cleaning" it to hide illegal activity. Anyway, we've touched on the topic of money laundering a few times in this blog, mainly focusing on how financial institutions might identify and report individuals acting as money mules. Today, I'm going to look at the types of businesses that are at risk of being used by money launderers.

Desmond Alston, my colleague in the Risk and Compliance Division at the Federal Reserve Bank of Atlanta and a Certified Anti-Money-Laundering Specialist, or CAMS, shares his expertise. Desmond explains that money laundering is a three- step process:

  1. Placement: Dirty money is placed into a legitimate financial system.
  2. Layering: The source of the money is concealed through a series of transactions, or layers of movement.
  3. Integration: Money is returned to the criminal from what appears to be a reputable source.

Any business that provides the capacity for this sort of manipulation—not just depository financial institutions—can be a conduit for money laundering. Desmond points out:

  • "Insurance companies can be conduits. A launderer can purchase a life insurance policy with a payment of criminally derived funds and then cancel the policy before a penalty would be applied or absorb a small penalty as a cost of the money laundering scheme. The resulting refund would be from a reputable source.
  • "At a casino, a launderer could use criminal proceeds to buy chips, hang around for a while, eat a hamburger, gamble a bit—or not at all—and then cash out."

That's why it makes sense for organizations in many industries—art and antiquities dealers, auto dealerships, travel agencies, and charitable organizations as well as financial businesses like foreign exchange, mortgage lenders, and money service businesses—to make sure staff members are knowledgeable about money laundering. If these sorts of entities fail to file suspicious activity reports, or SARs, for cash transactions that exceed reporting minimums, they are complicit in the crime of money laundering.

Nonfinancial businesses can protect themselves by employing the five components of a solid anti-money-laundering (AML) and compliance program: (1) written policies, procedures, and internal controls; (2) supervision by a designated compliance officer; (3) training and development for staff at all levels; (4) customer due diligence; and (5) independent audit of the AML program.

It's probable, however, that laundromats have no worries—they just don't have the cash flow. While early 20th-century mobsters did indeed intermingle cash from legitimate businesses like laundromats with cash from bootlegging and other crimes, they rapidly moved on to international accounts. The term "money laundering" was first widely used by journalists in connection with the financing of the Watergate burglaries in the early 1970s, when laundromats were not part of the picture.

Thanks, Desmond, for this helpful information.


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 registerOff-site link in advance (there is no charge).