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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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May 26, 2020

Some Seek Peace of Mind with Contactless

The COVID-19 pandemic has created a keen awareness of the need for enhancing personal practices to prevent the spread of the virus. The CDC has encouraged social distancing, face-mask wearing, frequent hand washing and sanitizing, and daily surface cleaning and disinfecting. When it comes to people buying things in person, it is that last guideline that has sparked widespread discussion about whether one type of payment method is safer than another.

Some stakeholders have been promoting contactless transactions as the most hygienic method of in-person payment. The consumer can perform such transactions with a minimal amount of contact with a payment terminal, either through a mobile pay wallet application or a contactless payment card—as long as the merchant has enabled the payment terminals with near-field communications technology. This post will focus on mobile contactless payments that began in the United States in late 2014, with the introduction of the Apple Pay digital wallet, followed shortly by the Google and Samsung pay wallets. Thus far, consumer use of mobile digital wallets has been anemic. Some researchOff-site link has found that mobile payments represented only 3 percent of U.S. retail sales in 2019.

Financial inclusion is a particular concern for the Atlanta Fed. Past Take On Payments posts have discussed the state of un- and underbanked households in the United States and efforts to make financial services more readily available and affordable. The mobile phone—in particular, the smartphone—is a key part of inclusion. Smartphones allow access to secure, low-cost banking services. Given the recent promotion of mobile contactless payments, here are some recent statistics from the Pew Research CenterOff-site link on mobile phone ownership that I want to share with you.

According to a survey conducted in early 2019, 96 percent of U.S. adults had a mobile phone, and 81 percent of that group had a smartphone. As you might expect, younger adults were more likely to own a smartphone than older adults.

Percentage of Smart versus Cellular Phones by Age Group

Specifically related to the financial inclusion issue is the disparity in smartphone ownership based on household income. Ownership among households earning less than $30,000 annually was only 71 percent compared to 90-plus percent for those with more than $50,000 in annual income. Type of community also made a difference. Adults in rural areas had an ownership level of 71 percent compared to 83 percent for those in suburban and urban areas.

These statistics are a strong reminder of the message my colleague Claire Greene gave in a recent post that I am not the "average" consumer. Similarly, just because I have a smartphone and you have one, we can't make assumptions about ubiquitous smartphone ownership. Consequently, some digital payment services may lock out people who use cash. As the industry moves forward with enhanced and sometimes preferred payment options, we should remember Atlanta Fed president Raphael Bostic's suggestion that financial inclusion should mean that the consumer should be able to pay how they want to pay.