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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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November 16, 2020

What Might Stormy Weather Mean for Banking Status?

Life is bad gloomy misery everywhere
Stormy weather just can't seem to get myself together
I'll be here all the time

These days, many of us are singing the 1933 song "Stormy Weather." That's because we all are engaged in a massive natural experiment:

  • What were our preferences and behaviors before the weather turned stormy?
  • How will they change—or not—after the sky clears?

Researchers sometimes call such a sharp demarcation a "treatment." When something dramatic happens, we want to know—ASAP—the long-term implications. It's hard to wait for the data to come in.

Echoing Catherine Thaliath a couple of weeks ago, I suggest you ground your speculations in what you know. For example, the Federal Deposit Insurance Corporation's (FDIC) recent Survey of Household Use of Banking and Financial ServicesOff-site link (formerly, the FDIC National Survey of Unbanked and Underbanked Households) released prepandemic data last month:

  • 124.2 million U.S. households had bank accounts in 2019, at 94.6 percent of households the highest shares since this FDIC survey began in 2009.
  • The increase in the share of banked households from its low point in 2011 was mostly associated with improvements in their socioeconomic circumstances.

After examining these historical data, the FDIC report concludes that the unbanked rate is likely to increase from its prepandemic level as a result of income or job loss. This conclusion is alarming given that access to digital payments has become even more essential in our COVID world of physical distancing. A recent Atlanta Fed paper advocated that there could be other ways to give cash users access to "digital payment vehicles that don't depend on traditional bank accounts." So now could be the time for this sort of innovation—for example, the expansion of cash-in/cash-out networks that let consumers convert benjamins, five spots, and other folding stuff into digital money and back.

Back to speculation: What could changes in banking status mean for payments? Perhaps some households will face challenges in accessing payment methods linked to a bank account. Entrepreneurs could find new opportunities for innovations in prepaid cards. Developers might rethink the foundation of apps intended to assist low- and moderate-income consumers. What are your ideas?

Harold Arlen composed the music to "Stormy Weather." Arlen also composed "Over the Rainbow," which promises that we'll wake up "where the clouds are far behind us." As that beloved ballad advises, remember that today in payments is not the future of payments. Our short-term choices during COVID are only one piece of imagining the future.