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 28, 2022
What's Had Your Attention in 2022?
For many people, Wordle is one of the more entertaining things to emerge over the last year and its once-daily word limit drives anticipation for players worldwide. Recently, Wordle inspired the British-English Cambridge Dictionary's word of the year—homer—which stumped many international players not familiar with the baseball term. We haven't seen any payments words make their way into Wordle—yet—but a few words in the payments lexicon have attracted our interest this year, some of which have been featured in our weekly blogs. In our upcoming annual, year-end webinar, members of the Retail Payments Risk Forum will share and debate their picks for payments word of the year and the key issues that make it relevant for 2022.
Please join us on December 15 from 1 to 2 p.m. (ET) for our next Talk About Payments episode, when Atlanta Fed payments experts will talk about what's new and noteworthy in payments during 2022 and identify trends, opportunities, and challenges for 2023 and beyond.
Among the topics up for discussion:
- continuing evolution of the payments infrastructure
- trends and challenges with business payments
- opportunities to band together to fight fraud
And, of course, the payments word of the year. Bring your questions and take part in the conversation!
The webinar is free and open to the public. However, you must register. Once registered, you will receive a confirmation email with the login information. If you cannot attend the live event, a recording of the webinar will be posted before the end of the year.
If you'd like to view previous webinars, go to our Talk About Payments webinars page.
We hope to see you on December 15!
November 14, 2022
When Speed and Acceptance Collide
Sometimes a person gets cornered into writing a paper check. Today, that person is me.
My final payment for a vacation rental is due this coming Friday. The rental starts in five days, on Saturday. But since the payee is a person, my online banking bill pay won't get the check there until the following Monday: three days late and two days after my check-in.
I'm cornered because two circumstances are colliding. (1) I absolutely, positively have to get the payment there by Friday. (2) My longtime landlord doesn't accept payment via p2p apps or cards. My preference for speed is in conflict with my landlord's preference for paper. And in a two-sided market, like payments, each side has to agree on how to conduct a transaction.
These circumstances call for 18th century technology: it's time to write a paper check. Cue quill pen and ink bottle, cue envelope, cue sleeve protectors, cue stamp.
My initial choice of online banking bill pay is what you would expect given new data from the 2021 Survey and Diary of Consumer Payment Choice, released in mid October. These data show that while the prevalence of checks has declined, they are still used.
On the "decline" side:
- The shares of consumers who prefer to use checks to pay bills dropped from 17 percent in 2016 to 8 percent in 2021.
- In 2020, checks were 19 percent of bill payments by number and 23 percent by value. This dropped to 12 percent by number and 12 percent by value in 2021.
- In the past 30 days ending in October 2021, more consumers used online banking bill pay (51 percent) than used a paper check (46 percent).
On the "still used" side:
- The average dollar value of check payments per consumer in October 2021 was $550.
- The average consumer wrote about two checks in October 2021.
- The share of consumer with paper checks on hand—three quarters of all consumers—has remained constant since 2019.
In combination, these data say that, sometimes when you're cornered, nothing says speed and acceptance like a paper check.
So while I go off on vacation in my paid-off rental, you can investigate the adoption and use of other payment instruments, as well as consumer ratings and preferences, at the data release of the Survey and Diary of Consumer Payment Choice.
November 7, 2022
More Highlights from the CFPB BNPL Report
My October 3 post on the Consumer Financial Protection Bureau's (CFPB) 2022 report on the buy now, pay later (BNPL) industry highlighted some of the key metrics from the CFPB's data collection efforts of the five major BNPL operators in the United States. In this post, I review some of the benefits, concerns, and planned actions identified in the report.
The report acknowledges several financial benefits of the "pay-in-four" BNPL loans to the consumer—primarily that they don't charge interest, which makes them an attractive alternative to other forms of credit. For example, the report cites data from a 2021 report on the consumer credit card market : the cost of credit in 2020 for revolving cardholders using general purpose cards was 17.7 percent.
The main sales pitch that BNPL firms present to the merchant is that BNPL increases the potential for incremental sales; with this option, the customers may purchase a more expensive product or additional products. While the CFPB report does not have any specific metrics on incremental sales, it does cite a number of claims from the BNPL firms about how BNPL could increase average sales amounts and attract new customers. The report mentions another benefit for merchants: the BNPL firm providing the credit assumes all the risk of nonpayment. As I mentioned in my earlier post, the firms reported that 3.8 percent of loans were charged off in 2021—up from 2.9 percent in 2020.
Any extension of credit risks consumers assuming more debt than they can afford. In particular, the report cites "loan stacking" as a possible danger. Loan stacking occurs when the customer obtains multiple BNPL loans from different lenders, "stacking up" the payment obligations of each loan on top of one another. BNPL firms try to minimize this danger by limiting initial loan amounts. However, since most BNPL providers don't report loan activity to the major credit reporting agencies, they can't know how many BNPL loans the consumer may have gotten from other BNPL firms and, therefore, they have no knowledge of the consumer's full debt. This concern is increased by the trend shown in the data that the repeated use of BNPL has increased over the last three years. In the fourth quarter of 2021, the five lenders surveyed reported an average usage rate per unique customer of 2.8 loans used during the quarter. This figure only reflects the number of loans with a particular lender. In the first quarter of 2019, this average was 1.9 loans.
Besides the risk of credit overextension, the report details other potential harms, including:
- a lack of clear and consistent disclosures
- inconsistent practices regarding merchandise disputes
- mounting late fees and bank fees for multiple representments of returned payments
- the requirement to use autopay or the difficulty in selecting another payment method
- the use of customer data for purposes other than handling the transaction
The next question is this: With this data in hand, what does the CFPB plan to do about rules or guidance for the BNPL industry? In a prepared statement issued in conjunction with the report's release, CFPB director Rohit Chopra outlined several actions the organization would take immediately, including continually monitoring the BNPL industry. The CFPB staff will identify potential guidance or rules that will require the same consumer disclosures and protection that credit cards are subject to. The CFPB will continue to encourage the development of processes for BNPL firms to work with the credit reporting agencies so that loan experiences are reported regularly and accurately and a consistent methodology is used to estimate the debt burden of a household.
The execution of supervisory examinations has been inconsistent due to the variety of the business structures of the BNPL firms. The CFPB is encouraging voluntary examinations but is also looking into its authority to mandate examinations. Related to consumer data protection and privacy, the CFPB plans to work with the Federal Trade Commission on developing rules that will be applicable to all businesses regarding using data for something other than the BNPL transaction itself.
While the BNPL industry is in its early stages, it is becoming a major part of the retail credit landscape. We will continue to follow and report on developments in this industry.
October 31, 2022
Consumers' Remote Purchases of Food Level Off in 2021New data from the Survey and Diary of Consumer Payment Choice (SDCPC), released by the Atlanta Fed last week, give some clues to questions many of us are asking these days: Will the changes we've seen during COVID stick? Will we go back to our old ways? Will change accelerate?
Let's look at these questions through the lens of something we all do: eat. Carnivore and vegan, we gobble burgers. Lactose-tolerant and not, we slurp beverages. We shop in person and online, we order in, we eat out.
You and I—and US consumers generally—make many purchases of food to eat at home and away. Together, purchases of groceries, meals at sit-down restaurants and bars, and fast food accounted for four in 10 payments made by US consumers in October 2021, according to the SDCPC.
In a recent paper, Fed researchers Ruth Cohen, Oz Shy, and Joanna Stavins looked at payment instrument choice for these food purveyors, among other merchants, and found that the shift to remote payments during the COVID-19 pandemic was a driver of the decline in the use of cash in 2020. Their analysis, extended in the chart by Ruth Cohen to include the new 2021 data, found a jump in remote payments for all categories of food purchases during the pandemic year 2020.
The chart shows that the shares of remote payments in all three food categories are slightly down from 2020, but still well above their 2019 shares. Remote purchases remain a small share of all food purchases—less than 15 percent by number for each category—and the 2021 shares are similar to those seen in 2020.
So, no big jump from 2020, but no retreat either. In 2020, we all changed a lot. Now, we're consolidating and, as I wrote about data from September 2020, our collective reaction to the COVID-19 threat appears to be easing, along with some of the dramatic change from 2019 to 2020.
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