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 2, 2022
Taking the Long View: A Visit with Retail Payments Risk Forum Founder Rich Oliver
Rich Oliver, the founder of our Retail Payments Risk Forum (RPRF), paid a visit to our team recently and shared his vision when creating the forum, the challenges facing the payments industry, and the future direction our team could consider as the payments landscape continues to evolve.
In addition to founding our RPRF, Rich's payments expertise goes back to the 1970s when he led the effort to utilize the fledgling US Automated Clearing House (ACH) system to electronically deliver the first government payrolls and social security payments.
Drawing on his expertise, Rich wrote a book with George Warfel Jr. about the payments industry, The Story of Payments: How The Industrialization of Trust Created the Modern Payments System, that "tells the story of how payments—between people, merchants, employers, and governments—emerged from the ancient system of barter and grew, through various technological implementations ranging from coins and paper money to checks, wire transfers, and credit cards, to today's entirely electronic local and international payment systems."
In a wide-ranging conversation about the history of payments and Rich's role in many areas with the Fed, each of us in the RPRF took away some highlights to share with you.
Scarlett Heinbuch: Rich reminded us of the need to be bold in our thinking about the future of payments. We discussed advances in biometrics and how these initiatives could address identity and security concerns and make payments easier for all while also presenting other risks and challenges.
Nancy Donahue: One comment that made me go "hmm" was: "Do we have too many retail payments products that are trying to solve the same problem? Do they all make money? Do they all need to?"
Catherine Thaliath: What resonated with me was when Rich talked about potential risks of Buy Now Pay Later (BNPL). While viewed as a credit offering, it is nevertheless using a payment instrument in ways not previously done.
Claire Greene: "When it comes to product design, you can't assume you know what someone wants without doing the work." This was a humble statement from an innovator that applied in the 1970s and remains relevant today.
Dave Lott: Rich discussed the evolution of the current consumer banking product market where many of the explicit services (on-us ATMs, online banking, mobile banking, pay wallets, etc.) are provided free of charge.
Sally Martin: It resounded with me how much collaboration went on with the payments players in the industry. Also, the amount of time spent brainstorming on what the needs were and how to fill them, and in moving toward new offerings rather than replays of existing products. Rich's talk focused on moving into new territory—he was "agile" before it was cool.
Jessica Washington: We still need to collaborate on fraud mitigation at the strategic level. In the United States, we implemented chip credit cards but not so much chip-and-pin, plus we still have the magstripe, which is a major source of weakness, and we still have much work to do on card-not-present transactions.
As the RPRF founder, Rich challenged each of us to remember its mission: to be a source for non-biased thought leadership, to do original research, challenge norms, and push the envelope to move the payment system forward. Sometimes looking back at history can bring the future into sharper focus, which is what our chat with Rich did for us. As you look to the future of payments and payments risk, what stands out to you?
By the Retail Payments Risk Forum Team: Jessica Washington, Dave Lott, Scarlett Heinbuch, Claire Greene, Nancy Donahue, Catherine Thaliath, and Sally Martin.
February 14, 2022
Contactless Card Pay More Than Doubled in 2020, but from Small Base
Readers of this blog know that we at the Retail Payments Risk Forum have for years scratched our heads at the tepid growth of contactless card payments:
- Doug King in 2017: Wouldn't it be nice to tap and pay?
- Dave Lott in 2019: Contactless cards: the future king of payments?
- Me in 2020: Are contactless cards having their moment?
Now, data released in December by the Federal Reserve Payments Study find that amid the decline in the number and value of in-person card payments from 2019 to 2020, in-person contactless card pay increased both by number and value. You can see the appeal of contactless card pay in the COVID-19 pandemic: The ability to tap or wave a card or mobile device at the in-person point of sale could be perceived to reduce the risk of contagion.
From 2019 to 2020:
- The number of contactless card payments more than doubled (up 140 percent from 1.6 billion payments to 3.7 billion)
- The total value of contactless card payments also more than doubled (up 120 percent from $50 billion to $110 billion)
The number and value of contactless card payments also doubled from 2018 to 2019, although on a smaller base. The 2020 growth is especially impressive in the context of the overall decline in the number and value of in-person card payments that year. But am I convinced that contactless pay is having its moment? Well, no. That’s because looking at percentage increases can be misleading when the base is so small.
With their 2020 growth, contactless card payments remain less than 5 percent of in-person card payments by number (figure) and 3.5 percent of in-person card payments by value. Maybe not the "king of payments" quite yet.
I am willing to believe, however, that throughout 2020 and 2021 merchants ramped up their ability to accept contactless cards for in-person payments (along with screens and procedures to separate employees and customers)—even as they pushed customers toward delivery and curbside pick-up. With acceptance more widespread, consumers should be less likely in 2022 to run into the sort of difficulties my friend encountered in August 2020, when she tried to find a merchant that could successfully accept a completely contactless payment.
For more on newer and emerging payment methods, see the most recent report of the Federal Reserve Payments Study.
January 31, 2022
Quarterly Payments Data for 2020 Reflect Pandemic's Early Impact
Cast your mind back to spring 2020, the early months of the COVID-19 pandemic. With my apologies for the bad flashback, did you change how and where you shopped that spring? Maybe you ordered groceries online for the first time. Maybe you decided to skip browsing at your favorite clothing store. Maybe you exchanged eating out for ordering in.
You can see glimmers of your behavior—and that of consumers and businesses here in the United States—by looking at fluctuations in the mix of credit and debit card payments made remotely and in person in spring 2020.
Perhaps you remember making fewer in-person payments in spring 2020 because you were reluctant to be out and about, you worked at home, or businesses were closed. The Federal Reserve Payments Study (FRPS) recently reported that the number of in-person card payments dropped 19 percent from the first quarter of 2020 to the second.
Perhaps you moved some shopping online. The number of remote payments (including purchases and bills) was up 18 percent from Q1 to Q2 2020.
You can see the combined effect of these changes in the chart below. As a percentage of general-purpose card payments by number, in-person payments dropped from more than 68 percent in the first quarter to less than 60 percent in Q2 (shown by the red line in the chart below).
In-person payments as a share of all card payments recovered somewhat in later quarters to total 64 percent of all general-purpose card payments for the year 2020 (the blue line in the chart), a substantial drop from 72 percent in 2019.
The December report, Developments in Noncash Payments for 2019 and 2020: Findings from the Federal Reserve Payments Study, also contains quarterly data for depository institution accounts with digital wallet activity and with P2P activity using bank-sponsored apps.
January 17, 2022
Federal Reserve Payments Study Finds Effects of the Pandemic in US PaymentsIt's the week before the New Year, and we promised not to post this week. But I can't resist letting you know that a new report from the Federal Reserve Payments Study reports quarterly data related to the effects of the COVID-19 pandemic on US payments. This is interesting and important news, so I'm breaking the holiday hiatus.
Developments in Noncash Payments for 2019 and 2020: Findings from the Federal Reserve Payments Study, on the Federal Reserve's website, includes new information about core noncash payments and some evolving areas of payments:
- While data from 2019 largely show a continuation of past payment trends, with card and ACH both gaining share at the expense of check, 2020 data show that payment behavior changed sharply with the COVID-19 pandemic, with ACH gaining substantially as a share of noncash payments by both number and value.
- The share estimates combined with other information imply that ACH was the only one of the three core payment systems to grow by number in 2020.
- The total number of card payments declined in 2020, driven by a marked decline of in-person card payments. This was the first annual decline in the number of card payments recorded by the payments study.
- As in-person card payments dropped in spring 2020, remote card payments took up much of the slack. Later in the year, in-person card payments recovered somewhat.
- The pandemic may have helped spur growth of innovative payment methods, such as in-person contactless card, digital wallet, and person-to-person (P2P) payments.
- First-time use of bank-sponsored P2P payments spiked in the second quarter of 2020, a time of business closures and stay-at-home orders.- First-time use of digital wallets was highest in the third quarter, when some restrictions on in-person shopping were lifted. When used with a mobile device, a digital wallet provides a low-touch option for in-person card payments.
The report covers card (credit, non-prepaid debit, and prepaid debit), ACH, and check payments.
Go to the Federal Reserve's website to see other findings.
Happy new year! We look forward to continuing the payments conversation with you in January 2022!