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 10, 2021
My wife recently asked me whether I realized that if The Wonder Years was remade today it would be set in 2001. Really? The Wonder Years was my favorite show growing up and one that we recently rewatched with our kids. This coming-of-age drama set in 1968 featuring the fictional Arnold family and their awkward teenage son, Kevin, first aired in 1988. At the time, 1968 seemed like ages ago to this then 10-year-old boy.
This led me to think about changes in payments and commerce over the past twenty years and how my soon-to-be teenage son would, much like I did, think how "old" things such as payments and commerce would feel to him in a show set twenty some-odd years prior. While a whole dissertation could probably be written on the changes, I want to keep this blog post short, fun, and focused on recalling just one shopping experience I had that my son would find so foreign today.
Remember when we stood in line, or perhaps even camped out overnight, to buy concert tickets at a Ticketmaster outlet? The concert venues usually had a ticket office but there were also different Ticketmaster outlets throughout town, often in record stores, and my group of friends would strategize about which location might have the fewest people in line before ticket sales launched (usually at 10 a.m. on Saturdays). My favorite location for finding the shortest line was a Piggly Wiggly, a grocery store chain found in the South. As far as my payment type for concert tickets, it was always cash. If I bought extra tickets for friends, they always paid me back in cash. The payment type wasn't the only thing that was paper. The tickets were printed at the time of purchase, and a paper ticket stub ultimately became a memento of the event.
I find myself using "remember when" more and more as I get deeper into my middle-aged years. If you find yourself uttering those words, I'd like to encourage you to add to the blog by sharing your own experiences by using the comments feature. Or, email me and I will be happy to compile a list to share with our readers.
If you would rather not share a personal past commerce or payment experience that today's kids would find unbelievable with the Risk Forum, I encourage you to check out this website, where you can find payments data from the Federal Reserve Payments data dating to 2001. While the website might lack anecdotal stories that have today's kids going "wow," it's chock full of data and just might leave you thinking, "wow, remember when..."
September 18, 2017
The Rising Cost of Remittances to Mexico Bucks a Trend
From time to time, I like to look back at previous Risk Forum activities and see what payment topics we've covered and consider whether we should revisit any. In September 2012, the Risk Forum hosted the Symposium on 1073: Exploring the Final Remittance Transfer Rule and Path Forward. Seeing that almost five years have passed since that event, I decided I'd take another, deeper look to better understand some of the effects that Section 1073 of the Dodd-Frank Act has had on remittances since then. I wrote about some of my findings in a paper.
As a result of my deeper look, I found an industry that has been rife with change since the implementation of Section 1073 rules, from both a regulatory and technology perspective. Emerging companies have entered the landscape, new digital products have appeared, and several traditional financial institutions have exited the remittance industry. In the midst of this change, consumers' average cost to send remittances has declined.
Conversely, the cost to send remittances within the largest corridor, United States–Mexico, is rising. The rising cost is not attributable to the direct remittance fee paid to an agent or digital provider but rather to the exchange rate margin, which is the exchange rate markup applied to the consumer's remittance over the interbank exchange rate. As remittances become more digitalized and the role of in-person agents diminishes, I expect the exchange rate margin portion of the total cost of remittance to continue to grow.
Even though the average cost of sending remittances to Mexico is on the rise, I found that consumers have access to a number of low-cost options. The spread between the highest-cost remittance options and the lowest-cost options is significant.
With greater transparency than ever before in the remittance industry, consumers now have the ability to find and use low-cost remittance options across a wide variety of provider types and product options. To read more about the cost and availability of remittances from the United States to Mexico and beyond in a post-1073-rule world, you can find the paper here.
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
November 10, 2014
Virtual Currency Environment Still Fluid after Latest Rulings
The end of October was filled with multiple news-grabbing headlines reflecting the growing fears of Ebola, the exciting seven-game World Series, and the release of the first-ever college football playoff rankings. The launch of ApplePay also saw its fair share of headlines, but one piece of payments-related news might have flown a bit under the radar. On October 27, the United States Department of Treasury's Financial Crime Enforcement Network (FinCEN) issued two virtual currency administrative rulings stemming from its March 2013 guidance on regulations to persons administering, exchanging, or using virtual currencies.
The first administrative ruling involves a virtual currency trading platform that matches its customers' buy-and-sell orders for currencies. The company requesting this ruling stated that they operated the trading platform only and were not involved with money transmissions between it and any counterparty. FinCEN determined that money transmission does, in fact, occur between the platform operator and both the buyer and seller. Consequently, FinCEN said that this company and other virtual currency trading platform operators should be considered "exchangers" or "operators" and required to register as money transmitters subject to Bank Secrecy Act (BSA) requirements.
The second administrative ruling involves a company that enables virtual currency payments to merchants. This company receives payment in fiat currency from the buyer (or consumer) but transfers an equivalent amount of virtual currency to the seller (or merchant) using its own inventory of virtual currency to pay the merchant. This particular company asserted that it wasn"t an "exchanger" since it wasn't converting fiat currency to virtual currency because it was using its own reserve of virtual currency to pay merchants. However, FinCEN determined that this company, and similar companies, is a money transmitter because it accepts fiat currency from one party and transmits virtual currency to another party.
These two rulings confirm that if a virtual currency-related company's services allow for the movement of funds between two parties, that company will be viewed as a money transmitter and will be subject to BSA requirements as a registered money transmitter. As financial institutions consider business relationships with these types of companies, they should make sure that these companies are registered as money transmitters and have BSA programs in place.
The virtual currency regulatory environment continues to be fluid. For example, in his recent comments at the Money 2020 Conference, Benjamin Lawsky, superintendent of the New York Department of Financial Services, suggested that his office will soon be releasing its second draft of a proposed framework for virtual currency business operating in New York. Portals and Rails will continue to monitor this regulatory environment at the state and federal level.
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
December 3, 2012
CFPB Modifies Remittance Disclosure and Error Resolution Rules
According to their congressional mandate, the Consumer Financial Protection Bureau's (CFPB) primary focus is to advocate for consumers when dealing with financial companies. Champions of the CFPB see them as part of the "checks and balances" regulatory environment of all things financial. One of the CFPB's primary activities since being created in mid-2010 has been to work to create disclosures to assist consumers in better understanding their costs, rights, and responsibilities when entering into various financial transactions or agreements. The Dodd-Frank Act, which created the CFPB, also added a new section to the Electronic Funds Transfer Act (EFTA) implemented through Regulation E. The addition requires the CFPB to develop disclosure and error resolution requirements for remittances being sent outside the United States.
In February 2012, the CFPB published rule 1073 dealing with the prepayment disclosure of the total costs of consumer-originated remittances. The rule also imposed liability for errors on the remittance transfer provider (RTP) even if the consumer was the one that provided an incorrect account number or routing information. The rule was originally scheduled to become effective February 7, 2013. More details about the rule can be found in previous Portals and Rails blogs. (Under Categories on the right side of this post, select remittances to get a full listing.)
Responding to input from financial institutions, other governmental regulatory agencies, and the remittance industry groups, the CFPB announced on November 27, 2012, that it plans to issue a proposal to refine specific provisions of the rule and will propose an extension of the effective date until 90 days after the bureau finalizes the proposal. Following are the proposed key changes:
- One of the key requirements of the rule is that the RTP must disclose the exchange rate and all fees and taxes charged for the remittance so the sender can see the net amount received by the recipient. The CFPB received a number of comments indicating that it would be extremely difficult for RTPs to create and maintain an accurate database of national and local taxes as well as other fees imposed by the disbursement facility. In response, the CFPB's proposal will provide additional flexibility by permitting RTPs to base disclosures on published bank fee schedules and only for taxes levied at the national level.
- Originally, the rule placed the liability on the RTP for transmittal errors resulting in nondelivery or late delivery resulting from incorrect account numbers. However, the CFPB plans to release the RTP from this responsibility if the RTP can demonstrate that the consumer provided incorrect information. The RTP must still make a good faith effort to recover the funds.
The CFPB will be publishing its proposed modifications in December and will be seeking public comment before issuing a final rule sometime in the spring. While these modifications are termed "limited" by the CFPB, remittance providers must be breathing a measured sigh of relief, especially regarding the shift in liability from consumer-created errors. It will be interesting to monitor the impact of these regulations to determine if there has been any constriction in the number of countries served due to the additional requirements.
By David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed