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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March 13, 2023
Instant Payments and the Challenges of Inclusive Product Design
True confessions: I recently played around with a popular weight-loss app, but I didn't bear up so well under feedback that I'll call—for lack of a better term—negative reinforcement.
Problem: Too many of my foods are in the red zone. Whole milk! Olive oil! A teeny tiny piece of chocolate! Since apparently my eating habits were such a mess, I figured there was no hope. Less than a week in, that app was history.
My experience reminds me of recent work on product design and payments inclusion. Could it be that my whole milk and chocolate are the equivalent in payments of anonymity and low cost? I want both my preferred foods and help to eat healthily. Many consumers, including unbanked consumers, also want two things: the features of cash (anonymity and low cost among them) and help to pay and budget using 21st-century tools.
Data from the Federal Deposit Insurance Corporation and the Survey and Diary of Consumer Payment Choice (SDCPC) show that we are not there yet. Each data source finds low rates of adoption of P2P apps, among unbanked households for the FDIC and among unbanked individuals for SDCPC.
This finding is eerily familiar. In 10 years of investigating consumer payments, I've seen a lot of ideas for bringing everyone in the United States into the 21st-century payment system. Especially for US adults without bank accounts, various solutions with seemingly great potential come along and then are just okay. Mobile. Apps. Basic banking. Consumer education. No strikeouts, no home runs.
I'm sure you can think of lots of reasons for these just-okay results: cost (or perceived cost), inconvenient access without a bank account, lack of trust, low adoption rates of smartphones for some groups. But what about product design? One expert, speaking on a 2021 San Francisco Fed podcast episode, said that low-income people have been treated as "secondary users to products that were designed for other people in mind."
Today, with Real-Time Payments and the FedNow Service, we're on the cusp of a new opportunity to make payments accessible for all. The US Faster Payments Council is advising that products be designed not only to meet the needs of early adopters and existing customers but also to meet the financial lives of the underserved. In other words, treat underserved people as primary users with particular preferences and needs, just as you would treat early adopters and current account holders. For the underserved, faster payments providers should "design for people with tight budgets," include features to ease administrative tasks, and provide mobile-first access, among other recommendations.
Most importantly, providers should include the users in the design process. As a payments innovator said to me last year, "When it comes to product design, you can't assume you know what someone wants without doing the work." As I learned from the experts at ,Commonwealth, which offers a toolkit for inclusive product design: design with people, not for people.
What's your organization doing to make instant payments work for everyone? I'm looking for case studies on this topic. Please be in touch if I can learn from you.
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.
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!
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