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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 23, 2020
QR Codes or NFC: Winner, Winner, Chicken Dinner?
It may be more appropriate to talk about turkey dinner this time of year, but some of my colleagues and I are arguing about whether one form of contactless payment or another is going to win the chicken dinner.
Earlier this year, my colleague Claire Greene posted about contactless payments and the difficulty a friend encountered when attempting to use a mobile wallet for in-person contactless payments. My colleagues and I have written other posts about the push to issue dual contact-contactless credit and debit cards that use near-field communications (NFC). This technology permits encrypted data transmission using an electromagnetic radio field over a short distance (less than two inches) between two NFC-enabled devices. While contactless card issuance has largely been limited to credit card portfolios, NFC has been a standard feature in most smartphones manufactured over the last decade, permitting the loading of debit and credit cards into the payment wallets. Despite the high penetration of the functionality on the consumer side, several major merchants have resisted enabling this technology at their points-of-sale because of the cost of doing so and card network acceptance rules, but that resistance seems to be waning. Moreover, consumer use of contactless payments has remained low. The 2019 Diary of Consumer Payment Choice (DCPC) indicates that contactless payments represented only about 3 percent of the average consumer's monthly credit card in-person payments.
Competing with NFC technology is the quick response (QR) code. Developed in 1994 by Japanese engineer Hara Masahiro to provide a more efficient way than
The COVID pandemic has sparked renewed interest in QR codes because of their contactless nature. Guests at restaurants can scan a QR code to call up menus, place their order, and pay for their meal. Museum patrons can get more information about an exhibit or artwork. Some major broadcast networks and product brands are including QR codes in their on-air advertising to provide an interactive session with consumers—the QR code takes them to a website featuring a product or a specific show. All the major social media platforms are supporting the use of QR codes to follow accounts.
For the merchant, QR code technology is easier and less costly to implement than is NFC as long as the merchant can display a QR code for the customer's phone to read. Only software development is required; no additional hardware has to be purchased. The industry association supporting non-FI-owned ATMs is working to develop standards for the use of QR codes on ATM screens to support cardless ATM transactions.
From my perspective, it is still the early days for QR code adoption by consumers in the United States, outside of some proprietary retailer programs, but the increasing rate at which consumers will be encountering the technology in their everyday routine holds promise. Merchants consistently report they want to offer payment methods their customers prefer to use. So will one of the contactless technologies win out over the other, or will they coexist? Let us know what you think as we drop the breaded chicken pieces in the fryer and stir the country gravy.
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 Services
- 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.
November 9, 2020
Cheering on the Team—Go ACH!
Did you see the commercial during the last SuperBowl about ACH payment innovations? No? Me neither. Of course, that's because there wasn't one. In fact, it doesn't appear there needs to be public advertisements for ACH payments. Why? With value processed on the network having increased more than $1 trillion over the past seven years
According to Nacha, the organization responsible for administering the ACH network and its private-sector Operating Rules, the Automated Clearing House (ACH) network processed 34.7 billion transactions valued at $55.8 trillion in 2019. That's, respectively, 7.7 and 8.9 percent growth over 2018. That's also 47 times more than the combined 2019 net sales of Walmart, Amazon, Kroger, Costco, and Walgreens, which was $1.186 trillion, according to National Retail Federation rankings
Innovation, too, has been burgeoning. The Federal Reserve System's Retail Payments Office, which is located at the Atlanta Fed, is one of two ACH network operators, so we have a front row seat. We're seeing lots of fintech creation, including, for instance, mobile apps and voice-activated or conversational payments
October 30 was the deadline for all depository financial institutions participating in the ACH Network to register their primary representative in the ACH Contact Registry. Nacha will maintain this database on behalf of registry members, making it easier for them to contact one another. For them to have fast access to live humans managing ACH operations can be critical, especially when mitigating time-sensitive fraud events such as business email compromise.
In the never-ending fight against fraud, three changes
Next spring, another highly anticipated ACH change will occur. A new Same Day ACH
ACH was the very first payments system I studied, and I've been an ACH cheerleader ever since. I'm very excited for all the changes that are in play. And while my family and friends—well, most people for that matter—don't exactly celebrate the innovation wins with me, my payments teammates know how much work goes on around the ACH network to continue to make forward progress.
Go, ACH!
October 26, 2020
Will the Pandemic Change B2B Check Usage?
When I was in college, my first on-campus job was as an assistant in the university's accounting department. One of my responsibilities was to manually collate checks with their associated invoices, stuff them into envelopes, and drop them off in the outgoing mail bin before the 5 p.m. pickup. The entire process was so tedious and time-consuming that I couldn't help but wonder why a technology-focused school was still using outdated accounting systems and making payments using paper checks.
Well, as it turns out, checks are still the go-to form of payment for many businesses, particularly when paying other businesses. The 2019 Electronic Payments Survey
While digital payments are rapidly growing in popularity with consumers, the rate of adoption among businesses (specifically for B2B payments) appears slower, primarily because companies are deterred by the complex restructuring involved with digitizing their accounts payable (AP) systems. While it may not make sense for every business to adopt digital AP platforms, there are some benefits—it's less labor-intensive and, even though costs to convert to digital could be substantial, the platforms are faster. Some major global card networks have rolled out automated AP solutions, streamlining the entire B2B bill payment process. The Fed
Getting rid of paper checks certainly does not mean that B2B check fraud will be totally eliminated, but it is an important first step. According to the 2018 CSS, about 56 percent of the value of fraudulent checks was from B2B bill payments; by number, 14 percent was B2B bill payments. Not only do businesses have an increased need for secure, digital accessibility because of the pandemic, but also digital AP platforms could reduce health risks since employees no longer have to be physically present in the office to process and mail checks.
Although innovating for B2B payment processing began long before the onset of the COVID-19 crisis, perhaps the pandemic will serve as the catalyst that transforms the way businesses transact with other businesses at a much faster rate. It will be interesting to see what the future holds for B2B check usage as some businesses feel pressured by the public health emergency to adopt digital accounts payable systems. Are the days of stuffing envelopes finally coming to an end?
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