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 14, 2016
"Good, Better, Best" in Understanding Merchant Payments
The marketing mantra "Good, Better, Best" from Sears in selling different grades of merchandise at different price points might serve as a guide for segmenting quality levels of information needed in understanding merchant payments. While attending several merchant-focused conferences and trade shows this year, I began thinking about this mantra in relation to the dearth of even "good," rigorous information on the payments experience of the important retail trade sector of our economy. Payment information such as person-present and remote payments, successful and unsuccessful fraud attempts, use of technology, cost of acceptance, and other information by type of payment instrument is simply not widely available. In cases where some information exists, it isn't representative of the entire retail industry.
Currently, there is a wealth of information available on payments for the overall economy through the previous and pending release of the latest Federal Reserve's Triennial Payments Study, the first of which was compiled in 2000. But the focus of this study is the broader landscape, with individual sectors of the economy not examined in detail. Today, the Fed continues to collect and publish aggregate survey information from payments providers (including some private-label card issuance information from retail merchants) via the payments study and from consumers via surveys conducted by the Consumer Payment Research Center at the Federal Reserve Bank of Boston. However, there is no major representative survey of quantitative payments information about businesses, of which merchants are a critical part since so many payments are made by consumers for purchase of goods/services.
How important is the retail trade sector to the economy? Using figures from the U.S. Census Bureau, these charts show the 1.2 million businesses engaged in retail, accommodation, and food services. Collectively, the businesses employ 27 million people and produce annual sales of $5.4 trillion. More to the point, the lion's share of retail payment transactions are thought to be accepted via this sector of the economy, making it the sector to be impacted the most by payment economics and policy.
Many government entities, including the Reserve Bank of Australia, have surveyed merchants in their own countries. The Bank of Canada has a report due next year; the European Commission surveyed 10 European Union (EU) states; and the European Central Bank surveyed 13 EU states. Colleagues of mine at the Federal Reserve Bank of Kansas City offer a comprehensive review and compelling case for "Measuring the Costs of Retail Payment Methods" here in the United States.
Below are some of the benefits of conducting a merchant study in the United States. Doing so could
- Narrow the gap in tracking merchant payments and payment fraud information compared with other developed countries.
- Offer detailed breakouts of point-of-sale and remote payments that provide information on fraud and other losses prevented and actual losses incurred.
- Help identify efficiency-improving changes in retail payments and strengthen the understanding of payments end to end for a sector with high impact in payments.
- Contribute to social welfare analyses by providing more facts about merchant benefits, costs, and fraud risks associated with different payment methods.
Perhaps we should apply the mantra of retail and move from good or better to best. Perhaps we should aspire to doing the best reporting we can muster for this important sector of our economy. What are your views on the value of such an undertaking?
By Steven Cordray, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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