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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.

Take On Payments

January 23, 2017


Mobile Banking and Payments Survey Results

In the fall of 2016, the Atlanta Fed and six other Federal Reserve Banks asked financial institutions (FI) in their districts to participate in a survey to determine the level and type of mobile financial services they were currently offering or planning to offer. The Atlanta Fed conducted a similar survey in the district in 2014.

Financial institutions completed 117 surveys; they represent FIs of all sizes and types operating in the district (see chart below). The response rate of 8 percent should provide financial institutions with good directional information when comparing their own mobile banking and payments strategy. You can find the full report here. The Federal Reserve Bank of Boston will be preparing a consolidated report for all seven districts later this year.

Chart-one

Key learnings from the responses to this survey include:

  • Mobile banking has become a standard service of financial institutions, with 98 percent indicating they currently or plan to offer mobile banking.
  • Competitive pressure and the retention of existing customers are the primary reasons for offering mobile banking.
  • Consistent with the 2014 survey and numerous other mobile research reports, FIs cite security concerns by consumers as the greatest barrier to mobile banking adoption.
  • FIs identify biometric methodologies as the security tool most likely to be used in their program.
  • Over half (59 percent) currently or plan to support at least one mobile wallet. Their primary reason for offering the service was competitive pressure as mobile payments appear to be gaining traction among some consumers.
  • Most of the survey respondents have a long-term outlook (three years or more) for mobile payments to reach a customer participation level of 50 percent.

Supplemental results breaking the data into the six asset-size segments will be made available in early February. If you have any questions about the survey results, please let us know.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

January 23, 2017 in banks and banking, biometrics, mobile banking | Permalink

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January 9, 2017


The Year in Review

As we move into 2017, the Take on Payments team would like to share its perspectives of major payment-related events and issues that took place in the United States in 2016, in no particular order of importance.

Cybersecurity Moves to Forefront—While cyber protection is certainly not new, the increased frequency and sophistication of cyber threats in 2016 accelerated the need for financial services enterprises, businesses, and governmental agencies to step up their external and internal defenses with more staff and better protection and detection tools. The federal government released a Cybersecurity National Action Plan and established the Federal Chief Information Security Office position to oversee governmental agencies' management of cybersecurity and protection of critical infrastructure.

Same-Day ACH—Last September, NACHA's three-phase rules change took effect, mandating initially a credit-only same-day ACH service. It is uncertain this early whether NACHA will meet its expectations of same-day ACH garnering 1 percent of total ACH payment volume by October 2017. Anecdotally, we are hearing that some payments processors have been slow in supporting the service. Further clarity on the significance of same-day service will become evident with the addition of debit items in phase two, which takes effect this September.

Faster Payments—Maybe we're the only ones who see it this way, but in this country, "faster payments" looks like the Wild West—at least if you remember to say, "Howdy, pardner!" Word counts won't let us name or fully describe all of the various wagon trains racing for a faster payments land grab, but it seemed to start in October 2015 when The Clearing House announced it was teaming with FIS to deliver a real-time payment system for the United States. By March 2016, Jack Henry and Associates Inc. had joined the effort. Meanwhile, Early Warning completed its acquisition of clearXchange and announced a real-time offering in February. By August, this solution had been added to Fiserv's offerings. With Mastercard and Visa hovering around their own solutions and also attaching to any number of others, it seems like everybody is trying to make sure they don't get left behind.

Prepaid Card Account Rules—When it comes to compliance, "prepaid card" is now a misnomer based on the release of the Consumer Financial Protection Bureau's 2016 final ruling. The rule is access-device-agnostic, so the same requirements are applied to stored funds on a card, fob, or mobile phone app, to name a few. Prepaid accounts that are transactional and ready to use at a variety of merchants or ATMS, or for person-to-person, are now covered by Reg. E-Lite, and possibly Reg. Z, when overdraft or credit features apply. In industry speak, the rule applies to payroll cards, government benefit cards, PayPal-like accounts, and general-purpose reloadable cards—but not to gift cards, health or flexible savings accounts, corporate reimbursement cards, or disaster-relief-type accounts, for example.

Mobile Payments Move at Evolutionary, Not Revolutionary, Pace—While the Apple, Google, and Samsung Pay wallets continued to move forward with increasing financial institution and merchant participation, consumer usage remained anemic. With the retailer consortium wallet venture MCX going into hibernation, a number of major retailers announced or introduced closed-loop mobile wallet programs hoping to emulate the success of retailers such as Starbucks and Dunkin' Brands. The magic formula of payments, loyalty, and couponing interwoven into a single application remains elusive.

EMV Migration—The migration to chip cards and terminals in the United States continued with chip cards now representing approximately 70 percent of credit/debit cards in the United States. Merchant adoption of chip-enabled terminals stands just below 40 percent of the market. The ATM liability shift for Mastercard payment cards took effect October 21, with only an estimated 30 percent of non-FI-owned ATMs being EMV operational. Recognizing some of the unique challenges to the gasoline retailers, the brands pushed back the liability shift timetable for automated fuel dispensers three years, to October 2020. Chip card migration has clearly reduced counterfeit card fraud, but card-not-present (CNP) fraud has ballooned. Data for 2015 from the 2016 Federal Reserve Payments Study show card fraud by channel in the United States at 54 percent for in person and 46 percent for remote (or CNP). This is in contrast to comparable fraud data in other countries further along in EMV implementation, where remote fraud accounts for the majority of card fraud.

Distributed Ledger—Although venture capital funding in blockchain and distributed ledger startups significantly decreased in 2016 from 2015, interest remains high. Rather than investing in startups, financial institutions and established technology companies, such as IBM, shifted their funding focus to developing internal solutions and their technology focus from consumer-facing use cases such as Bitcoin to back-end clearing and settlement solutions and the execution of smart contracts.

Same Song, Same Verse—Some things just don't seem to change from year to year. Notifications of data breaches of financial institutions, businesses, and governmental agencies appear to have been as numerous as in previous years. The Fed's Consumer Payment Choices study continued to show that cash remains the most frequent payment method, especially for transactions under 10 dollars.

All of us at the Retail Payments Risk Forum wish all our Take On Payments readers a prosperous 2017.

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January 9, 2017 in ACH, ATM fraud, cards, chip-and-pin, cybercrime, debit cards, emerging payments, EMV, fraud, mobile banking, mobile payments, P2P, prepaid, regulations | Permalink

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October 31, 2016


Of Piggy Banks and Bank Branches

Fall is my favorite time of the year. Football season cranks into high gear, pumpkins replace chocolate in my desserts, and excellent payment-related events take place with great published content. On the content front, this fall has not disappointed. I have recently read several excellent reports, including the FDIC's 2015 National Survey of Unbanked and Underbanked Households. Although the focus of the survey is on the unbanked and underbanked population, there are some interesting findings concerning banked households, including their methods used for accessing their accounts. After seeing these findings, I began pondering the question, why do I still visit a bank branch for my deposit account needs?

According to the FDIC survey, 75 percent of banked households use a bank teller to access their accounts. However, a teller is the primary or main access method for only 28 percent of banked households, suggesting that over 70 percent of households prefer to interact through a non-face-to-face channel. The other physical channel, the ATM, is the primary access method for only 21 percent of banked households. The FDIC found that online and mobile banking usage is lower than the physical channels; however, nearly 50 percent of banked households' primary method of access to their account is digital (online or mobile). So while a majority of banked households still visit a physical location to access their accounts, almost half of them prefer to access their account digitally.

As I think about my own banking practices, I visit physical banking locations less and less. I will drop in to make a check deposit, but only if I am running errands and a physical location just happens to fall on my route. Or sometimes my kids want a sucker and I know my local branch will come through. They have even provided my children with piggy banks during visits! I use mobile check deposit more often than not. I still visit ATMs, but those interactions are substantially fewer today thanks in large part to being able to obtain cash back via my debit card at a number of retailers.

So I will visit a branch for my deposit account needs if it is convenient for me while running errands or if my kids want candy or some other treat. And these two reasons aren't necessarily sustainable. I am running fewer errands as more of my shopping takes place in the digital world (and my phone is becoming more convenient for check depositing). And unfortunately, I am not getting any younger, which means my children are growing up, and as they do, suckers and piggy banks will more than likely not stir up as much excitement as they currently do.

As a traditionalist, my past thinking led me to believe that the demise of bank branches was overblown. However, my thinking has changed. The bank branch will not disappear overnight or completely in the long term, though indications are that the number of branches will decline. As I contemplate the results of the FDIC study coupled with observations from my own behavior, it becomes obvious to me that the physical importance from a deposit account perspective is being diminished in this digital age. I am not sure what the branch of the future will look like, but I feel confident in saying that tellers, and even ATMs, focusing on deposit accounts will not be primary reasons for consumers to visit. Why will you visit your local branch in the future?

Photo of Douglas King By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

October 31, 2016 in banks and banking, mobile banking | Permalink

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As a person who works in a retail branch, I have noted that aging members are coming inside because they are fearful of on-line fraud and that the technology has gotten to be too complex for them. This is just as true for the 55 year old engineer as it is for the 80 year old former school teacher.

Posted by: Kevin B. O'Neill | November 7, 2016 at 12:25 PM

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September 19, 2016


Mobile Banking and Payments—What's Changed?

This week, the Federal Reserve Banks of Atlanta, Boston, Cleveland, Dallas, Kansas City, Minneapolis, and Richmond are launching an online mobile banking and payments survey to financial institutions based in their respective districts. The purpose of the survey is to achieve better understanding of the status of mobile banking and payments initiatives, products, and services that financial institutions offer in the various regions of the country. The results of the survey at the individual district level should be available to participants by mid-December; a consolidated report for all the districts will be published in early 2017.

The last survey, which had 625 participants, was conducted in the fall of 2014. That was before the launch of the various major mobile wallets operating today, so it will be interesting to see what level of impact these wallets have had on the mobile payments activity of financial institutions. You can find the results of the 2014 Sixth District survey on our website. This survey effort complements the 2016 Consumer and Mobile Financial Services survey conducted by the Federal Reserve Board's Division of Consumer and Community Affairs.

First designed by the Federal Reserve Bank of Boston in 2008, the survey has been updated over the years to reflect the many changes that have taken place in the mobile landscape in the United States. Similar to past surveys, the 2016 survey looks to capture:

  • Number of banks and credit unions offering mobile banking and payment services
  • Types of mobile services offered or planned
  • Mobile technology platforms supported
  • Features of mobile services offered or planned
  • Benefits and business drivers associated with mobile services
  • Consumer and business adoption/usage of mobile services
  • Barriers to providing mobile services
  • Future plans related to mobile payment services

If your financial institution is based in one of the participating districts and has not received an invitation to participate in this year's survey, please contact your district's Federal Reserve Bank. For the Sixth District, you can contact me via email or at 404-498-7529. You can also contact me if you need assistance in locating your district's lead survey coordinator.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

September 19, 2016 in banks and banking, financial services, mobile banking, payments | Permalink

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August 1, 2016


FFIEC Weighs In On Mobile Channel Risks

In late April, the Federal Financial Institutions Examination Council (FFIEC) released new guidance regarding mobile banking and mobile payments risk management strategies. Titled "Appendix E: Mobile Financial Services," the document becomes part of the FFIEC's Information Technology Examination Handbook. While the handbook is for examiners to use to "determine the inherent risk and adequacy of controls at an institution or third party providing MFS" (for mobile financial services), it can also be a useful tool for financial institutions to better understand the expectations that examiners will have when conducting an exam of an institution's MFS offering.

Consistent with examiners' focus on third-party relationships for the last several years, the document points out that MFS often involves engagement with third parties and that the responsibilities of the parties in those relationships must be clearly documented and their compliance closely managed. Other key areas the document reviews include:

  • Mobile application development, maintenance, security, and attack threats
  • Enrollment controls to authenticate the customer's identity and the payment credentials they are adding to a mobile wallet
  • Authentication and authorization, emphasizing that financial institutions should not use mobile payment applications that rely on single-factor methods of authentication.
  • Customer education efforts to support the adoption of strong security practices in the usage of their mobile devices

The document also identifies and reviews strategic, operational, compliance, and reputation risk issues for the various elements of a financial institution's MFS offering. The final section of the document outlines an examiner's work plan for reviewing an MFS program with seven key objectives. I believe that it would be time well spent for the institution's MFS team to assume the role of examiner and use the work plan as a checklist to help effectively identify and manage the risks associated with an MFS program.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

August 1, 2016 in bank supervision, banks and banking, financial services, mobile banking, mobile payments, regulations, regulators, third-party service provider | Permalink

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Looking forward to welcoming David Lott to our upcoming Next Money Tampa Bay meetup.

David will be our keynote on Wednesday, Sept 21, 2016 6:00 ~ 8:00 PM

Tampa Bay Wave Venture Center
500 East Kennedy Boulevard 3rd FL
Tampa Florida 33602

All are welcome to attend RSVP at

https://www.meetup.com/NextMoneyTPA/events/233171815/

Posted by: Bruce Burke | August 6, 2016 at 05:22 PM

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June 20, 2016


There's an App for That!

Few would question that mobile phones have had a considerable influence in our everyday activities. They provide a level of convenience and connectivity that also generates benefits to our personal safety and the security of our banking accounts and other assets. The Pew Research Center estimates that almost two-thirds of adults in the United States own a smartphone and 15 percent use them as their primary online access device either because they do not have broadband access at their home or have few other online options.

In recent blogs, I highlighted some key findings from the Federal Reserve Board of Governors' recently released Consumers and Mobile Financial Services 2016 report. The report includes a section of questions that probe how consumers use their mobile phones in financial decision making. Within the past year, 62 percent of mobile banking users with smartphones responded that they checked their balance before they made a large purchase. The power of that information is demonstrated in that for those who checked their balance or available credit, half didn't make a purchase as a result of having that information.

Forty-five percent of smartphone owners use their phone for comparison shopping at retail stores. Forty-one percent reported they use their phones to obtain product information while shopping at retail stores, and 28 percent use a barcode scanning application for price comparisons.

Though smartphone owners value the convenience phones bring to financial decision making, security and safety are primary concerns. A little more than half of the mobile banking users take advantage of the feature of receiving some type of alert from their financial institution. The most common alert cited was for a low balance, but 36 percent reported they also receive fraud alerts.

Later this year, a number of the Federal Reserve districts, including the Sixth District, will be conducting a survey of the financial institutions in their districts about the mobile banking and mobile payments services they offer. The Sixth District participated in this effort in 2014; you can find the results here. It will be interesting to see the changes that have taken place over the last two years, especially in light of the launch of the various mobile wallets, so stay tuned.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

June 20, 2016 in banks and banking, mobile banking, mobile payments | Permalink

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June 6, 2016


Mobile Security and Privacy

In an earlier post, I provided some of the top-line findings from the Federal Reserve Board of Governors' recently released Consumers and Mobile Financial Services 2016 report. Safety and risk continue to be cited by consumers as significant barriers to their adoption of mobile banking and other new payment technology. Many consumers either don't believe that the mobile banking channel is safe or they don't understand the security features that are part of the mobile technology. The research effort probed these issues in greater detail to better understand consumer perspectives.

One of the first questions in this area asked how safe a person's personal information is when using mobile banking. As the table shows, while there has been steady positive movement over the last three years in getting many consumers to feel their personal information is safe, there remains a great challenge. A decrease of only two percentage points (42 percent in 2015 compared to a high of 44 percent in 2014) in those who believe their personal information is "somewhat unsafe" or "very unsafe" doesn't signify much advancement in the safety education efforts for these folks.

Q. How safe do you believe people's personal information is when they use mobile banking?

table-one

In a separate survey question, a slightly higher percentage of respondents (46 percent) believed that their personal information was "very unsafe" or "somewhat unsafe" when conducting a mobile point-of-service transaction at a store.

With 15 percent of the respondents indicating they "don't know," the survey illustrates the need for additional education about the security aspects of mobile banking and payment technology. The research showed that among those with mobile phones and bank accounts, mobile banking users had more confidence in the security of mobile banking transactions than non-users. Only 3 percent of mobile banking users thought that their personal information was "very unsafe" when they use mobile banking, compared to 28 percent for non-users.

When mobile phone users were probed about their specific security concerns about using their mobile phone for banking or payments, their most common response was that they were concerned about all of the listed security risks. For those who chose one specific reason, they most frequently cited fears about the phone being hacked or the data being intercepted, followed by concerns about their phone being lost or stolen.

On a positive note, consumers appear to be adopting more secure mobile phone practices. The percentage of smartphone users who password-protect their phone increased to 70 percent in 2015 from 61 percent in 2013. One-third of the smartphone owners were using antimalware software or applications to protect their phone, and a similar share used an app or service to help them locate, remotely access, erase, or disable their phone in the event it is lost or stolen.

Additionally, consumers are recognizing the need for improved authentication with their banking service provider. Seventy-four percent of smartphone owners indicated they either "strongly agree" or "agree" that they would be willing to undergo additional authentication steps when they were logging in to their mobile banking service.

Other important findings are contained in the research report, so be sure to give it a good read.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

June 6, 2016 in malware, mobile banking, mobile payments | Permalink

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May 2, 2016


Mobile Financial Services Are Still Growing

The Federal Reserve Board's Division of Consumer and Community Affairs (DCCA) recently released its Consumers and Mobile Financial Services 2016 report. This annual research effort began in 2011 to measure the adoption and usage of mobile banking and payment activities by consumers and the use of mobile technology in making financial decisions. The latest survey was fielded in November 2015 with a respondent base of 2,510 adults age 18 and over, of which 1,064 had participated in both the 2013 and 2014 surveys.

Key adoption and usage findings from the survey include:

  • The major barriers to mobile payment adoption remain the same as in previous studies—satisfaction with current methods of payment and concerns about security.
  • Convenience is the most common reason given by the respondents for adopting mobile banking.
  • Perhaps reflecting a positive effect of mobile phone security education, 70 percent of smartphone users indicated they password-protect their phone and 78 percent indicated they download applications only from their primary application store.
  • Mobile phone penetration has remained consistent over the last three years at 87 percent of the U.S. population, although smartphones now account for 77 percent of mobile phones versus 61 percent in 2013.
  • Ownership of smartphones is higher for Hispanics than for non-Hispanic whites in this survey.
  • Usage of mobile banking services by those with mobile phones increased to 43 percent from 33 percent in 2013. Smartphone owners showed a higher usage rate of mobile banking, at 53 percent, but this rate was essentially flat from 2014.
  • While usage of mobile banking has generally increased every year for each age group, younger consumers have consistently been the most likely users while the older segment has been the least likely, as the table shows:

chart-1

  • The most common mobile banking activity is checking an account balance or making a specific transaction, followed by transferring money between accounts and receiving an account alert.
  • Despite the strong usage of mobile banking, more than 80 percent of smartphone owners with a bank account visited a branch or used an ATM over the last 12 months, while only 29 percent called their banks.
  • Mobile payment activity still lags mobile banking activity. Only 24 percent of mobile phone owners had made a mobile payment over the last 12 months, compared to 43 percent of mobile phone owners with a bank account who used mobile banking. The study found that there is no clear relationship between mobile payment usage and income or education level. As in previous surveys, minorities make mobile payments at a higher rate than white, non-Hispanic consumers.

Additional findings from the survey as to security and privacy and the use of the phone in making financial decisions will be highlighted in future blogs. This survey provides valuable data in the ongoing evolution and adoption of mobile banking services and I hope you will read it in detail.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

May 2, 2016 in mobile banking, mobile payments | Permalink

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March 28, 2016


Continuing Education in Mobile Payments Security

Just over a year ago, I wrote a post raising the question of which stakeholder or stakeholders in the payments ecosystem had the responsibility for educating consumers regarding payments security. As new payment technologies such as mobile devices, wearables, and the Internet of things gain acceptance and increased usage, who is stepping up not only to teach consumers how to use the devices but also how to do so in a safe and secure manner?

Since it is generally financial institutions that have the greatest financial risk for payment transactions because of the protective liability legislation that exists in the United States, this responsibility has fallen largely to them. However, this educational effort has become increasingly difficult since consumers generally acquire these new products at retail outlets or mobile carrier stores, where the financial institution has no direct contact with the consumer.

The Consumer Federation of America (CFA) recently continued its ongoing efforts to provide educational information to consumers with the release of a guide to mobile payments. The guide is comprehensive, covering issues such as privacy, security of the mobile device, the dangers of malware, error resolution, and dispute procedures for mobile payments, and concludes with a humorous animated video that recaps some of the risks with mobile phones if they are not secured and used properly.

As an example, in its section on privacy, the guide offers the following tips:

  • Read the privacy policies of the companies whose services you are using to make mobile payments and the companies that you are paying.
  • If you don't like a company's privacy policy, take your business elsewhere.
  • Don't voluntarily provide information that is not necessary to use a product or service or make a payment.
  • Take advantage of the controls that you may be given over the collection and use of your personal information.
  • Since mobile payments, like all electronic payments, leave a trail, if there are transactions that you would prefer to make anonymously, pay with cash.

Kudos to the CFA for its work on this effort. I hope you will read the guide and spread the word about the availability of this valuable resource. It is through the combined efforts of the payments stakeholders that we can work to improve the knowledge level of all parties involved and promote secure usage.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

March 28, 2016 in consumer protection, innovation, mobile banking, mobile payments | Permalink

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February 16, 2016


Changing How We Pay Online in 2016

Over the past few years, I've done the majority of my Christmas shopping online through my laptop or mobile device. This year, I did 100 percent of my shopping online due to an accident that left me mostly immobile. Though shopping online was certainly easier for me than trying to get out in the hustle and bustle of the December shopping madness, the payment experience for some of my transactions was as painful as my leg injury.

I have been hearing for years how the mobile phone is going to replace my wallet, and one reason is that our phones are increasingly with us while our wallets are not. Yet I never leave my house or office without my wallet unless I forget it. In fact, I forget my mobile phone more often than my wallet, but apparently I'm an exception. However, I realized that when I'm home, I am rarely with my wallet. Out of habit, I leave my wallet sitting on a shelf in the closet. This habit never created issues for me until recently.

Except for websites that have my card on file, I am almost always required to enter my card information (account number, expiration date, and maybe the card security code). The expiration or CVV2 are still required even for some of my card-on-file transactions. While it's always been something of a hassle to go get my card information from my closet, I never gave much thought to the friction of the experience—that is, until my left leg was temporarily rendered useless and making it to my wallet in the closet became difficult. When my wife wasn't around to get my wallet, my cart abandonment rate pushed 100 percent.

Then I discovered how easy it is to use online digital wallets. And I tried a lot of them—PayPal, American Express Checkout (actually more of a platform than a wallet), Visa Checkout, and MasterCard's MasterPass, to name a few. While each wallet has its pros and cons and merchant acceptance varies by wallet, I gained a greater appreciation for these transactions because of how easy it was not needing to physically have my card to enter the requested information for each transaction beyond the initial wallet setup. And I liked not having my card on file with a merchant. By the end of the shopping season, I had become a big fan of digital wallets.

Removing friction from the consumer experience is just one reason why many believe that mobile proximity payments will flourish. I never agreed with that reason (this was in a pre-EMV world though!) but it is a big reason why I believe online commerce will experience a significant transformation in 2016 with both merchant and consumer adoption of digital wallets taking off this year.

By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

February 16, 2016 in mobile banking, mobile payments | Permalink

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