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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

October 30, 2017


Why the Explosion in Household Payments?

In a post last August, I analyzed some of the data from the inaugural release of the entire aggregated data set of estimated noncash payments from the latest Federal Reserve payments study. In this go-round, I will discuss the household payment figures in the report that accompanied the data set. These figures reflect core noncash payment types—including ACH transfers, check, nonprepaid and prepaid debit cards, and credit cards— that consumers in the United States use today.

The two pie charts show the distribution of household noncash payments for 2000, when the payments study began, and for 2015. Over this period, the number of consumer payments increased to 117.5 billion in 2015 from 50.7 billion in 2000. The area of each pie chart reflects the proportional difference in the average monthly household noncash payments for the two periods. In 2000, households made on average 40.3 noncash payments per month, compared to 78.6 monthly payments in 2015, a 95 percent increase.

Graph-image

Besides the near doubling of monthly payments per household, the other striking difference is the distribution of payments by type over time. Most dramatically, checks written decreased 6.4 percent per year over this time while debit cards, with an annual increase of 13.7 percent, were on a tear.

As the report notes, and according to my own speculations, increases in the number of monthly household noncash payments could be attributed to the following factors:

  • Some payments that historically would have been made with cash are now made with mostly noncash forms of payment. Debit cards snagged the greatest share, given their high growth rate and relatively low average ticket amount, which aligns with payments typically made with cash.
  • Storefront merchants and consumers have expanded their acceptance of card payments as a substitute for cash and check.
  • The growth of remote payments such as ecommerce have reduced check and cash usage.
  • Many people have migrated from using cash and check to using payment cards so they can gain points and other benefits from card rewards programs.
  • Online purchases of digital content such as games and music have brought about increases in micropayments.

We might surmise that increases in the number of payments in 2015 are also due to increases in household expenditures since 2000, though this is hard to quantify by number of payments. World Bank data show aggregated U.S. household consumption expenditures of $12.284 trillion and $6.792 trillion (in current dollars) in 2015 and 2000, respectively. Unlike the payments study data, these figures include both cash and noncash payments, and some of the expenditures are derived from imputed income related to high-ticket items such as purchases of homes and automobiles. With these caveats in mind, dividing these figures by the number of households during each of these years shows that the per-household expenditures in current dollars is about 52 percent higher in 2015 than it was in 2000. Not all of this gain came about from more payments—some payments may be higher ticket amounts than in previous periods due to luxury purchases.

What are your views on other factors contributing to the near doubling of monthly household noncash payments since 2000?

Photo of Steven Cordray  By Steven Cordray, payments risk expert in the Retail Payments Risk  Forum at the Atlanta Fed

October 30, 2017 in payments study | Permalink

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Not only have more storefront retailers expanded card acceptance but even "mobile merchants" have as well. Think food trucks, farmers market vendors, state parks, pop-up shops and the like. We practically don't need cash any longer. Now, some enterprising payments provider just needs to figure out how we can tip the valet with a card.

Posted by: Brenda Gilpatrick | October 31, 2017 at 09:35 AM

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October 23, 2017


ACH and Consumer-Only Payments: Will the Twain Ever Meet?

For many years, person-to-person (P2P) payment providers have touted the emergence of compelling P2P mobile-based products that exploit some combination of financial institutions (FIs) and fintech providers. Several players have made notable inroads into P2P with certain demographics and use cases, but the overall results in terms of absolute numbers are far from ubiquitous. This post uses hard numbers to explore what progress ACH has made with P2P payments.

During a payments conference earlier this year that showcased findings from the Fed's triennial payments study (here and here), the table below was presented showing the number and value shares of domestic network ACH payments in 2015. The table is complicated because it shows both debit pull and credit push payments by consumer and business counterparties. Despite the complexity, the table distills ACH to its essence by removing details associated with the 14 transaction payment types (known as Standard Entry Class codes) that carry value for domestic payments. Many of these individual codes reflect similar types of payments (for example, three codes are used for converting first presentment checks to ACH). As expected, virtually all payments involve at least one business party to each payment. Consumer-only payments are negligible.

Chart-one

In a typical use case for consumer-only ACH, a consumer transfers funds from one account to another account across financial institutions. As shown in the solid red oval, 0.04 percent of all domestic payments were consumer-to-consumer payments, where the payee initiated a debit to the payer's bank account. For consumer credit push payments, the figure is 0.3 percent. The combined figure rounds to 0.3 percent. On the value side for consumer-only payments (in the dashed red oval), debit pulls, credit pushes, and the combined figure were 0.02 percent, 0.2 percent, and 0.2 percent, respectively. These types of payments typically reflect P2P payments1, when one consumer pushes funds to another consumer.

The next table shows the figures that prevailed in 2012. Given the modest share by both number and value across both years, it is apparent—and interesting—that ACH has made little progress in garnering consumer-only payments. Although ACH is ubiquitous on the receipt side across all financial institutions, it is not so for consumers, given the lack of widely promoted and compelling service offerings from FIs and no standardized form factor like there is for card payments. Additionally, many small FIs do not offer ACH origination services.

Chart-two


This lack of adoption is not unique to ACH. Although some of the electronic P2P entrants are experiencing significant growth, it will be some time before they supplant the billions of P2P cash and check payments. P2P players on the FI-centric side include Zelle, which a large consortium of banks owns. Non-FI providers include PayPal and its associated Venmo service. Given the lack of ubiquity with the new offerings, the fallback option for consumer-only payments is cash and checks. As the payments study reports, check use is still declining, though the most recent trend shows that this decline has slowed. ACH or other electronic options still seem a good bet to continue to erode paper options, but perhaps the market is signaling that paper options have ongoing utility and are still preferred if not optimal for some users in some instances.

So what would it take for ACH to gain some traction in the consumer payments space? Perhaps the presence of same-day ACH, in which credits were mandated in September of 2016 and debits followed in September 2017, offers some opportunity for compelling service offerings coupled with a user-friendly way to send an emergency payment to your ne'er-do-well son.

What are your views on the viability of ACH garnering more P2P payments?

Photo of Steven Cordray  By Steven Cordray, payments risk expert in the Retail Payments Risk  Forum at the Atlanta Fed

 

_______________________________________

1 Sometimes account-to-account (A2A) transfers are lumped in with P2P payments.

 

October 23, 2017 in banks and banking, financial services, mobile banking, mobile payments, P2P, payments study | Permalink

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August 14, 2017


Extra! Extra! Triennial Payments Data Available in Excel!

In countless old black-and-white movies, street newspaper vendors would shout out the latest sensational news from hot-off-the-press special editions. The Fed is no different in that we want to shout out that it is no longer necessary to mine the PDF-based Federal Reserve Payments Study report to extract the study's data. For the first time, we are offering our entire aggregated data set of estimated noncash payments in an Excel file. The report accompanying the data is here.

The data set is very rich and covers the following categories:

Accounts and cards
Private-label credit processors
Checks Person-to-person and money transfer
ACH Online bill pay
Non-prepaid debit Walk-in bill pay
General-purpose prepaid Private-label ACH debit
Private-label prepaid issuers & processors Online payment authentication
General-purpose credit Mobile wallet
Private-label credit merchant issuers  

Here is another table that is just one extract from the non-prepaid debit card portion of the extensive payments data available.

To get a taste of what this data can teach us, let's look closer at the cumulative volume distribution by payment dollar value threshold for non-prepaid debit cards (the data are shown above) along with general-purpose credit cards. The number and value of both types of payments grew substantially from 2012 to 2015, the last two survey periods. The chart compares these distributions, showing more vividly how this growth affected the relative proportions of payments of different dollar values.

Chart-two

For example, debit card payments below $25 accounted for 59.1 percent of all payments in 2012 versus 61.8 percent in 2015—evidence that debit card purchases are migrating to lower ticket amounts. The trend is even more dramatic over the same time span for general-purpose credit cards.

Because this is a distribution, increases in the relative number of small-value payments must be offset by decreases in the relative number of large-value payments. Unfortunately, our previous survey capped the payment threshold at $50 in 2012. Otherwise, we would see the dashed 2012 lines crossing over the solid 2015 lines at some payment value threshold above $50. In brief, the results suggest cash payments are continuing to migrate to debit cards, while credit cards may be garnering some share at the expense of both cash and debit cards.

The challenge is on for you data analysts out there. Please share your findings.

Photo of Steven Cordray  By Steven Cordray, payments risk expert in the Retail Payments Risk  Forum at the Atlanta Fed

August 14, 2017 in ACH, cards, checks, debit cards, mobile payments, payments study | Permalink

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December 22, 2016


Why U.S. Card Fraud Is Now Present and Accounted For

Last year, I wrote a post called "Why Is the U.S. Card-Present Fraud Breakout Not Present?" in which I discussed the lack of publicly available information on the distribution of U.S. card fraud by type. I'm happy to report that more detailed data on card fraud in the United States is now present and accounted for in the Initial Data Release (IDR) of the 2016 Federal Reserve Payments Study.

As is common in other countries, card fraud can be categorized as follows across person-present and remote payment channels:

  • Counterfeit card: Fraud is perpetrated using an altered or cloned card.
  • Lost or stolen card: Fraud is undertaken using a lost or stolen card.
  • Card issued but not received: A newly issued card in transit to a card holder is intercepted and used to commit fraud.
  • Fraudulent application: A new card is issued based on a fake identity or on someone else's identity.
  • Other: "Other" fraud includes account takeover and other types of fraud not covered above.
  • Fraudulent use of account number: Fraud is perpetrated without using a physical card.

An extract from the fraud section of the IDR shows breakouts for card fraud by type across five countries.

Percentage-of-total-domestic-general-purpose-card-fraud

As reflected in the numbers, the United States continues to be by roughly an order of magnitude a continuing and persistent target for card counterfeiters using stolen card data compared to other countries that have adopted much earlier counterfeiting controls using EMV (chip) cards. Use of chips makes in-person card fraud more difficult, because of built-in technology to thwart the creation of counterfeit chip cards. As adoption of chips for cards and terminals improves in the United States, fraud using stolen card data is likely to shift from person-present to remote channels as has already occurred in other developed countries. My colleague, Doug King, discusses these issues in detail in an interview conducted last year.

Look for other Take On Payments posts that highlight additional key findings from the 2016 payments study.

Photo of Steven Cordray  By Steven Cordray, payments risk expert in the Retail Payments Risk  Forum at the Atlanta Fed

December 22, 2016 in cards, chip-and-pin, EMV, payments study | Permalink

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January 4, 2016


The Year In Review

2015 marked the end of the era for my favorite late-night talk show host. In his 33 years of bringing laughter to late-night audiences, David Letterman is perhaps best known for his nightly Top 10 list. During the last several years, the Risk Forum's last blog for the year has included our own list of top 10 payments events. Our efforts clearly didn't match Letterman's entertaining Top 10s, and we have decided to retire our Top 10 blog in favor of a year-end review blog.

2015 can easily be characterized as "The Year of Deals." We witnessed two established payment processors, Worldpay and First Data, become publicly traded entities, with IPOs during the year. Following these IPOs, Square became the first "Unicorn"—a tech start-up with a valuation in excess of $1 billion—to test the public markets with its IPO. Beyond the IPOs, there were ample other noteworthy deals in 2015, including Ebay spinning off PayPal as its own entity; Visa acquiring its former subsidiary, Visa Europe; Global Payments' acquisition of Heartland; and a host of mergers such as the one between Early Warning and ClearXchange. On the venture capital and private equity side, indications suggest that 2015 will top 2014's nearly $10 billion investment in financial technology in the United States with payments-related investments leading the way.

Near and dear to the Risk Forum, notable risk-related stories will also make 2015 memorable. The long-anticipated initial EMV liability shift took place on October 1 with mixed reviews from different participants in the payments ecosystem. Data breaches that included the compromise of payment credentials and personally identifiable information seemed to be an almost-weekly event during the year. In response to the increasing incidence of data breaches and anticipated increase in card-not-present fraud, the buzz surrounding tokenization, which began in earnest with the launch of Apple Pay in 2014, intensified within the payments industry.

Mobile proximity payments might be the most frequent payment topic over the past five years, and 2015 was no different. While many have labeled each year over the last five as the "Year of Mobile Payments," mobile still has a way to go before the Risk Forum is willing to give this title to any year, including 2015. However, momentum for mobile proximity payments remained positive with the launch of Apple Pay rivals Samsung Pay and Android Pay. We witnessed a well-known and early established mobile wallet, SoftCard (originally branded as Isis), exit the playing field after being acquired by Google. The Merchant Customer Exchange (MCX), a consortium of retailers, launched a pilot of its mobile wallet—CurrentC—and has also partnered with Chase and its Chase Pay service with entrée to 94 million cards; and two large Financial Institutions, Chase and Capital One, both announced new mobile wallet initiatives. In December, Walmart and Target announced their own mobile payment applications. While mobile proximity payment usage remains minimal, it is becoming increasingly clear that consumers are using their mobile phones to shop online. According to holiday shopping figures from Black Friday through Cyber Monday 2015, mobile shopping accounted for approximately one-third of total e-commerce sales.

Finally, in 2015, the payment industry witnessed the launch of a comprehensive, collaborative effort to improve the speed and security of payments in the United States. In January, the Federal Reserve issued its long-anticipated Strategies for Improving the U.S. Payment System followed by the formation of two task forces, Faster Payments and Secure Payments, seeking to turn these strategies into actionable payment improvements. Related to improving the speed of payments, NACHA membership approved a same-day ACH service after a similar measure failed to gain approval in 2012.

As those in the payments industry have come to expect excitement and innovation, 2015 did not disappoint. And while it's certainly fun to look back, we must always keep looking ahead. Perhaps the most famous late-night talk show host, Johnny Carson, understood this best with his beloved great seer, soothsayer, and sage Carnac the Magnificent persona. Be on the lookout for our upcoming blog where the Risk Forum will channel our inner Carnac with some predictions and expectations for payments in 2016.

By the Retail Payments Risk Forum at the Atlanta Fed

January 4, 2016 in cybercrime, data security, mobile payments, payments study | Permalink

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December 21, 2015


Help Determine the Payment and Fraud Data You See Reported

Information is powerful and can help drive strategy and operational success. Help shape the information you have access to by improving on the survey instruments used in reporting 2015 payments and fraud data.

As has occurred every three years since 2001, the Federal Reserve System is again undertaking a triennial payments survey for noncash payments originated to or received from accounts based in the United States. At the core of this research, we will again be collecting data on the number and value of payments and associated fraud across a broad array of payment channels and applications. Summarized survey results will be shared broadly with survey respondents, the industry, and the public at the end of 2016. Detailed aggregated results are anticipated to be available sometime in the second quarter of 2017. As always, due to the confidential nature of the information being supplied, individual respondents’ data is used only to produce aggregate estimates.

In two previous blogs (here and here), I have documented the need for expanded fraud information for card payments. Stepping back from the specifics of card fraud, I would like to encourage readers to send comments on our prospective survey instruments that were recently posted in the Federal Register. A summary of our survey instruments compared to survey instruments used in the 2013 payments study is available here.

The upcoming study consists of three research efforts:

  • Depository and Financial Institutions Payments Survey (DFIPS)
    The prospective DFIPS survey (Federal Register Notice FR 3066a) is a national survey of institutions that offer transaction deposit accounts, prepaid card program accounts, and credit card accounts to consumers as well as business and government customers. Using a nationally representative stratified random sample of depository institutions, the survey gathers data about noncash payments, cash withdrawals, and deposits that post to customer accounts as well as third-party payment fraud that took place during 2015.

    The DFIPS includes questions on the following topics:
    • Check payments, deposits, and returns
    • ACH payments and returns
    • Wire transfers originated and received
    • General-purpose debit and prepaid cards
    • General-purpose credit cards
    • Cash withdrawals, deposits, and terminals
    • Alternative payment initiation methods
    • Unauthorized third-party payment fraud

  • Networks, Processors, and Issuers Payments Surveys (NPIPS)
    The prospective NPIPS survey set (Federal Register Notice FR 3066b) targets organizations that facilitate payments. The survey set actually contains 19 different surveys, each one tailored to a particular payment channel or respondent type. Respondents answer only the surveys that apply to their organizations.

    The NPIPS includes payment and fraud questions across the following classifications:
    • General-purpose/private-label credit cards
    • Debit cards
    • General-purpose/private-label prepaid cards
    • ATM cards
    • Various payment form factors such as chip, no chip, and mobile
    • Payment applications such as electronic benefit transfers, person-to-person payments, bill pay, transit payments, and more

  • Check Sample Survey (CSS)
    The CSS survey (Federal Register Notice FR 3066c) estimates the distribution of checks by categories such as payers, payees, and purposes. Survey data are based on a representative, random sample of checks written and processed by large commercial banks and, for the first time, may include additional checks processed by the Federal Reserve.

Please review these survey documents and provide your comments as to how they could be improved. You can make submittals through the Federal Register by clicking here. Comments are due by January 25, 2016.

By Steven Cordray, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

December 21, 2015 in payments study | Permalink

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March 3, 2014


An Efficient Mobile P2P Payment: The Paper Check

Having had the chance to spend some time reviewing the 2013 Federal Reserve Payments Study, I was struck by the lasting power of the check in the consumer-to-consumer (or P2P) space. Although overall check usage has declined (checks written by businesses and by consumers to businesses have all declined significantly), check usage in the P2P space increased between 2006 and 2009 and was stable from 2009 to 2012. And this has occurred when the number of bank and nonbank mobile P2P payment solutions that have entered the marketplace or matured during the past few years.

As a parent of two young children, I have acquired ample experience in the P2P payments space—that is, in paying babysitters. As a self-proclaimed payments geek, I am always interested in learning how the babysitter prefers to be paid. Cash remains king with most, at least the high school-aged ones. We have one college-aged sitter who likes being paid through a nonbank P2P payment provider. And most recently, another college-aged sitter wanted to be paid by check, which really caught me off guard. She informed me that she uses her mobile banking app to process her checks through mobile remote deposit capture (RDC) and that she prefers having access to the funds through her debit card over cash. The amazing thing that has struck me from these weekly transactions is the efficiency of this P2P payment transaction.

If the babysitter makes the mobile deposit before 9 p.m. (ET), she has access to the funds the following day. If after 9 p.m. , the funds are available to her in two days. On my end, the transaction appears in my banking activity the morning following the deposit. Talk about efficient—fast and inexpensive (no fees paid by either of us)!

Obviously, the efficiency of this transaction would have been diminished were this not a face-to-face transaction. And maybe that is where the true value of online or mobile P2P payments comes into play. However, the resilient check and mobile RDC banking application worked really well in this face-to-face setting. According to a recent report, mobile RDC was offered by approximately 20 percent of U.S. banks in 2013, up from 7 percent at the end of 2012. As more financial institutions roll out the offering in the upcoming year, maybe it will be the case that the old paper check is here to stay and will flourish in the P2P payments space. And based on my experience, that might not be a bad thing!

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

March 3, 2014 in checks, mobile banking, mobile payments, payments study | Permalink

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September 24, 2013


Using Analytics to Improve Credit Quality

With consumer credit products such as mortgages and payday loans occupying headlines, credit card portfolios have been quietly and steadily marching towards improvement in quality over the last three years, according to data released by the Fed’s Board of Governors. As the chart shows, seasonally adjusted charge-off rates are down to 3.9 percent, and delinquency rates are at 2.6 percent for the largest 100 commercial banks in the United States, the lowest rate since the Federal Reserve began tracking this statistic at the start of 1991.

Credit Card Charge-Offs and Delinquency Rates: Top 100 US Commercial Banks

But how have credit card issuers been able to improve the quality and profitability of their card portfolio since the severe economic impact felt by all during the recession? One of the many tools the Board identified—and one cited by portfolio managers—is the increasing use of analytics. Issuers collect and comb vast amounts of data from a variety of sources to ensure that cardholders are equipped to manage their balances.

Credit issuers use analytics for a variety of purposes, including establishing credit limits, monitoring ongoing credit quality, targeting marketing efforts, and detecting fraud. They perform analytics at the individual cardholder level—looking at credit history and purchasing patterns, for example—as well as at the customer segmentation level to identify correlations between certain data elements and indicators of potential changes in credit quality. The increased power of these analytical tools over the last decade is due primarily to the incredible advancements in data collection and analysis technology. These advances have provided issuers with the ability to run sophisticated "what if" models to determine how changes in various key attributes of cardholders or in the overall economic environment will affect the quality of their portfolio.

Clearly, many of the issuers have taken other proven steps to improve the credit quality of their portfolios: they’ve reduced credit lines and increased payment monitoring management for existing accounts during and after the recession. And they applied more stringent credit policies, making it more difficult for new applicants to be approved (or likelier to be approved at lower credit limits than they would have been before). These are all sound risk management techniques. But data analytics has been a very powerful additional tool, allowing issuers to make huge strides in ensuring ongoing credit quality.

How are you using increased technology capabilities to improve your risk management capabilities?

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

September 24, 2013 in cards, debt, innovation, payments study | Permalink

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Data and analytics can provide a competitive advantage for financial institutions (FIs) of all sizes. Sophisticated models can lead to better decisions and improve your institution's risk management, marketing, price optimization, offer optimization, and more. Arguably, the most important area is risk management. FIs need to find their happy median for risk. Effective decisioning won’t be profitable if high-risk customers are approved for too many cards or approved for credit limits that will overreach their ability to pay, but FIs also don’t want to necessarily turn a consumer away due to an address discrepancy. The FIs that can most effectively leverage their data and analytics will gain the competitive edge. It appears many credit card issuers have already figured this out.

Posted by: Christina Lysacek | October 21, 2013 at 02:53 PM

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