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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

February 6, 2017


ACH: No Trace Left Behind

In my payments research role, I believe that one problem with ACH is the lack of any definitive method for identifying a payment and any associated return, dishonored return, or contested-dishonored return using only the existing 15-digit trace number. Ideally, the trace number alone should facilitate the correct retrieval of payment or return details even if other payments contain duplicate payment details, such as for recurring payments.

This PDF file contains an image that outlines the complex web of relationships that can be used to trace back returns to the original payment. Without the benefit of a unique trace number, the identification of the original payment could involve using common data elements to minimize misidentifying the payment.

A unique trace number would offer the following advantages:

  • Unambiguously identify a specific payment
  • Facilitate tracking features similar to what is available from package delivery services such as transmittal, settlement and receipt date/time, and similar tracking of any associated return(s)
  • Enhance risk-monitoring capability
  • Simplify reconciliation and auditing
  • Flag or prevent a return from settling before its associated forward payment
  • Identify "orphan" returns sent across the public network when the original payment was sent privately between financial institutions (FI)
  • Link together forward and return payments for certain international payment applications that are not possible today

Under NACHA rules, the FI originating the payment assigns a unique 15-digit trace number; the trace number's uniqueness is necessary to differentiate each payment in the batch. Uniqueness is not mandated across payments in other batches in the same payments file. Consequently, a trace number could be repeated in multiple payment files on the same day or across many days—and, even more troublesome, within the same payments file. NACHA strives for uniqueness by mating the trace number with an associated batch number, transmission (file creation) date, and a file ID modifier. Unfortunately, any return of a payment only passes along the original trace number without the benefit of the mated data.

A possible solution that could overcome the current limitations of the trace number would be a one-time-use, ACH-operator-assigned, 15-character alphanumeric trace number. When the originating network operator receives a file, the operator would replace the FI trace number with a unique trace number that he or she would forward to the receiving FI. Any return sent back to the originating FI would have the unique operator trace number converted back to the original FI trace number. For convenience, a cross-reference file associating operator trace numbers with FI trace numbers could help facilitate non-network communication between originating and receiving banks.

Operators could guarantee uniqueness by allowing an operator trace number to contain digits and upper and lowercase letters. Expanding to a 62-character set results in over 3.5 trillion distinct values using the last seven characters of the trace number (the first eight characters are the originating FI's routing and transit number). Further requiring at least one non-numeric character allows differentiation with FI numeric-only trace numbers.

What are your views on the benefits and disadvantages of non-repeatable trace numbers?

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

February 6, 2017 in ACH, payments | Permalink

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I like this idea. It would also make it extremely easy for an FI to research a transaction within their records by using the unique trace number. You are looking at around 20 billion transactions per year so the 3.5 trillion should easily cover the 6 year record retention requirement.

Posted by: David L Payne | February 7, 2017 at 06:58 AM

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January 30, 2017


Pssst…Have You Heard about PSD2?

No, I'm not talking about the latest next-generation video gaming console. I am referring to the revised Directive on Payment Services (PSD2) that the European Parliament adopted in October 2015 and that will serve as the legal foundation for a single market for European Union (EU) payments. The original PSD was adopted in 2007 but, according to official statements, the Parliament found that an update was necessary to incorporate new types of payment services, improve consumer protection, strengthen payment transaction security, and increase competitiveness with an expected result of lower consumer fees in the payments processing market. PSD2 applies only to digital payments and must be in force in all EU countries by January 13, 2018.

The directive and subsequent implementation rules that the European Banking Authority* is developing make a number of major changes in the European banking landscape, including:

  • Opens up the regulated financial services system to merchants and processors who might initiate payments on their consumer customer's behalf as well as data aggregator firms. In particular, PSD2 will apply to any financial institutions already operating within the scope of the PSD but will also apply to third parties such as operators of e-commerce marketplaces, gift card and loyalty plans, bill payment service providers, public communication networks, account access services, mobile wallets, and those who receive payment by direct debit.
  • Requires financial institutions, upon the request of their customers, to allow these approved nonbank, third parties significant, but not unlimited, access to the customer's account and transaction data through APIs (application program interfaces). Many financial institutions see having to turn over customer data to potential competitors as a significant threat to the retention of their customer's business as well as concerns with data security.
  • Sets out two-factor customer authentication as an absolute minimum, with additional security such as one-time passwords required for higher-value transactions. The card issuer must actively authenticate all transactions above 10 euros. Critics of these provisions point out that the criminals will have fixed transaction amounts and authentication methodology information to modify their attacks.
  • Supplementing card interchange limits imposed in December 2015, prevents merchants from adding surcharges to payment card transactions. Under the original directive, each country established rules regarding surcharging on card payments. It has been a common practice of European merchants to levy a surcharge on payment card transactions to offset the interchange fee paid to issuers.

While such a comprehensive single package of regulations is unlikely to occur in the United States, various flavors of these items have been and continue to be discussed. Do you favor such types of regulation here in the United States? I suspect the answer depends on your role in the payments ecosystem. I am interested in hearing from you.

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



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* Final rules are expected to be published in January 2017.


January 30, 2017 in emerging payments, mobile payments, payments, payments risk, payments systems, regulations, regulators, risk | Permalink

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January 17, 2017


Expanding Cybersecurity

Payments people start biting their nails when they hear "share more with more." They have been conditioned to keep payments information from ever being shared. But that is in the context of protecting legitimate payments system users from losing money while a fraudulent party benefits. At 7,000 members, the Financial Services Information Sharing and Analysis Center (FS-ISAC) is currently the largest financial services trade association in the world. I attended their Fall Summit last October, a month fittingly designated National Cybersecurity Awareness Month, and heard plenty about sharing. The mission of FS-ISAC is always strength in sharing; this year's summit focused on expanding the trust.

Payments people are used to looking for fraud by way of chargebacks and returns, one payment-channel silo at a time. Shhh. Don't let ACH people share information with wire people, and vice versa—the risk department will let us know if there is an issue. Of course, payments fraud is an ever-increasing battle, and we must remain vigilant. However, who is prepared to recognize payment events that from a bird's-eye view may look legitimate but, when analyzed, point to a threat of mass destruction?

Recent distributed denial-of-service (DDoSs) attacks highlight the scale of network bandwidth that can be unleashed on connected systems. Payments are just that, a network of systems that connect every aspect of our economy. There are countless examples of services or goods not being rendered when payments aren't received. Liquidity failures do tend to cause a state of panic. Even attacking one specific sector such as payroll processing on the first of the month could lead to disaster. As my colleague pointed out in a July 2016 blog, cash is alive and well, but payments systems today rely totally on telecommunications, which rely on our power grid.

Admiral James Stavridis, the keynote speaker at the FS-ISAC Summit, echoed the importance of expanding trust, along with the need to increase the resiliency of the nation in the event of a cyber-incident. Stavridis provided many encouraging solutions, one being that it is time for a cyber-force branch of the military. The United States Air Force was formed as a separate branch of the military in September 1947 under the National Security Act of 1947 as aerial warfare advanced. Stavridis proposed that now is the time for us to consider that cyber-incidents could be used as weapons of mass destruction. He applauded the current combat against cybercrime, yet encouraged new thought on what could be in store and how quickly it could arrive.

How do payments people continue down the path of protecting individual players while simultaneously protecting the nation from a crippling cyber-incident? It could be just a matter of whom you invite to the table. As I saw with attendance at the FS-ISAC Summit, the cybersecurity conversation needs to include diverse skill sets. There has been a trend in moving information security departments away from their information technology partners and under the risk and compliance umbrella so they can remain unbiased when scrutinizing payment transaction red flags and other systems. Additionally, legal barriers are being reevaluated to ensure that law enforcement can access information, most notably by FinCEN expanding Suspicious Activity Report requirements to include cyber events.

And, more deeply about whom we are trusting at the table, are we actually expanding the information shared? Could we make correlations by looking at payment volumes together with cyber activity and reports of fraud?

There is a growing sense that payment security equates to cybersecurity and national security. With Stavridis and others promoting the movement for "expanding the trust," new ideas continue to emerge. Hopefully, the technologies and strategies that are made to wow us (for example, the internet-of-things, machine learning, and the distributed ledger) can also serve to unite and protect us.

Photo of Jessica Washington  By Jessica Washington, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

 

January 17, 2017 in cybercrime, payments, payments risk | Permalink

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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.

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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?

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

November 14, 2016 in payments | Permalink

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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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June 27, 2016


Between a Rock and a Hard Place?

Customer education encouraging safe payments practices has always been viewed by staff at the Retail Payments Risk Forum as a vital element in mitigating payments-related fraud. We have stressed this need time and time again in our posts as well as our numerous speaking engagements at payments-related conferences and events.

Financial institutions (FIs) have generally been identified as the group that should bear this responsibility as they own the account relationship, but with more intermediaries in the payments process, I think that others should also be involved. The advent of mobile banking and payments has introduced even more challenges since the financial institution doesn't get involved in the acquisition of the mobile device as that is normally handled by the mobile network sales representatives. My personal experience with these sales representatives is that once the device sale is done, they are more interested in selling me accessories or upgrading my data plan than they are teaching me about selecting and setting strong passwords or preventing malware and viruses from finding their way into my phone.

When I raise this issue with others, all too often I hear a pessimistic chorus that getting consumers to adopt strong security practices will always be a losing battle for FIs. They say that consumers will always choose convenience over security—that is, until they fall victim to fraud. And forget about any other player in the ecosystem taking on the education responsibility because if they have no liability for fraud losses, why direct funds to education when they could be deployed elsewhere?

The impact of fraud on a consumer's relationship with his or her financial institution has never been greater. We read every day about the increasing economic importance of the Gen Y or millennial segment. With an estimated 80 million people, they represent the largest segment of our country's bankable population. A late 2015 study by FICO on millennial banking habits revealed that 29 percent of respondents indicated that they would close all their accounts with a financial institution if one of those accounts experienced fraud. To make matters worse, one quarter of the survey participants indicated they would write a negative post on social media about their financial institution if they experienced a fraud incident.

So are financial institutions in a no-win situation? A ray of hope emerges from the same FICO study, which states that 41 percent of the millennials surveyed indicated that they recommended their FI to friends, colleagues, or family members after a positively handled fraud incident. Studies have consistently shown that payment security is a key concern of all customers, not just millennials. So although it may not seem fair that financial institutions have to shoulder most of the security education effort, the impact of not doing so could be significant. Perhaps it is time for a coordinated payments industry campaign to encourage consumers to adopt safer and more secure banking practices.

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

June 27, 2016 in banks and banking, financial services, payments, risk | Permalink

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May 23, 2016


What Would Happen If the Lights Went Out for a Long, Long Time?

In 1859, a massive geomagnetic solar storm known as the Carrington Event caused extensive damage to telegraph systems and other nascent electrical devices worldwide. Telegraph lines sparked and telegraph operators could send and receive messages without the use of electric batteries. The Northern Lights lit up the sky in all of North America. Though not widely reported, on July 23, 2012 a massive cloud of solar material similar in magnitude to the Carrington storm erupted off the sun's surface, radiating out at 7.5 million miles per hour. Fortunately the impact of the solar storm missed Earth by nine days because of the Earth's orbit position.

One report estimates that a Carrington-level storm today could result in power outages affecting as many as 20–40 million Americans for a duration ranging from 16 days to two years at an economic cost of up to 2.5 trillion dollars. A research paper in Space Weather estimated the odds of a Carrington-level storm at about 12 percent over the next 10 years. Early warning of such a storm is possible since satellites can detect impending storms and have the potential to provide a minimum one-day warning before it hits Earth.

So what would happen if the lights went out in much of the United States because of such a cataclysmic event? One could anticipate serious disruption of electronic payments such as ACH, cards, and wire transfers in the affected areas and beyond. What would one do to facilitate commerce in such an emergency? Well, cash and, to a lesser degree, checks could come to the fore. Use of checks would be problematic given the electronification of checks, high risk of fraud, and overdrawn accounts if banking systems are not up and running. Cash would have fewer problems if it were on hand to distribute to the affected population. Perhaps cash accompanied by ration books could be used to mitigate hoarding.

For a low-probability extreme-impact event that results in cash becoming the only way, among existing payment instruments, for commerce to take place, what contingency plans are in place to ensure that consumers and businesses can obtain cash? Since the contingency systems we have in place to handle a future Hurricane Katrina or Hurricane Sandy are likely not sufficient for an extreme event of nationwide scale, some of the issues that need to be resolved include:

  • How does one ensure that sufficient cash is on hand during an emergency?
  • How is cash going to be distributed and accounted for along the supply chain with ATMs and bank offices and their core systems inoperable due to no electricity?

Addressing these questions and others involves a monumental effort, and I don't have a ready answer. Fortunately, cash solves the problem for small-scale, low-value payments during a long-term power outage. That is, during the immediate, in-person exchange, it is an instrument that doesn't require electricity, communication networks, or computers.

This and other major calamities have always made me concerned about the push in some quarters for a full transition to electronic payments at the expense of payments less reliant on electricity and our communication networks. As an engineer by training, it is in my nature to wonder what can go awry if failsafe systems aren't in place when the unexpected happens.

With the possibility of a catastrophic event in our lifetime, would you rather have cash in hand or a card/mobile app? As for me, I'm going to the bank to cash out my accounts and then on to the hardware store to buy a gas-powered electric generator. Just kidding, though I think serious consideration and appreciation is needed for the contingency aspects of cash when things invariably go awry.

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

May 23, 2016 in ACH, cards, checks, payments | Permalink

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November 30, 2015


Half Full or Half Empty?

My colleagues and I in the Retail Payments Risk Forum participate as speakers or attendees in what sometimes seems to be a nonstop stream of banking and payments conferences that run from mid-September to mid-November. This effort is part of our mission to support the education of the stakeholders in the payments ecosystem with a focus on payments risk. We also use the opportunity to network with other attendees and vendors to stay on top of the latest developments and market solutions that are being deployed to combat payments fraud. These events also give us a chance to provide our perspective on trends and key issues involving payment risk.

At a recent fraud conference, I was on a panel discussing fraud trends and key threat vectors. The moderator of the panel revealed some results from Information Security Media Group's 2014 Faces of Fraud survey of financial institutions (FIs). There was a specific question about whether FIs had seen a change in the level of losses from account takeover fraud since the Federal Financial Institutions Examination Council issued its supplemental guidance on Internet banking authentication in 2011. That guidance directed financial institutions to evaluate "new and evolving threats to online accounts and adjust their customer authentication, layered security, and other controls as appropriate in response to identified risks." The survey results are shown in the chart below.

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Source: 2014 Faces of Fraud Survey, Information Security Media Group

While the moderator and some of the other panelists seemed to focus on the 20 percent who said they had seen an increase in fraud, I had the perspective of the glass being half full by the 55 percent who indicated that the fraud had stayed about the same or decreased. Given the certainty that the number and magnitude of data breaches have increased and that the number of attempts by criminals to commit some sort of payment fraud through account takeovers was significantly up, I opined that since the fraud levels for the majority of the FIs had stayed at the same level or declined should be considered as a victory.

Certainly, I am not saying the tide has turned and the criminals are on their way to retirement, but I think the payments industry stakeholders should take some pride that its efforts to combat payment fraud are making some progress through the continuing development and deployment of anti-fraud tools. Am I being too Pollyannaish?

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

November 30, 2015 in banks and banking, crime, cybercrime, fraud, payments | Permalink

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November 9, 2015


Is the Payment Franchise Up for Grabs?

I have lost count on the number of discussions at payment conferences over the last few years on this topic of financial institutions (FI) losing the payment franchise to various new payment start-ups and business models. This very topic was the focus of a session at the Code/Mobile conference in October that featured executives from Chase and PayPal debating "Will Banks Eat Payments, or Will Payments Eat The Banks?" This idea was stuck on my mind while I was recently reading Fidelity National Information Service's 2015 Consumer Banking Index Report. This report reveals the findings from a survey of a thousand household decision makers who ranked 18 attributes according to their importance and according to the respondents' perception of how well banks perform. I readily admit that one shouldn't read too much into the results of a single survey, but the results in the payments and product-related category really grabbed my attention.

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Consumer expectations for their financial institution to provide digital payment options through more innovative products than other financial institutions scored extremely low in the importance category. Digital payments ranked as the 14th out of 18 attributes in importance, and delivering leading-edge products was the least important attribute surveyed. Though the importance of these two attributes was significantly lower than security and reliability attributes, consumers rated the performance of their financial institution on these two attributes favorably.

My interpretation of the survey is that consumers aren't expecting much from their FI when it comes to delivering digital payments and innovative products yet the FIs are exceeding these light expectations. The survey does not cover whether consumers place importance on others—say, non-bank payment providers—offering innovative products and payment options and how they are delivering on consumers' expectations.

If consumers expect non-FIs to provide digital payment options, then perhaps FIs are in danger of losing the payments franchise. Maybe consumers don't place a lot of importance on digital payment options because they are satisfied with the options their FIs provide and so the risk to FIs losing the payment franchise to non-FIs is low.

It's possible that the consumer falls somewhere in the middle of the two scenarios above. They may be pleased with the offerings of their FIs, which offer ubiquity and are not highly differentiated, so their expectations for options are low. The non-FI payments space is fragmented with new payment options being developed and deployed at a rapid pace that will take time for consumers to digest. Should consumers realize that any of these offerings present a significant improvement in the payments experience, they may raise their expectations for their FIs. This would suggest that the non-FI providers haven't fully delivered on a compelling, ubiquitous, and widely adopted offering yet.

I believe FIs remain firmly entrenched in the payment space today. However, the level of investment and innovation taking place in the industry should capture the FIs' attention. Consumers, me included, are a finicky bunch when it comes to expectations, and these expectations can change almost instantly with the amount of innovation occurring today. I see no reason why the digital payments arena would be any different, and FIs that fail to realize this as they consider future payment options risk a declining share of the payment franchise.

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

November 9, 2015 in banks and banking, innovation, payments | Permalink

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October 19, 2015


Got Cash?

The governments in countries such as Sweden and Nigeria may have taken initial steps to move to a "cashless" nation, but here in the United States, there is no question that cash is still king. It remains the most-used retail payment instrument, especially for low-value payments. This finding from the Fed's Cash Product Office (CPO) was welcome news to a group of independent (nonfinancial institution) ATM operators that I had the pleasure of addressing last month at their annual conference. The primary business of these entrepreneurs is getting cash into the hands of consumers through their terminals located in a variety of malls and merchandise, food, and beverage stores. Of the estimated 400,000–425, 000 ATMs and cash dispensers operating in the United States, approximately 60 percent are owned by these nonfinancial institutions.

One of the CPO's main missions is maintaining a supply of currency and coin to meet demand in both normal times and special situations such as natural disasters, when other forms of payment might be unavailable. As a critical part of accomplishing that mission, the CPO constantly evaluates research to determine how cash use is changing in this country. One of the main sources of research is the Fed's Diary of Consumer Payment Choice (DCPC). Data collection was last fielded in 2012, but is being conducted again now. To collect the data, the DCPC asks a representative national sample of about 2,500 individuals to record all their financial transactions over a rolling three-day period. In addition to recording the transaction and demographic information, respondents were also asked to indicate their top preferred payment method and their second preferred method of payment in instances when their top choice is not available.

Some of the major findings of that study include:

  • Debit and credit cards represent the stated primary payment choice, at 64 percent, but 30 percent of the consumers stated their primary payment preference was cash.
  • Cash serves as the backup payment method for all segments, reflecting its importance in our overall payment infrastructure.
  • Interestingly, although 3 percent of the consumers said their preferred payment method was checks, they actually used cash twice as often as writing checks.
  • Reflecting the tendency for people to use cash for small-value payments, cash payments represented 40 percent of the number of payments made by the survey participants but only 14 percent of the total value of the payments.
  • Cash clearly dominates the small-value segment under $10.
  • Cash was the payment method used in two-thirds of person-to-person (P2P) payments.
  • The use of cash in P2P transactions is different from other cash transactions; P2P transactions are two-thirds higher in value ($35 versus $21) than other types of expenditures.
  • While 51 percent of the adults in the 18–34-year-old age group indicated that debit cards are their most preferred payment method, cash followed closely at 40 percent for the 18–24 year olds and 31 percent for the 25–34 age groups. Will the 2015 results show a departure from this finding?

It is clear that the United States is a long way from becoming a cashless society despite the predictions of many over the last twenty years. The 2015 results will provide important information as to how cash continues to be used by the general population and the emerging millennials segment in particular.

So is there cash in your wallet? I bet there is and will be for quite some time.

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

October 19, 2015 in cards, checks, currency, payments | Permalink

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