Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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December 2, 2019
Making the Choice to Use Cash
INTERIOR, VETERINARY HOSPITAL—LATE NIGHT (2019)
Male, 60ish baby boomer, in work clothes and yellow reflective vest approaches the desk.
"Picking up a prescription.'
"That's $15.17," says the receptionist.
Waiting puppy owner—off-the-clock Payments Risk Expert—slouched in plastic chair, swings around to face desk. She stares rapt at boomer in work clothes.
A moment's pause.
Boomer rummages deep in his right pants pocket, then the left. Crumpled bills appear in his fist. A dime, a nickel, and 2 pennies fall to the counter.
Payments Risk Expert leans back, satisfied, and smiles.
That was Yours Truly at the vet last month. Research based on data from the Diary of Consumer Payment Choice predicts that anonymous pet owner would be likely to choose cash and, in the moment, he did.
Oz Shy, senior policy adviser and economist at the Atlanta Fed, applied machine learning algorithms to examine some 17,000 in-person payments from the 2017 and 2018 Diary of Consumer Payment Choice. The decision tree that resulted (below) predicted the likely behavior of my boomer.
Reading from left to right, you can see that the first fork occurs for payments above and below $10. For payments less than $10, U.S. consumers are most likely to choose cash (choices to use cash are represented by the green boxes).
The second fork, for payments of $10 or more, is determined by household income. For payments of $10 or more, people with household income greater than $110,000 are most likely to use a credit card (orange boxes show the choice to use a credit card).
The next fork again occurs for transaction value. For payments equal to $20, it's probable that consumers will choose cash. (In his paper , Oz relates this choice to the denomination typically available from ATM withdrawals.)
Now age comes into play: For payments less than $20 (remember, $15.17), consumers 54 and older (boomers) choose cash.
Voila! The pet-owning baby boomer plays to type.
Oz's research illustrates the importance of transaction value for payment instrument choice. For in-person payments of less than $10, consumers—whatever their household income or demographics—are most probably going to use cash. And for larger transaction values, the decision tree also shows that income and age matter for the choice to use (or not use) cash and other payment instruments.
You can read the paper, "How Currency Denomination and the ATM Affect the Way We Pay," here .
November 25, 2019
We Are Thankful For...
Several years ago, I began the practice of making a list around Thanksgiving of things I am thankful for. I was pondering what I might include on my list this year while I was stuck in traffic behind an awful wreck I was thankful I wasn’t involved in. And then the idea hit me that maybe we at the Risk Forum should create our own list focused on what we are thankful for in payments.
To keep the list at proper blog length, I asked each Risk Forum member to name just one item. Without further ado, the Risk Forum presents to you our 2019 Thanksgiving week "What we are thankful for in payments" list.
- Nancy Donahue, project manager: I’m thankful that my debit card has only been breached once this year and although the criminal lived it up at several fast food restaurants and c-stores, it was less than $100 total and I got my money back!
- Claire Greene, payments risk expert: I am thankful that direct deposit lets me put my finances on autopilot. I’ve split my paycheck into different accounts: one for retirement, one for the mortgage, one for saving, and one for everyday expenses.
- Douglas King, payments risk expert: I am thankful for the ability to pay via self-checkout at my local grocery store and receive cash back when using my debit card.
Pictured from left: Jessica Washington, Douglas King, Nancy Donahue, Dave Lott, Catherine Thaliath, Julius Weyman; Not pictured: Claire Greene
- Dave Lott, payments risk expert: I am thankful for law enforcement and other security professionals who work diligently to protect the integrity of our payments system.
- Catherine Thaliath, project management expert: I am thankful for credit card rewards programs. It is nice to get rewarded with cash back or even a free plane ticket just by using your credit card for everyday purchases!
- Jessica Washington. payments risk expert: I am thankful for payments industry collaboration. This year I have seen improvements in fraud information sharing across stakeholders; partnerships between fintechs, financial institutions, and payment networks to promote financial inclusion; and working groups embracing emerging payment innovations.
- Julius Weyman, vice president and forum director: I am thankful that I can write a check where it makes sense; pay online where it makes sense; get paid via ACH (no choice in that, but wouldn’t choose otherwise); pull bills from a real wallet (not the fake kind) and pay that way, where it makes sense; and use a card (and get rewards), which almost always makes sense and is the one I use the most.
And we are thankful for YOU: our readers of Take On Payments and supporters of the Risk Forum. We sincerely appreciate your comments, kudos, and criticism, and hope that you all find value in the information we provide and share. As we enter into these crazy last weeks of 2019, we wish you and yours a wonderful holiday season.
November 18, 2019
Will Payments Be Getting REAL?
When someone tells you to "get real," they mean you'd better understand the true facts of a situation. Well, you better get REAL if you want to enter a federal building or fly on a commercial aircraft after October 1, 2020. Unusual for such major federal legislation, the REAL in the REAL ID Act of 2005 isn't an acronym but an all-caps word intended to emphasize that states must adopt minimum federal standards for the documents required to obtain a driver's license or state-issued ID card. The act also prohibits federal agencies from accepting noncompliant IDs for any type of official business.
The good news is that most states have been issuing driver's licenses and ID cards that for a number of years have complied with the REAL ID Act, so more than likely your ID is already compliant. How can you tell? Look for a gold or black star in the upper right corner of your card. In my state, the Georgia Department of Motor Vehicles has been issuing compliant licenses and cards since July 1, 2012, and estimates that more than 96 percent of registered Georgia drivers have a compliant license. However, three states—New Jersey, Oklahoma, and Oregon—only came into compliance in early October after being granted a number of extensions.
So much time—15 years—has passed between passage of the act and the final compliance deadline because 25 states mounted legal challenges to the act's constitutionality, often claiming that it was essentially establishing a national ID card or abridging state's rights. These challenges were all defeated, but the Department of Homeland Security was required to announce a number of compliance extensions to give the states time to change their processes.
In reality, you do not have to have REAL ID-compliant identification to access federal services or commercial flights. A passport will suffice, although I think a state-issued license or ID card is more convenient. The REAL ID, however, does not substitute for a passport for international travel.
This website has a great deal of background and interesting information about the REAL ID program and the states' implementation. You can also find REAL ID information on the websites of most state motor vehicle departments.
You might ask: so what? What does this change have to do with payments and risk? While the REAL ID Act technically affects only a citizen's interactions with federal agencies, it's quite possible that financial institutions will begin requiring a compliant driver's license or ID card as an acceptable form of documentation in compliance with their Customer Identification Program.
Are you ready? Get REAL!
November 12, 2019
Financial Solutions for the Younger Generation
Earlier this year, I wrote a post about how millennials tend to be risk-averse when it comes to making financial decisions. Because millennials grew up watching various financial crises, such as the dot-com collapse and the Great Recession, they may have formed a negative attitude toward financial-risk-taking and an overall distrust in the financial system. I’d referred to a 2017 survey that showed that millennials are more afraid of credit card debt than of dying. This speaks to a need for more focused financial education tools and advisers to help young people—millennials and Gen Zers alike—increase their financial literacy and gain more trust in the financial system.
I recently attended Finovate 2019, a conference where technology startups showcased their latest fintech innovations in seven-minute demos. Industry leaders shared their insights on various topics in financial services, investing, insurance, and biometrics, to name a few. As a millennial, I found what resonated with me the most were all the developments targeted to my age group, from fractional investment apps to interactive robo advisers that aim to make the entire banking experience less intimidating.
One of the biggest financial burdens that millennials face today is paying off massive amounts of student loan debt. An NPR article states that "student loan debt in the United States has more than doubled over the past decade to about $1.5 trillion." In fact, millennials and Gen Zers have become so crippled by student loan debt that they are delaying and even forgoing the American dream of becoming homeowners because they perhaps mistakenly view it as taking on additional debt, despite all the benefits of owning a home. Similarly, they view credit cards as just another way to take on debt, not as an opportunity to build up or improve their credit.
But now, thanks to startups like those at Finovate, apps and other software are now addressing the student loan debt problem by providing advice to families on the cost and return on investment of college, based on career and salary, as well tools that project financial aid packages for each school. One intriguing millennial- and Gen Z-focused app showcased at the conference was a gamified money management app that rewards users in real cash for saving or achieving a financial goal. Another was a financial literacy app that breaks down complex financial concepts into a quiz format and rewards users with cash or gift cards when they complete the quiz.
It is encouraging to see fintechs and even banks taking notice of the financial needs of the younger generations and developing products and services that better cater to their unique expectations, in a fun, creative way. Could these apps help these young people shift from their current, risk-averse mindset and give them greater confidence in the financial system so that they can take more risks with their money and ultimately build more wealth? Let us know.
- Making the Choice to Use Cash
- We Are Thankful For...
- Will Payments Be Getting REAL?
- Financial Solutions for the Younger Generation
- Encouraging Password Hygiene
- Should We Throw in the Towel When It Comes to Data Breach Prevention?
- Looking for Partners in Safer Payments
- The Range of Un-Friendly Fraud
- Payments Webinar October 10: Cash in the 21st Century
- "Insuring" Ransomware Will Continue to Flourish
- December 2019
- November 2019
- October 2019
- September 2019
- August 2019
- July 2019
- June 2019
- May 2019
- April 2019
- March 2019
- account takeovers
- ATM fraud
- bank supervision
- banking regulations
- banks and banking
- card networks
- check fraud
- consumer fraud
- consumer protection
- credit cards
- cross-border wires
- data security
- debit cards
- emerging payments
- financial services
- financial technology
- identity theft
- law enforcement
- mobile banking
- mobile money transfer
- mobile network operator (MNO)
- mobile payments
- money laundering
- money services business (MSB)
- online banking fraud
- online retail
- Payment Services Directive
- payments fraud
- payments innovation
- payments risk
- payments study
- payments systems
- phone fraud
- remotely created checks
- risk management
- Section 1073
- skills gap
- social networks
- third-party service provider
- trusted service manager
- Unfair and Deceptive Acts and Practices (UDAP)
- wire transfer fraud
- workforce development
- workplace fraud