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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

« August 2019 | Main

September 16, 2019


Is There a Generation Gap in Cash Use?

How different are millennials from boomers in their reported payment habits, especially regarding their use of cash? New data from the Survey of Consumer Payment Choice, out this month, lets us look at age segments using the interactive charts accompanying the report.

For example, in 2018, consumers overall made 17 payments a month in cash. Drilling down, consumers aged 25 to 34—that is, millennials—used cash for 15 payments per month. Consumers 55 to 64—the boomers—used cash for 18 payments a month.

It's good to put these numbers in context. Here's a fact that surprised me: the younger group makes more total payments per month (73) than does the older group (67). That means that, as a percentage share of all payments, the difference by age is more pronounced:

  • Millennials: 21 percent of their payments in cash
  • Boomers: 27 percent of their payments in cash

The differences are similar when we look at paper checks, which the younger group used for 2 payments per month (3 percent of their payments) and the older group for 4 payments per month (6 percent).

Payment-method-use-by-age-range

You'll notice in the chart that payments instrument usage has been relatively stable for all the age groups since 2015.

Millennials' relatively lower use of cash doesn't mean, however, that the cashless society is going to arrive any time soon. In 2018, 85 of 100 consumers used cash in a typical month. And, in an analysis that incorporates a complete set of demographic variables plus income, differences by age could prove not so relevant. So, is there a generation gap in cash use? Yes. Does it mean the end of cash? No.

The charts at the website let you look at consumer payment choice by household income group and by the type of transaction. For example, you can examine how consumers' use of payment instruments is different for P2P payments than for bill payments. Check them out.

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

September 16, 2019 in cards, checks, currency, payments, payments study | Permalink

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September 9, 2019


What the Most Convenient Food Tells Us about Payments

I asked some friends to describe their most convenient food. The range of answers tells us how we think about convenience.

Some people think convenience implies flexibility:

  • "Can be paired with peanut butter and even make a sandwich."
  • "I can put it on a cracker, a slice of bread, or just eat it."

Some say convenience is situational:

  • "Do you mean at home or in the car?"
  • "It's portable."
  • "Everyone in the family eats it, too."

Most say convenience means labor-free:

  • "You can pick it up and eat right away."
  • "All I have to do is eat it."
  • "You need no tool."
  • "Doesn't require any prep or even need washing."

This bunch of reasons mostly adds up to...drumroll, please...a banana (five votes of 11) or other fruit (two for apple). Other colleagues chose different foods (delivery pizza, candy bar, pasta, cheese) but often gave the same reasons as those who favored the fruits. That shows that convenience can be a slippery concept.

This is also the case when we talk about convenience and payments. The Survey of Consumer Payment Choice defines convenience as a mix of qualities: "speed, control over payment timing, ease of use, effort to carry, ability to keep or store." It's not just one factor that appeals. This question conforms to Merriam-Webster's definition of the term, which highlights "fitness" and "suitability."

The survey asks consumers to rate the convenience of payment instruments on a five-point scale. The payment instruments that are rated include cash, paper checks, debit cards, prepaid cards, credit cards, online banking bill payments, and bank account number payment (that is, when you provide your bank's routing number and your account number at a third-party website). From the collected responses a relative ranking is then calculated.

In every year from 2010 through 2018, debit cards and credit cards traded the top convenience ranking back and forth. Cash ranked third for convenience in all those years.

This ranking is important. Research shows that assessments of characteristics like convenience, setup, record keeping, and security matter for a consumer's choice to own a payment instrument or for his or her decision to use it. When we talk about "frictionless" payments, aren't we talking about convenience? Flexible, works anywhere, labor free—just like a banana.

In a New York Times opinion piece titled "The Tyranny of Convenience," Columbia professor Tim Wu wrote that "[p]articularly in tech-related industries, the battle for convenience is the battle for industry dominance." For the tech-related payment industry, I agree. Doug King recently wrote about the dominance of payment cards. Here's another indicator that cards, like bananas, are a long-lasting favorite.

The latest data from the Survey of Consumer Payment Choice provide detail on these rankings (Table 14 in the report).

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

September 9, 2019 in payments study | Permalink

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September 3, 2019


Is Friction in Payments Always Bad?

Numerous posts in this blog have noted the conventional wisdom that the less friction there is for a consumer in making a payment, the likelier it is that the consumer will have a good experience. Merchants, especially ecommerce retailers, point to studies consistently showing that when customers are required, for stronger authentication, to enter more information than they're used to during a payment, the cart abandonment rate increases and merchants lose sales. I have learned from my own conversations with merchants that some have backed away from adding more risk management tools because they would rather take the financial loss from a fraudulent transaction than discourage an otherwise legitimate sale. This balancing act between reducing friction for the customer and reducing fraud risk to the merchant or payment card issuer is a constant challenge.

Many merchants have incorporated mobile devices' biometric authentication features into their mobile apps to keep the customer from having to provide additional authentication data. Some other vendors have recently developed risk mitigation and authentication tools that work completely in the background and give them more confidence that the individual conducting the transaction is legitimate. These tools range from behavioral analytics that rely on patterns of previous transactions—whether they're based on a specific customer or on a group of customers with a similar profile—to electronic device information, called device fingerprinting, that validates that the device being used is actually the customer's. The customer is unaware that these tools are being used, so experiences lower friction.

A new term being used for what is regarded as an improved payment experience is the invisible payment transaction. This happens when a payment is triggered automatically without any customer intervention at the time of the transaction. The best examples of invisible transactions are in the sectors of subscription or card-on-file services. Subscription services include any service where the customer has provided, for example, a payment card or deposit account for a transaction and authorized the merchant or service provider to make future payments using that account. Online retailers, rideshare services, and recurring payments for health clubs, parking garages, utility companies, and charitable organizations are all types of businesses that use subscription services. A relatively recent entrant in the invisible payment segment is the computer/camera monitored shopping experience at some retailers.

So do invisible payments mean we've achieved nirvana? While they certainly provide the lowest level of customer interaction, they also have some possible disadvantages. Consumer advocates are concerned about the impact such payments might have on an individual's budget management. What if they forget about a subscription payment, and when it's deducted from their account, it creates an overdraft or insufficient funds return? Will invisible payments result in increased spending by the consumer? And then there is the bother of updating a bunch of subscriptions if the consumer changes the funding account.

While research has shown that consumers see convenience as a positive factor, they also want to be confident that there is a security process that will make them less likely to be victims of fraud. Will we ever reach the place of total payments peace and happiness with the right balance of security and convenience? Please let us know what you think.

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

September 3, 2019 in consumer protection, fintech, innovation, mobile banking | Permalink

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