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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June 14, 2021
Four years ago, in a May 2017, Take on Payments post, my colleague Doug King echoed the concern of cybersecurity experts, warning that 2017 and 2018 were going to be the “Year(s) of Ransomware.” This warning came as ransomware attacks were increasing in frequency and being carried out against higher-profile targets. In 2018, the City of Atlanta was attacked. Following the recommendations of law enforcement officials, the city refused to pay the $51,000 ransom. Many city services involving utility billing and traffic court were disrupted for as long as a year, and officials estimated the price tag of investigation and remediation at $17 million.
In its latest report, cybersecurity firm Group-iB described the results of its analysis of more than 500 ransomware attacks: not only did the numbers of attacks in 2020 increase by more than 150 percent over the previous year, but also the sophistication of the attacks themselves had substantially increased.
Over the last month, high-profile attacks against an oil pipeline operation, meat processor, and digital services provider have been reported. While attacks against corporate targets often have limited impact on the general public, the Colonial Pipeline attack led to a shutdown of a major supply pipeline servicing the eastern United States, triggering panic buying and complete outages at more than 11,000 gas stations in addition to a spike in retail gasoline prices, according to a Newsweek article.
Ransomware attack strategies have a number of variables, including the type of criminal organization behind the attack, the target industry, or the size and method of infiltration, whether that’s phishing or finding a network or software security vulnerability or something else. One of the largest concerns of law enforcement is the emergence over the last few years of criminal organizations that provide ransomware as a service (RaaS), as was the case in the Colonial Pipeline cyberattack. Under this scheme, the criminal organization sells or leases their ransomware programming code to users who use it to attack their targets. The Group-iB report indicated that RaaS was used in approximately two-thirds of the ransomware attacks in 2020.
The Ransomware Task Force—an international group of cybersecurity experts from industry, government, law enforcement, and the public sector—was formed in early 2019 to address this threat. In early April, it delivered to the U.S. government a report with recommendations for combatting ransomware attacks. The following list includes some of the 48 recommendations:
- Make proactive diplomatic and law enforcement efforts to reduce and eliminate nation-states from providing protection to ransomware criminals.
- The United States should take a lead role in implementing a comprehensive anti-ransomware campaign including creating a task force composed of government agencies and private industry.
- Organizations should be mandated to report ransomware payments and to consider alternatives before making such payments.
- Since cryptocurrency is predominantly used for ransomware payments, the cryptocurrency operators should be more closely regulated.
On April 21, the U.S. Department of Justice (DOJ) announced the formation of the Ransomware and Digital Extortion Task Force to “bring the full authorities and resources of the Department to bear to confront the many dimensions and root causes of this threat.” An early success of the departments working through the Task Force was detailed on June 7, when the DOJ announced that it had recovered approximately $2.3 million of the $4.4 million ransom paid by Colonial Pipeline.
We will continue to follow the ransomware threat, recognizing that no type of industry or size of business is safe from such an attack.
June 7, 2021
Share of Credit Card Revolvers Drops in the Pandemic Year
How do you view your credit card? As a convenient way to make purchases and earn rewards? As a financing tool to spread out the cost of large purchases? As a way to get over rough patches? About half of U.S. consumers with a credit card use it as a means of payment and pay the full balance due every month. The other half use credit cards as a financing tool.
New data releases from the Survey of Household Economics and Decisionmaking (SHED) and the Survey of Consumer Payment Choice (SCPC) show that eight in 10 U.S. adults had a credit card in 2020 and, of those, about half carried an unpaid balance at some point during the prior 12 months.
In addition, both surveys found that credit card debt declined from 2019 to 2020. SHED reports that fewer card holders carried a balance, and card borrowers reduced their outstanding balances. Similarly, the SCPC found that that 51.3 percent of card holders carried a balance sometime in the preceding 12 months—the lowest share since 2015. In addition, 51.8 percent of these revolvers reported their balances to be lower than a year ago.
A paper from the Federal Reserve Board of Governors attributes the decline in balances to a sharp decline in credit card transactions at the start of the COVID-19 pandemic in March and April 2020 and also notes a decline in the origination of new credit card accounts at that time. And a New York Fed survey found that about one-third of the value of the first round of stimulus payments under the CARES Act was used to pay down debt.
The SHED survey report indicates that while many borrowers overall reduced their debt, people who were laid off at some point in the past year increased their credit card debt (39 percent compared to 24 percent of those not laid off). This aligns with other research findings that, as the SHED report puts it, “financial challenges in 2020 were uneven.” The New York Fed survey, for example, found that high-income households saved proportionately more of their stimulus payments: 40.8 percent for household income greater than $75,000 compared to 31.2 percent for household income $40,000 or less.
The drop in revolvers could have implications for the use of credit cards going forward, because credit card revolvers are more likely than convenience users to have and use debit cards instead of credit cards, although many other factors—including general economic conditions—will come into play.
June 1, 2021
The Generational Divide in Online Shopping during the COVID Pandemic
Like me, you probably have seen many headlines citing the impact of the COVID-19 pandemic on people in various demographic segments. Take, for example, age:
- "COVID-19 hurts working mothers"
- "Millenials slammed by second financial crisis"
- "COVID pushes out women and boomers"
- "Pandemic accelerates retirements"
As you can see from these headlines, no generation is unscathed.
How did people of different ages behave during COVID? Preliminary data from the 2020 Survey of Consumer Payment Choice appear to show that in 2020, millennials increased their uptake of new payments habits while boomers were slower to do so.
- Millennials increased their share of online purchases as a percentage of all purchases by a greater margin than boomers. Boomers’ share of purchases online went from 4 percent in 2019 to 6 percent in 2020. For millennials, online purchases jumped to 21 percent from 13 percent.
- Millennials continued to expand their enthusiastic reception of payment apps, including Venmo and Zelle.
Of course, many factors, not just COVID, are in play here. These could be a few:
- Millennials are moving into their prime earning years. For example, they became more likely to have a credit card in 2020. Two-thirds of millennials had a credit card in 2019, and almost 8 in 10 did in 2020.
- Boomers may be stuck in their habits. Payments choice, like many other consumer behaviors, is a habit and generally slow to change.
You can examine differences in consumer behavior by age using the interactive charts for the 2020 Survey of Consumer Payment Choice at atlantafed.org.
April 26, 2021
Financial Literacy: Talk to Me Like I'm a Fifth Grader
Kids adapt to technology by repeated exposure, usually starting with interactive games, and can learn about money and payment choices in the same way.
While there are initiatives for teaching financial education in high schools, the age to learn about money may be around the time kids tap on their first iPad. A study by the University of Cambridge reveals that kids form money habits by the age of seven.
April is Financial Literacy month. As my colleague Doug King noted in a recent post, financial literacy rates are low among adults, declining from 42 percent in 2009 to 34 percent in 2018. Open conversations create greater understandings and can lead to a more financially literate population. Early learning about money and our payment systems fosters those conversations and increases financial knowledge.
As kids learn more about money and finances, they also learn about risks and how to better protect themselves from fraud. Starting with cash and coin literacy, there are several options to explore from the agencies that produce them. These simple introductions to our currency could help kids become more comfortable and familiar with our units of payment.
The U.S. Mint introduces kids to currency and all the details that go into making coins, including the design, weight, materials, and locations of the actual mints. It's fun and informative for kids and adults.
The U.S. Treasury provides details for kids on paper money. More details are found at the Bureau of Engraving and Printing in Washington, D.C., and Fort Worth, Texas. The site explains how they print billions of dollars yearly that are delivered to the Federal Reserve System, which helps kids to understand the interaction of the U.S. Treasury with the Federal Reserve.
The U.S. Currency Education Program sponsors a Currency Academy, which is managed by the Federal Reserve Board, for K-5 classrooms. The program includes videos, games, and activities for kids along with lesson plans for educators. The site notes the materials are best suited for kids in grades two through five.
The Richmond Fed's My Money workbook introduces young children to the characteristics and functions of money. They learn how to identify the different values of coins. Activities included in the workbook teach children that people earn money at jobs to use the money they earned to buy goods and services.
As kids learn about currency, they can extend their knowledge to other forms of payments they may see their family members use, including debit, credit, or prepaid cards, checks, and alternative payment methods such as Venmo, Square, CashApp, Paypal, or Zelle, among others.
You can order print copies of the workbook and other resources from the Federal Reserve Education's site. The St. Louis Fed has developed many parent reading guides to accompany popular children's books. These books and their associated parent guides include age-appropriate themes that encourage positive financial behaviors.