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.
Comments are moderated and will not appear until the moderator has approved them.
Please submit appropriate comments. Inappropriate comments include content that is abusive, harassing, or threatening; obscene, vulgar, or profane; an attack of a personal nature; or overtly political.
In addition, no off-topic remarks or spam is permitted.
November 14, 2022
When Speed and Acceptance Collide
Sometimes a person gets cornered into writing a paper check. Today, that person is me.
My final payment for a vacation rental is due this coming Friday. The rental starts in five days, on Saturday. But since the payee is a person, my online banking bill pay won't get the check there until the following Monday: three days late and two days after my check-in.
I'm cornered because two circumstances are colliding. (1) I absolutely, positively have to get the payment there by Friday. (2) My longtime landlord doesn't accept payment via p2p apps or cards. My preference for speed is in conflict with my landlord's preference for paper. And in a two-sided market, like payments, each side has to agree on how to conduct a transaction.
These circumstances call for 18th century technology: it's time to write a paper check. Cue quill pen and ink bottle, cue envelope, cue sleeve protectors, cue stamp.
My initial choice of online banking bill pay is what you would expect given new data from the 2021 Survey and Diary of Consumer Payment Choice, released in mid October. These data show that while the prevalence of checks has declined, they are still used.
On the "decline" side:
- The shares of consumers who prefer to use checks to pay bills dropped from 17 percent in 2016 to 8 percent in 2021.
- In 2020, checks were 19 percent of bill payments by number and 23 percent by value. This dropped to 12 percent by number and 12 percent by value in 2021.
- In the past 30 days ending in October 2021, more consumers used online banking bill pay (51 percent) than used a paper check (46 percent).
On the "still used" side:
- The average dollar value of check payments per consumer in October 2021 was $550.
- The average consumer wrote about two checks in October 2021.
- The share of consumer with paper checks on hand—three quarters of all consumers—has remained constant since 2019.
In combination, these data say that, sometimes when you're cornered, nothing says speed and acceptance like a paper check.
So while I go off on vacation in my paid-off rental, you can investigate the adoption and use of other payment instruments, as well as consumer ratings and preferences, at the data release of the Survey and Diary of Consumer Payment Choice.
September 12, 2022
The Not-Quite-Forgotten Check
When did you last write a check? Last month, I wrote my first check in almost 10 years to send funds to sponsor an out-of-state friend for a charity event. This was after I failed to convince my Luddite friend to sign up for an electronic peer-to-peer (P2P) app so I could send the funds almost instantly.
That experience caused me to think a bit more about that somewhat forgotten payment method: the hand-written paper check. The triennial Federal Reserve Payments Study as well as the annual Diary of Consumer Payment Choice (DCPC) have consistently shown that check usage continues to decline. The 2020 DCPC revealed that of the average of 35 payments (including cash) made per month, 2.3 were made by check. The 2016 DCPC showed an average of 46 payments per month with 3.3 of those using a check. While the share of overall payments made by check dropped by just about one-half of a percentage point, the absolute number of checks written dropped by 30 percent in just those four years.
With the decline in check usage, why are financial institutions and merchants seeing an increase in fraud losses related to checks? The simple answer is because checks are easy to counterfeit or alter. The industry has made efforts over the years to improve check document security, including techniques such as microprinting, holograms, embedded fibers, and tamper-resistant paper. Despite these defenses, most would consider the check to be "low tech" and, as this blog has often stated, criminals go for the low-hanging fruit, making checks ripe for the picking. Anyone with graphics software and a high-quality printer can readily turn out counterfeit checks. Blank check stock, some even incorporating the defenses mentioned above, can be purchased at most office supply and stationary outlets. The 2022 Association of Financial Professional's Payment Fraud and Control: Key Highlights report noted "that check fraud remains the most prevalent form of payments fraud," with two-thirds of their professionals reporting their organization had experienced some level of check fraud.
Losses from check fraud come in a variety of forms. I wrote about cashier's check fraud scams in a recent post. Criminals often use money mule networks to cash counterfeit checks or to purchase with a counterfeit check merchandise that the criminal then sells at a discounted price. The criminal may deposit counterfeit or altered checks and then take advantage of the time gap between funds availability and when the check is returned after being identified as fraudulent. Check out this comprehensive guide to check fraud.
The industry is now seeing small to mid-size financial institutions and merchants targeted. To mitigate check fraud, the best action for both consumers and businesses is to monitor checking accounts closely to spot any unauthorized items posting to the account. For businesses, consider positive-pay software that automatically alerts you of incoming checks with altered amounts or checks that may have been counterfeited. For financial institutions, software that verifies document integrity or detects transaction data anomalies can be useful. For merchants, third-party check verification services as well as strong customer documentation will help minimize losses.
Although it may be another decade before I write another check, the prevalence of check fraud relative to check use suggests that Take On Payments will continue to highlight this topic and discuss the industry's efforts to combat fraud.
August 22, 2022
Not-So-Common Scams Result in Large Losses
We often write in this blog about the scams that criminals seem to favor at the time and describe defenses that targeted individuals or companies can use to thwart these scams. The most popular continues to be the broad category of advance fee scams. I thought it would be helpful to review two other types of financial scams that are not so frequent but that can result in large losses for victims.
Cashier's check fraud
A genuine cashier's check is a direct obligation of the bank that sells it. In a more innocent time, cashier's checks were viewed "as good as gold." Regulation CC generally requires a bank to make the funds of a deposited cashier's check available the next business day, but a fraudulent cashier's check could take several days or weeks to be returned to the bank of first deposit.
Criminals use this time gap to their advantage. In some cases, the check is for the exact amount of the item being purchased, and the criminal departs with the goods. For remote purchases, the criminal may send the seller a cashier's check for an amount in excess of the purchase price: $1,500 instead of $1,000, for example. Then the criminal claims the amount was a mistake and asks the seller to send the merchandise as well as refund the overpayment. When the fraudulent check is returned, the seller is out not only the merchandise but also cold hard cash.
Fraudulent cashier checks can be very difficult to spot given the advanced technology of printers and graphics software. Here is some fraud prevention advice:
- Accept a cashier's check only from someone you know or trust.
- Never accept a cashier's check with an amount higher than the purchase price.
- Consider using an escrow service instead of a cashier's check, where the goods are held by a trusted third party until the payment funds are fully verified.
- Be aware of the difference between when funds from a cashier's check become available versus when the check finally clears.
You can find more information about cashier's check fraud on the website of the Federal Deposit Insurance Corporation (FDIC).
High-yield investment fraud
In this type of scam, a fictitious financial institution or company, often located outside the United States, offers a risk-free, guaranteed return on a savings or investment instrument that is substantially above the market rate. The scammer claims to be able to achieve these returns by using sophisticated trading techniques involving "prime bank" financial instruments in foreign markets. Often, there is a promise that the funds are insured by a country's financial oversight agency or by the World Bank, a claim supported by certificates that look legitimate.
These scammers target their victims through advertisements in national and financial publications. They may also solicit victims with executive phishing attacks that have obtained contact information of high-net-worth individuals. The criminals assert that the victim will be part of an exclusive group and therefore should not discuss the investment with others, sometimes even requesting execution of nondisclosure agreements.My prevention tip for this scam is to follow the old adage that "if it's too good to be true, it probably is."
If there are other financial scams that you think we should address, please let us know by leaving a comment.
May 23, 2022
Vulnerable Populations and the Case for Cash
We recently wrote a post about communities not being able to access cash because of natural or man-made disasters. Severe weather and war, for example, may leave a bank branch inoperable. But even in "normal" times, access to cash remains an important consideration, especially for consumers who use it as their only or preferred means of payment. With this post, we look at how cash remains an important payment option and how accessing it may be becoming more difficult for certain vulnerable populations. These vulnerable populations—who tend to be low- to moderate-income households, rural communities, and recent immigrants—are more likely to be un- or underbanked (underserved) and often rely on cash to buy groceries and pay utility bills.
Even with an uptick in digital payment usage , cash remains a critical payment choice for many Americans. Some may be unable to use digital payment options because they lack access to broadband or a smartphone, for example. Others may not be able to access these options because they are unbanked. Data from the Federal Deposit Insurance Corporation's 2019 report How America Banks reveal that approximately 5.4 percent of households (7.1 million) were unbanked in 2019. Almost 14 percent of Black households are unbanked and presumably rely on cash or alternative payment options.
There are many reasons why cash can be a person's default method of acquiring goods and services, according to a forthcoming paper titled "Cash Is Alive: How Economists Explain Holding and Use of Cash" by Oz Shy, a senior policy adviser at the Atlanta Fed.
Unfortunately, recent data suggest that challenges to accessing cash existed prepandemic and accelerated during the pandemic. It may be especially difficult for the underserved, cash-reliant consumer, according to a report by the National Community Reinvestment Coalition:
- The number of banking institutions declined from approximately 18,000 in 1984 to fewer than 5,000 in 2021.
- The rate of bank branch closures doubled during the pandemic.
Rural areas tend to see the most bank branch closures, and those closures have contributed to a decline in ATMs as well. Adding to this, banks have been more cautious in providing accounts to independent ATM operators in part because of anti-money-laundering concerns. So some banks are adopting policies that prohibit business relationships with independent ATM operators or are charging much higher fees for their services—which means some ATM accounts with banks are closing and fewer ATMs are being established.
These closures matter, even to the unbanked consumer, who may need bank branches and ATMs, for example, to obtain cash from a prepaid benefits card for unemployment or social security payments, get a cash advance on a credit card, or cash a check at a bank where the check writer has an account.
As the digital economy expands, people in underserved communities and those who are cash reliant, whether by choice or lack of other options, are at risk for being further marginalized in the financial system. To help ensure that everyone, regardless of payments preferences, is included in this system, cash access and preservation in underserved communities across the nation remain important to maintain.
Take On Payments Search
- account takeovers
- data security
- digital currency
- financial inclusion
- identity theft
- payments risk
- payments studies/research
- TOP payments inclusion
- supervision and regulation
- workforce development