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 19, 2022
Our Payments Wishes and Resolutions for 2023
In our year-end webinar last week, the Retail Payments Risk Forum team provided our perspective on several major developments and issues in payments in 2022. Since our time was limited, we wanted to share some additional thoughts and wishes for payments in 2023.
Nancy Donahue: Earlier this year, the Board of Governors finalized guidelines for evaluating nontraditional financial institutions' requests to be granted master accounts and access to the Fed's payment services. Fintech firms have held the promise of greater financial inclusion and wider access to financial services, so it will be interesting to follow this space in 2023.
Scarlett Heinbuch: I am intrigued by cash acceptance in the United States and efforts being made to require brick-and-mortar merchants to accept cash for payment. It will be interesting to see what happens with cash access for people nationwide. I wish for people to be able to pay for goods and services in a way that meets their needs and choices.
Dave Lott: I am especially interested in seeing the uptake by financial institutions and consumers of instant payments with the introduction of the FedNow service. I wish that the issue of consumer liability for electronic peer-to-peer, or eP2P, in cases where the legitimate accountholder initiates the transaction is quickly resolved.
Claire Greene: Like Dave, I'm excited to see the product innovations that I hope will result from the widespread availability of instant payments. The information that must flow with B2B (business-to-business) payments and the plethora of business accounting systems used to record payments and receipts make innovation in this space challenging. These challenges, however, also make B2B payments ripe for change. Let's see what happens.
Catherine Joseph: Although check usage has declined, I plan to continue to follow trends in both consumer and business checks, particularly trends in check fraud, and what actions the industry is taking to increase security and help curb check fraud.
Jessica Washington: My hope is that we can take steps as an industry to improve payments data collection, analytics, and sharing so that we can better inform policy and business decisions. I especially look forward to seeing improvements in fraud and threat data sharing so that we have the room to innovate and improve payment systems.
We want to wish our readers all the joy of the holiday season and best wishes for 2023. Our Take on Payments blog will resume on January 9.
December 12, 2022
Digital Divide Trickles Down to Payment Account Adoption
Four in 10 consumers with household income less than $30,000 did not have broadband access or a desktop or laptop computer in 2021, according to Pew Research Group. One-quarter with household income less than $30,000 did not have a smartphone. This digital divide trickles down to the adoption of payment accounts like PayPal, Venmo, and Zelle, which are predicated on either a computer and internet access or mobile access.
New data from the Survey and Diary of Consumer Payment Choice (SDCPC) show steady growth across all income categories in the use of these digital payment accounts, increasing from 43 percent of consumers using these accounts at least once in the 12 months leading up to October 2016 to 66 percent in 2021.
Diving deeper into use by income, consumers in high-earning households were most likely to use digital payments accounts and those in low-income households were least likely. Eight in 10 consumers with household income north of $125,000 a year used digital payment accounts in 2021, compared to about half of consumers with household income less than $35,000.
These relationships have held true over all the years from 2016 to 2021: members of all income groups became more likely to use digital payment accounts, and lower income groups were less likely than others to use them each year. A snapshot from 2021 illustrates the intra-year differences.
While payments innovation could end up helping lower-income US consumers, these data show that it's important to view payments as part of an ecosystem that includes digital access. As my Atlanta Fed colleague Oz Shy wrote back in 2020, "Low-income consumers are not only constrained with spending, but also with the type and variety of payment methods available to them." Despite the upheaval in the years of the COVID-19 pandemic, the 2021 results for consumers' use of digital payment accounts show that this constraint still exists.
I invite you to play around with the Survey and Diary data.
October 24, 2022
What the Payment Choice Act Means for Cash
Since the first paper bills emerged in the United States in 1690, cash has been a payment choice for governments, merchants, and consumers in our nation.
The pandemic, though, changed things for cash users. Notices appeared at merchant locations like coffee shops, restaurants, and other retail sites throughout the country: "Credit or Debit Card Only" or "We are going cashless!" Merchants may choose not to accept cash for a variety of reasons, including hygiene concerns, banking office closures or reduced hours that often made it harder to get cash for the till, and coin supply issues that made it hard to make change even when cash was accepted. Surprisingly, even as the pandemic's influence is lifting, some merchants still refuse to accept cash.
However, that may change with the Payment Choice Act of 2021 (H.R.4395), introduced on July 9, 2021, and sponsored by Rep. Donald M. Payne Jr. (D-New Jersey). The proposed legislation is designed "to prohibit retail businesses from refusing cash payments, and for other purposes." The bill passed in the house twice: first on June 21, 2022, as an amendment to the Financial Services Racial Equity, Inclusion and Economic Justice Act, and on July 14, 2022, as an amendment to the National Defense Authorization Act. The bill would need to be passed by the Senate to be enacted and we will keep an eye on its progress. A similar bill, Cash Always Should Be Honored, was introduced in 2019 by Rep. David Cicilline (D-Rhode Island), who was concerned that cashless businesses discriminate against customers who do not have access to a credit card. The bill did not move forward but the PCA captures the original intention.
Key points in the Payment Choice Act include:
- Requires retail businesses—those that sell or offer goods or services at retail to the public and accept in-person payments at a physical location—to accept cash as a form of payment for sales in amounts less than $2,000
- Prohibits them from charging cash-paying customers a higher price compared to customers not paying with cash
- Provides for enforcement through preventative relief and civil penalties
Our work in payments inclusion informs us that cash is a primary payment choice for about 7.1 million US households (5.4 percent) that choose not to use banks. These rates are highest among low-income, Black, Hispanic, Native Americans, and people with disabilities. When cash is not accepted, it can create a barrier that excludes primary cash users from the payments system and from getting needed goods and services. This can create hardship for people and may also result in loss of business for merchants.
But isn't cash acceptance a requirement? The answer is no. While cash is US legal tender, merchants don't have to accept it. According to the Board of Governors of the Federal Reserve System, "there is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services."
Some states and cities (New Jersey, Colorado, Washington, DC, New York City, Philadelphia, and San Francisco) have enacted similar merchant cash acceptance policies. Other states, like Georgia, have bills pending. These legislative actions create a mandate for businesses that may override their choice to not accept cash as a payment option while protecting consumers' preferences to use cash. What do you think?
January 24, 2022
The Role of Cryptocurrency and Cryptoinsurance in Ransomware Payments
In the Risk Forum's end-of-the-year Talk About Payments webinar , ransomware was once again, unfortunately, a topic of discussion. For over five years now, our Take on Payments blog has often discussed ransomware, as financial losses due to ransomware attacks have steadily risen. In 2021, the federal government and the US Department of the Treasury issued guidance for the virtual currency industry in an effort to make it difficult for those behind ransomware attacks to receive cryptocurrency, the preferred ransom payment method. Whether or not these steps, or even an outright ban on cryptocurrency payments, will be effective in reducing ransomware attacks and their associated financial losses is still to be determined, but there are skeptics (including yours truly).
In 2019 posts (here and here), Dave Lott and I both wrote about the increasing frequency of people and companies obtaining insurance against ransomware attacks and the payment of ransoms by insurance companies. I think it is time for an evaluation of the costs and benefits of ransomware insurance. In fact, the FBI strongly recommends that ransomware payments not be made.
What are the basics? Organized crime syndicates, generally based in foreign countries, launch the vast majority of ransomware attacks. To protect against the financial consequences of such attacks, businesses may purchase insurance policies for coverage against cyber-related attacks that can include the payment of ransom in the event of a ransomware attack. If a syndicate receives a ransom payment, it not only encourages additional attacks but also allows the syndicate to grow and scale its criminal enterprise. As ransomware attacks flourish, businesses might become more likely to purchase insurance policies or expand existing policies with greater coverage to protect themselves. Another important issue to consider is whether companies that insure against ransomware as a form of protection could become less diligent in preventing an attack. Further, with increased attacks and higher demand for coverage, insurance providers may sell more policies at increased premiums to offset the potential for rising claims. Or perhaps the problem becomes so significant that the costs to insurers from claims outpaces their revenue from such policies, causing them to exit the business.
In a different viewpoint, maybe insurance coverage that includes ransom payments is in fact beneficial, especially in those circumstances when the "the damage inflicted by a cyber attack is greater than the cost of the ransom."
Over the past five years, since the Risk Forum began covering ransomware, we have witnessed significant growth in attacks and financial losses. While I am hopeful that both the public and private sector will find ways to slow the growth and ultimately stamp out ransomware attacks, the challenge is perhaps more daunting now than it was five years ago. It's promising to know that efforts are underway at the Treasury to address the challenge of ransom payments made with crytpocurrencies, but more may need to be done. As for this post, I am hoping that it can lead to a discussion on the pros and cons of this mitigation strategy as part of the effort at large to defeat ransomware.
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