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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February 27, 2023
Are Digital Payments Failing the Unbanked?
Data from the 2021 Survey and Diary of Consumer Payment Choice (SDCPC) give some hints into how US adults without bank accounts manage their financial lives, particularly when it comes to methods of digital access outside of a bank account.
Most US adults these days receive income through digital means. For example, the US Treasury reported in 2021 that they used direct deposit to distribute more than 85 percent of the third round of economic impact payments. People with bank accounts can receive income directly into their account. People without bank accounts are more likely to use prepaid cards for this purpose. However, they tend to own different types of prepaid cards when compared to people with bank accounts. People without bank accounts are more likely to have payroll cards and government benefit cards that facilitate the receipt of income.
For people with bank accounts, apps facilitate digital pay. Adults without bank accounts are far less likely to be using a payment app compared to other adults: half as likely to have any sort of payment app, about a third as likely to have PayPal, and highly unlikely to have Venmo. People without a deposit account have no access to Zelle, the payment app exclusively accessed through a bank account. This slow uptake of payment apps is notable because many commenters have been expecting fintech to create new, cost-effective, and convenient avenues of access for people without access to traditional bank accounts.
Despite their use of prepaid cards, people without bank accounts make most of their payments in cash. Even in 2021, people without bank accounts were three times as likely as other consumers to have used a paper money order in the past 12 months. And using a paper payment instrument inhibits access to the digital economy.
In the 14 years since the Federal Deposit Insurance Corporation’s first National Survey of Unbanked and Underbanked Households, the central story in payments has been about the transition from paper to electronic ways to pay. As the SDCPC data show, unbanked consumers are not enjoying the full benefits of innovations in digital payments. The Cleveland Fed recently posted a review of the literature into the causes and consequences of not having a bank account, which you can read on its website.
As payment innovation continues to flow, how can the payment process become more inclusive? We would appreciate your thoughts and comments.
February 21, 2023
Consumers Who Forgo Payment Cards
In a recent paper coauthored with Oz Shy, I wrote about the payments behavior of US adults 18 and older who have neither a credit card nor a bank-account-linked debit card, although they may have a prepaid card. These adults could have a bank account, so they are not necessarily unbanked. They just do not have a credit or debit card.
As you might expect, people in this group make about seven of their 10 monthly payments using cash and are more likely than other consumers to pay bills with cash. What might surprise you is that they do report making a small number of payments either with a credit or bank-account-linked debit card. How can that be?
It turns out that, as a percentage share of all their payments, consumers without cards make more payments to other people (person-to-person payments, or P2P) than do consumers with cards. Although these consumers do not themselves have cards, they may have a spouse, partner, or other family member with a card who does most of the heavy lifting when it comes to financial matters. So their outsize share of P2P payments could be to repay with cash friends or family who help them gain online or mobile access with cash.
All this makes me think about the financial ecosystem surrounding each of us—the friends and relatives who lend a helping hand, as Michelle Singletary described in January in her Washington Post column. Consumer research has shed some light on informal friend-and-family financial arrangements. The Federal Reserve's 2021 Survey of Household Economics and Decisionmaking found that 8 percent of US adults would borrow from a family member or friend to meet an emergency expense of $400. Two books about research projects that deserve your attention, The Unbanking of America and The Financial Diaries, describe the financial trade-offs among family members in good times and bad.
Maybe today is a good day to say thank you to those who have extended you a helping hand. And to find a way to pass it on. Good wishes to you and your extended family.
February 13, 2023
The Presidents in Your Wallet
Because we celebrate President's Day this month, I thought it would be interesting to provide some facts, as well as some trivia, about presidents whose portraits have appeared on the country's currency and coin. Do you know the presidents who are currently on our currency? We have George Washington on the $1 bill, Thomas Jefferson on the $2 bill, Abraham Lincoln on the $5, Andrew Jackson on the $20, and Ulysses S. Grant on the $50. Alexander Hamilton and Ben Franklin were never presidents, but they are featured on the $10 and $100 bill, respectively.
What about the faces on currency no longer printed? If you visit the Atlanta Fed's Monetary Museum, you'll see these bills (and more), along with the answer to that question. Notes in the denominations of $500, $1,000, $5,000, and $10,000 were last printed in 1945 but were issued through 1969. All these bills except one featured presidents: William McKinley on the $500, Grover Cleveland on the $1,000, and James Madison on the $5,000. Salmon Chase, a nonpresident, was featured on the $10,000 bill; he was secretary of the Treasury under President Lincoln and chief justice of the Supreme Court. President Woodrow Wilson, who signed the Federal Reserve Act into law, was featured on the $100,000 gold certificate, which was used to transfer balances between Federal Reserve Banks. Since it never entered circulation, it was never officially considered currency.
Some additional trivia:
- It is technically illegal to have a $100,000 note as it was only produced to support transfers between Federal Reserve Banks.
- Each note has two signatures on its face: those of the secretary of the Treasury and the US treasurer. In December 2022, for the first time, these signatures belonged to two women: Treasury Secretary Janet Yellen and Treasurer Lynn Roberge Malerba.
- All deceased presidents have been honored with their portrait on a coin as part of the Presidential $1 Coin program. The coin honoring the latest deceased president, George H. W. Bush, was issued in 2020. The first president to appear on the $1 coin was Dwight Eisenhower.
- The Treasury Department is planning to replace Andrew Jackson on the $20 note with abolitionist and social activist Harriett Tubman by 2030 .
- Only two presidents have been featured on more than one note. Grover Cleveland's portrait was on the $20 bill from its first issuance in 1914 until 1929 when it was replaced with Andrew Jackson. President Cleveland was also, as I noted above, on the $1,000 note. Andrew Jackson was on the $10,000 from its first issuance until the note was removed from circulation. His image was put on the $20 note in 1929.
- According to figures from the Federal Reserve Economic Data, maintained by the St. Louis Fed, the total amount of currency and coin in circulation as of December 29, 2022, was almost $2.3 trillion.
- Coins and notes have numerous references to 13 elements relating to the original 13 colonies.
- Where's George? is a website that allows you to enter the serial number of a bill to track it or to see where it's been if it is already being tracked.
- According to the Federal Reserve, the average lifespan of the $5 note, at 4.7 years, the shortest of all the notes, while the lifespan of a $100 bill is almost 23 years. A $1 note has an average lifespan of 6.6 years.
Enjoy your President's Day holiday!
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.
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