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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April 5, 2021
New Tools to Fight Online Fraud
When consumers shift payments channels, criminals do, too. We have discussed this point in post after post. We've also written on how the pandemic has had a seismic effect on digital payments during the pandemic. This chart sums up the growth pretty handily.
Even before the pandemic contributed to this spike, criminals had been using purloined payment card credentials and in-store or curbside pickup to take advantage of the growth in digital payments. (In-person pickup allows criminals to quickly put their hands on their ill-gotten gains.) To improve ecommerce security, the industry began developing technical specifications and protocols, and in late 2019, the Mobile Payments Industry Workgroup (MPIW) formed a working group to provide a better understanding of these protocols and specifications. This working group published its findings in an educational white paper just last month. (The MPIW was facilitated by the Federal Reserve Banks of Boston and Atlanta.)
Among these specifications and protocols the white paper explains is the 3-Domain Secure protocol, released in December 2018, and the initial Secure Remote Commerce specifications, published in June 2019 (both from EMVCo). It also discusses the WebAuthn specification, which came on the scene in March 2019 and was a product of the World Wide Web (W3C) consortium working with the Fast Identity Online (FIDO) Alliance. The white paper identifies the key challenges to adopting these protocols and provides guidance about how they may complement one another to enhance the security of the online and mobile channels.
All these fraud mitigation tools are in their early stages of adoption, with additional development and functionality to come. In the meantime, we hope that the white paper provides you with a solid foundation of knowledge of these new tools and how the industry continues its battle against fraudulent payment activity.
February 1, 2021
How Have Our Own Payment Habits Changed?
During our December webinar, Nancy Donahue, Jessica Washington, and I spent a good portion of the time discussing how the COVID-19 environment has changed how consumers shop and pay. In September, I reached out to my fellow Risk Forum colleagues and asked them if they had experienced or noticed any changes in their own shopping and payment habits during this year of the panedmic. While this was far from a scientific survey or sample, I found my colleagues' responses interesting and want to share with you how their payment and shopping practices evolved during the past year.
S: Shopping every weekend was a pastime for me and my best friend and has been for years. Since COVID, we have not set foot into a mall, which consequently cut my spending to $0. I have purchased a few necessary items online such as gifts or medications but have focused solely on paying off debt and saving during this time. Haircuts and styling have also been excluded—those usually occurred every 6 weeks and were my only cash transactions.
C: Grocery shopping has switched to completely online. I used to go to the pet store to buy dog food and treats but once the pandemic started, I switched to a subscription service, where they automatically deliver the food to the house every two months. I used to never buy clothes or shoes online because I wanted to try them on first. I've made some clothing purchases online over the last few months and so far, they've all worked out great. I may never step foot in a shopping mall again even after the pandemic ends! I have been tipping much more at salons and restaurants (with my card because I never have cash on me).
N: I have quit using cash completely and was previously a heavy cash user for daily purchases. I haven't had any folding money for six months. This change in behavior was not the result of COVID concerns per se, but more a lack of need for pocket change when my movements are largely confined between the bedroom, home office, and kitchen. Online shopping has increased exponentially to include groceries and restaurant takeout and all other home goods.
J: A dramatic reduction in gas expenses and card use owing to it. We previously went out to eat only occasionally, but now look for excuses or opportunities to do so. These opportunities aren't numerous as many of our favorite restaurants have limited to no capacity for dine in. We tip heavily when we do eat out, always with folding money.
M: I am shopping less for all categories except food. Grocery and carryout spending have increased. My tipping for restaurant carryout has increased. I try to keep a stash of $5 and $10 bills for the tipping. Prior to COVID, tips were usually included on the card charge.
D: Less frequent in-person grocery store visits and increased online ordering. Also, generous tips to food service personnel at our favorite restaurants where we are doing takeaways.
C: I stopped taking mass transit, so I have been tapping to pay less often. Instead of ordering in person and paying via mobile app (QR scan) at my favorite coffee shop, I have been preordering and tipping in the app. My grocery shopping habits are unchanged as I had been buying groceries online for the past five years.
D: I have been using contactless payments with the digital wallet on my phone substantially more often and am using it wherever it's offered. I have also started to use online shopping and delivery for groceries, although I still find myself making multiple trips to the grocery store each week.
It's pretty obvious that the Risk Forum members are behaving like many of the rest of U.S. consumers, with a major shift from in-person to remote shopping . One area where this is especially true is in grocery shopping. Just as many of us have shifted to (or maintained, for the early adopter among us) buying groceries online, this has been a significant shift for many American households. One survey found that as of June, over one-third of U.S. households had used online ordering to buy some of their groceries. I also love the human touch that my colleagues have shown during this time through actively increasing their tipping to the service individuals who are serving them.
December 7, 2020
2020: The Year in Payments
Each year, the Risk Forum produces a year-in-review webinar. Every Risk Forum member helps plan the webinar, bringing together everyone's unique expertise and perspectives. During the year, each of us engages with a different area of the payments industry and initiatives, which leads to good-natured debate when it comes time at year's end to rank important payment topics. (If you are an avid follower of our blog, you might be able to guess who is pulling for which topics.) This year was a little different, though. We could not think about payments without also considering the heaviness and impact of the COVID-19 pandemic.
Our 2020 webinar will dig into key payment issues that are responses to the pandemic, or opportunities or challenges resulting from the pandemic. The goal is to share our analysis of the data collected over the past year, parse out trends that may have started during the pandemic but might be here to stay, and engage with our audience on where focus should be as we prepare to turn the page on this year and start a welcomed new year.
We will first answer this question: How have businesses' and consumers' payments behaviors adapted over the course of the year? There have been plenty of headlines covering retail trends both in-person and online or e-commerce. The Risk Forum will share details and data about retail payment trends while unpacking the nuances of the underlying technologies that facilitate retail payments. Also in this category are person-to-person and business-to-business payment trends, which we'll highlight, too.
New to the year-end webinar agenda is a focus on cash and coin. We'll share data on consumer cash usage and holdings along with unintended consequences, such as how currency demands have affected ATM operations. Another aspect of currency is how demand for cash this year has caused a coin supply distribution issue, sometimes incorrectly referred to as a coin shortage. The Forum will address the myths about the coin supply distribution issue and share insights from the work by the U.S. Coin Task Force.
These conversations about retail trends and currency demand are followed by another critical discussion, this one about financial inclusion opportunities that have been accelerated by the pandemic. The Atlanta Fed is working to emphasize how digital payment innovations can affect cash-based and vulnerable populations. We will highlight how recent events such as the distribution issues related to stimulus money and general financial support among family and friends have brought additional attention to financial inclusion. We will also share our research on this topic and talk about what steps we are taking toward creating solutions.
Not new to the agenda, unfortunately, will be coverage of fraud challenges. This year, we'll talk about scams that are capitalizing on pandemic responses. There have been several big fraud trends, relating to Paycheck Protection Program loans and Economic Impact Disaster Loans, unemployment benefits, fundraisers for fake charities, and PPE supplies (counterfeit). Rest assured: we will also highlight advancements in fraud defense tools, especially in ecommerce.
Please join us for the 2020 Year-in-Review webinar, our last Talk About Payments webinar for the year. This session will take place on December 17 from 1 to 2 p.m. (ET). To participate in the webinar, you must register in advance (there is no charge).
November 23, 2020
QR Codes or NFC: Winner, Winner, Chicken Dinner?
It may be more appropriate to talk about turkey dinner this time of year, but some of my colleagues and I are arguing about whether one form of contactless payment or another is going to win the chicken dinner.
Earlier this year, my colleague Claire Greene posted about contactless payments and the difficulty a friend encountered when attempting to use a mobile wallet for in-person contactless payments. My colleagues and I have written other posts about the push to issue dual contact-contactless credit and debit cards that use near-field communications (NFC). This technology permits encrypted data transmission using an electromagnetic radio field over a short distance (less than two inches) between two NFC-enabled devices. While contactless card issuance has largely been limited to credit card portfolios, NFC has been a standard feature in most smartphones manufactured over the last decade, permitting the loading of debit and credit cards into the payment wallets. Despite the high penetration of the functionality on the consumer side, several major merchants have resisted enabling this technology at their points-of-sale because of the cost of doing so and card network acceptance rules, but that resistance seems to be waning. Moreover, consumer use of contactless payments has remained low. The 2019 Diary of Consumer Payment Choice (DCPC) indicates that contactless payments represented only about 3 percent of the average consumer's monthly credit card in-person payments.
Competing with NFC technology is the quick response (QR) code. Developed in 1994 by Japanese engineer Hara Masahiro to provide a more efficient way than barcodes for tracking auto parts in an automobile assembly plant, the QR code for payments applications is ubiquitous in China and Japan, and rapidly growing in many other Asian-Pacific countries. It has achieved great popularity with several major U.S. coffee and food chains for their proximity-payment and loyalty-program applications. The 2019 DCPC showed that 6 to 7 percent of the average consumer's stored-value card payments were completed using some contactless method, presumably many of these using QR-code technology. Recent developments have triggered an increased interest in QR codes for payments and a wide variety of other applications. In May, PayPal announced it was supporting the use of QR codes in its app for the purchase and sale of goods in 28 countries including the United States. CVS Pharmacy announced that, before the end of 2020, it would be integrating PayPal and Venmo QR codes in its checkout system in its 8,200 U.S. locations before the end of 2020.
The COVID pandemic has sparked renewed interest in QR codes because of their contactless nature. Guests at restaurants can scan a QR code to call up menus, place their order, and pay for their meal. Museum patrons can get more information about an exhibit or artwork. Some major broadcast networks and product brands are including QR codes in their on-air advertising to provide an interactive session with consumers—the QR code takes them to a website featuring a product or a specific show. All the major social media platforms are supporting the use of QR codes to follow accounts.
For the merchant, QR code technology is easier and less costly to implement than is NFC as long as the merchant can display a QR code for the customer's phone to read. Only software development is required; no additional hardware has to be purchased. The industry association supporting non-FI-owned ATMs is working to develop standards for the use of QR codes on ATM screens to support cardless ATM transactions.
From my perspective, it is still the early days for QR code adoption by consumers in the United States, outside of some proprietary retailer programs, but the increasing rate at which consumers will be encountering the technology in their everyday routine holds promise. Merchants consistently report they want to offer payment methods their customers prefer to use. So will one of the contactless technologies win out over the other, or will they coexist? Let us know what you think as we drop the breaded chicken pieces in the fryer and stir the country gravy.