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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September 26, 2022
Next-Generation ATMs: Innovations and Updates
Despite the growth of digital payments, cash remains a vital payments instrument, as we have frequently discussed in our posts. And people often get their cash from ATMs, as we've also mentioned here a few times. At a recent conference, we learned more about the latest technologies in the next generation of these machines and in the software that goes into the machines, and heard updates on policies and crimes that Independent ATM deployers (IADs) may encounter. Here are some of the key takeaways from the conference:
- ATM functionality: Looking for new revenue sources, ATM deployers are evaluating enhanced devices that will support bill payment and other functions for the cash-based customer. With these upgraded ATMs, customers will be able to pay their bills by scanning their bills and inserting cash into an ATM. If this service is priced below what a staffed money service business offers, it will be an attractive alternative.
- Artificial intelligence: The next-generation ATMs are supported by more sophisticated machine-learning software that can diagnose common problems remotely such as PIN pad errors, provide low- or out-of-cash alerts, reboot systems, arm or disarm alarms, or configure alerts based on the route of the IAD operator. Using this adaptive machine learning, it can often fix these minor problems, saving time and money in avoiding a service call and keeping the ATM functioning and available. Some problems like paper jams, though, will still require an old-fashioned intervention.
- Crime: While innovations in ATMs and the software that supports them are on the rise, the need to solve for old-fashioned problems like crime remain. The number of attacks against and thefts of ATMs, including attacks on the people who service them, are increasing. Alarms, cameras, and other crime-alert features, such as locational tracking, are often not enough to stop determined criminals. This problem has become so severe that our next Talk About Payments webinar on November 3 will examine these issues and offer some potential defenses in detail. Stay tuned for more information on these webinars in the coming weeks.
- Music, money, meals: On a lighter note, if you think you’d like to listen to music when you withdraw money from an ATM, you’ll like the new combo jukebox/ATM that plays your favorite tunes and dispenses your cash. The combo is designed to be used in restaurants, entertainment facilities, and other venues where the patrons will be able to stay a while to listen to their favorite tunes.
The conference was a fascinating convergence of technologies, policies, and people. It was also a reminder of the industry-wide commitment to the efforts being made in all areas to keep cash accessible. Some sessions focused on key legal and regulatory issues the industry is facing. We will write more about those in future posts. You can count on us to monitor this banking channel and continue reporting on the evolution of the ATM.
September 19, 2022
Continuous Improvement at the Cash Factory
The tour of the Hershey chocolate factory was a highlight of my midcentury childhood. My brother and I watched mesmerized as a claw-like machine scooped and stirred an enormous vat of brown goop. Our shared thought: Will there be edible souvenirs?
More recently at the Boston Fed, I watched an experimental robot moving shrink-wrapped blocks of cash from point A to point B. The experience was eerily familiar, a lot like the machine at the chocolate factory. And it inspired the same thought: Will there be fungible souvenirs?
Turns out, there are a lot of similarities between chocolate production and FedCash Services, which takes in crumpled bills and turns out shrink-wrapped bundles of neatly pressed $1s, $2s, $5, $10s, $50s, and $100s.
- Quality control: maintaining consistent chocolate texture, removing ripped bills from circulation
- Heavy stuff to move around: a crate of chocolates, a pallet of $100s
- Inventory to track: Hershey Kisses or $20s
Today, let's focus on supply chain management. A collaboration of the Federal Reserve and all the organizations that help get cash to businesses and consumers is working to bring supply chain best practices to the tracking of cash as it circulates among the Federal Reserve Banks, financial institutions, retail businesses, and armored carriers. The foundation for this endeavor: uniform standards and barcodes.
This effort, named "Cash Visibility," will replace paper manifests and physical signatures with electronic records of cash custody. Currently, cash delivered to Reserve Banks from financial institutions is labeled with the financial institution's ABA number and accompanied by a paper manifest listing the dollar value per bag. The armored carrier waits while the Reserve Bank counts and examines the bags, and the paper manifest is edited by hand to account for any adjustments. For example, a ripped bag may be rejected and its entry crossed off the manifest. Each party—armored carrier and Reserve Bank—signs and retains a copy of the paper manifest. Later, a Reserve Bank worker keys the information into the FedCash Services system from the paper manifest.
Going forward, this paper process will be replaced. Each bag will be barcoded and associated with an electronic (or "e-") manifest including the total deposit amount, and, in a change from current practices, a denominational breakdown of the cash in the bag. Hand counting of bags will be replaced by scanning. Adjustments will be made to the electronic record, not to a paper list, and entry to inventory and accounting systems will be automated.
For armored carriers, going digital has the potential to reduce the time it takes to deliver and pick up cash from the Federal Reserve Banks. For FedCash Services, financial institutions, and armored carriers, digitization is expected to reduce manual data entry, cut down on keying discrepancies, and streamline exception processing.
In addition to increasing efficiency and decreasing risks like those cited above, uniform standards also could open up new opportunities. For example, entities in the cash supply chain could gain insights into the movement of cash to support innovation and decision-making. Automated methods could speed up the notification of cash deliveries in weather or other emergencies, strengthening the overall resiliency of the cash supply chain. Building on the electronic record, financial institutions could report more efficiently to cash-intensive retail businesses that are their customers.
To standardize tracking, participants in the cash supply chain will apply to the international standards organization GS1 US for a company prefix—that is, a unique number that will identify each entity in the cash supply chain. The Federal Reserve has developed an API (FedCash E-Manifest Service) to support the electronic systems for receiving and paying cash and is helping financial institutions and armored carriers implement the API.
Cash is paper. But record-keeping about it doesn't have to be.
To learn more, armored carriers and financial institutions can join the e-manifest readiness program. If you are in the Midtown Atlanta area any day Monday through Thursday, visit the Atlanta Fed's Monetary Museum and you will be able to watch our cash team—including the robots—in action.
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 29, 2022
Is There a Cost to Payments Exclusion?
Beginning in the mid-1990s, economists have pointed out that debit card and cash users subsidize credit card users at the retail point of sale. How's that, you say?
In most cases, everyone, regardless of payment method, pays the same price for eggs, milk, bread, movie tickets, shoes, a couch, or airline tickets. And even though we all pay the same at checkout, those of us who use a credit card to pay could get a bit of a discount—say 1 percent or so—later in the form of cash back, merchandise, miles or hotel rooms. What's that discount worth? And who benefits?
Researchers at the Bank of Canada estimate that consumers who have only cash and debit cards in their wallets have a cost of payments of $11 per month. Consumers who have these methods and also have credit cards gain about $48 per month in benefits. "The difference in results could be due to the cost of withdrawing cash or debit card or account fees while most credit cards may offer rewards," the researchers write.
Taking another angle, researchers at the Federal Reserve Banks of Boston and Kansas City and the Bank of Canada find that, in total, low-income consumers pay less in absolute terms to make payments compared to higher-income consumers. As a percentage of transaction amount, however, low-income consumers pay more, and the highest-income consumers pay the least. For this research, cost was the sum of rewards, the fees consumers pay to financial institutions, and the merchant cost passed through as higher prices at checkout.
The conversation about access to payment methods is often in the context of preserving access to cash or finding alternatives to cash. This research examines another aspect of payments access—that is, what it costs to make a payment depending on payment instrument choice or limitation.
For analysis of how consumers with different levels of card ownership make payments using data from the 2021 Diary of Consumer Payment Choice, see "Payment Card Adoption and Payment Choice," posted in the Atlanta Fed's Policy Hub in mid-July.