Take On Payments

March 27, 2023

Post-COVID, Canadian Merchants Stay Committed to Cash

New research from Bank of Canada  reveals what merchants in North America were doing vis-à-vis cash and card acceptance in the post-COVID environment of 2021–22. The payments market in Canada differs from the United States, of course, with far fewer financial institutions and different pricing for payment cards. Still, we can learn from this study of small and medium-sized merchants, defined as independently owned and operated merchants with brick-and-mortar operations and fewer than 50 employees.

The telephone survey of about 500 retail, food, and services businesses found that cash is accepted by almost every small and medium-sized business at the point of sale. In addition, card acceptance has increased. Before COVID, two-thirds of the merchants accepted debit cards; after, almost 90 percent. The shares are the same for credit cards.

The smallest businesses, with zero to five employees, changed most during the COVID pandemic. In 2018, 31 percent of these businesses accepted only cash. This share declined sharply to 10 percent in 2021–22. I think this notable change could be due not only to the physical distancing constraints imposed by the COVID pandemic, but also to fintech innovations making it easier and less expensive for the smallest businesses to accept digital payments. That is, the constraints coupled with timely innovations to create an opportunity for growth.

The survey shows increasingly widespread adoption of multiple digital payments methods by the small and medium-sized merchants. In addition to debit and credit cards, 60 percent accept electronic transfers through an account-to-account transfer system (Interac e-Transfer) and 43 percent take mobile payments.

Prospectively, the survey of merchants indicates cash is not going away anytime soon. Ninety-two percent say they expect to continue accepting cash at the in-person point of sale. Just 3 percent said they are already cashless and plan to remain so for the near future.

For more on the effects of COVID-19 on payment behaviors in the United States, read my Atlanta Fed paper with Joanna Stavins and Ellen Merry, "Has COVID Changed Consumer Payment Behavior? "

By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

• March 27, 2023 in
  • cards
  • cash
  • mobile
  • P2P
  • payments
• Permalink
• Comments

March 13, 2023

Instant Payments and the Challenges of Inclusive Product Design

True confessions: I recently played around with a popular weight-loss app, but I didn't bear up so well under feedback that I'll call—for lack of a better term—negative reinforcement.

Problem: Too many of my foods are in the red zone. Whole milk! Olive oil! A teeny tiny piece of chocolate! Since apparently my eating habits were such a mess, I figured there was no hope. Less than a week in, that app was history.

My experience reminds me of recent work on product design and payments inclusion. Could it be that my whole milk and chocolate are the equivalent in payments of anonymity and low cost? I want both my preferred foods and help to eat healthily. Many consumers, including unbanked consumers, also want two things: the features of cash (anonymity and low cost among them) and help to pay and budget using 21st-century tools.

Data from the Federal Deposit Insurance Corporation  and the Survey and Diary of Consumer Payment Choice (SDCPC) show that we are not there yet. Each data source finds low rates of adoption of P2P apps, among unbanked households for the FDIC and among unbanked individuals for SDCPC.

This finding is eerily familiar. In 10 years of investigating consumer payments, I've seen a lot of ideas for bringing everyone in the United States into the 21st-century payment system. Especially for US adults without bank accounts, various solutions with seemingly great potential come along and then are just okay. Mobile. Apps. Basic banking. Consumer education. No strikeouts, no home runs.

I'm sure you can think of lots of reasons for these just-okay results: cost (or perceived cost), inconvenient access without a bank account, lack of trust, low adoption rates of smartphones for some groups. But what about product design? One expert, speaking on a 2021 San Francisco Fed podcast episode, said that low-income people have been treated as "secondary users to products that were designed for other people in mind."

Today, with Real-Time Payments and the FedNow Service, we're on the cusp of a new opportunity to make payments accessible for all. The US Faster Payments Council  is advising that products be designed not only to meet the needs of early adopters and existing customers but also to meet the financial lives of the underserved. In other words, treat underserved people as primary users with particular preferences and needs, just as you would treat early adopters and current account holders. For the underserved, faster payments providers should "design for people with tight budgets," include features to ease administrative tasks, and provide mobile-first access, among other recommendations.

Most importantly, providers should include the users in the design process. As a payments innovator said to me last year, "When it comes to product design, you can't assume you know what someone wants without doing the work." As I learned from the experts at ,Commonwealth, which offers a toolkit for inclusive product design: design with people, not for people.

What's your organization doing to make instant payments work for everyone? I'm looking for case studies on this topic. Please be in touch if I can learn from you.

By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

• March 13, 2023 in
  • financial inclusion
  • P2P
  • payments
• Permalink
• Comments

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.

By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

• February 27, 2023 in
  • ACH
  • cards
  • cash
  • financial inclusion
  • payments
  • payments studies/research
  • TOP payments inclusion
• Permalink
• 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.

By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

• February 21, 2023 in
  • cards
  • cash
  • payments
  • payments studies/research
• Permalink
• Comments