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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.

October 24, 2022

What the Payment Choice Act Means for Cash

Since the first paper billsOff-site link 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 ActOff-site link, and on July 14, 2022, as an amendment to the National Defense Authorization ActOff-site link. The bill would need to be passed by the SenateOff-site link to be enacted and we will keep an eye on its progress. A similar bill, Cash Always Should Be HonoredOff-site link, 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)Off-site link 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 SystemOff-site link, "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 citiesOff-site link (New Jersey, Colorado, Washington, DC, New York City, Philadelphia, and San Francisco) have enacted similar merchant cash acceptance policies. Other states, like GeorgiaOff-site link, 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?

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 VisibilityOff-site link," 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 programOff-site link. 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.