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.
July 18, 2022
Policy Updates Help Independent ATM Operators and Cash Users
Like many people, I take cash for granted. It's available when I need it, I can buy just about anything with it, and I can use it to pay anyone, anywhere. For me, the easiest way to get cash is at an ATM, and I take these machines for granted, too. They're everywhere: at all types of retail stores and shops, mall kiosks, standalone places all down the street, and banks.
Some recent Take On Payments posts focused on the importance of cash in times of crisis and the needs of people who are cash reliant and those who live in rural areas. In this latter post, we referred to a barrier some independent ATM deployers, or IADs, have faced. The barrier was rooted in banks sometimes closing existing IAD accounts or not allowing IADs to bank with them in the first place. This post picks up that thread, this time with some good news for the industry.
But first, what would make some banks reluctant to do business with IADs? Banks must comply with the Federal Financial Institutions Examination Council's (FFIEC) Bank Secrecy Act/Anti-Money Laundering (BSA/AML) rules. A previous edition of the BSA/AML Examination Manual used language indicating that ATM operators could be a fraud and money-laundering risk. But without a bank account, IADs can't operate. A sudden closure of an account causes business disruption at best, ultimate failure at worst. This was a real problem for the IAD providers who found themselves without an account and the people in communities that rely on cash but don't have access to a nearby ATM.
Late last year, thanks to efforts from ATM industry groups, the FFIEC, in consultation with the Financial Crimes Enforcement Network, recognized the efficiency of the controls that are in place for ATM transaction settlement and cash replenishment. Accordingly, the FFIEC revised the section in its manual on "Independent Automated Teller Machine (ATM) Owners or Operators" in a way that should help banks view ATM operator accounts more positively. It states that:
- financial institutions are "neither prohibited nor discouraged from providing banking services to independent ATM owner or operator customers..."
- an operator that maintains a separate cash settlement account with the bank for its ATMs presents a lower risk of money laundering, terrorist financing, or other illicit financial activity "because the bank knows the source of funds and can compare the volume of cash usage to EFT settlements to identify suspicious activity."
With access to cash remaining an important financial need nationwide and with a change in language that could help some IADs be more successful in running their businesses, perhaps more independent operators will contribute to serving populations nationwide. What do you think?
May 23, 2022
Vulnerable Populations and the Case for Cash
We recently wrote a post about communities not being able to access cash because of natural or man-made disasters. Severe weather and war, for example, may leave a bank branch inoperable. But even in "normal" times, access to cash remains an important consideration, especially for consumers who use it as their only or preferred means of payment. With this post, we look at how cash remains an important payment option and how accessing it may be becoming more difficult for certain vulnerable populations. These vulnerable populations—who tend to be low- to moderate-income households, rural communities, and recent immigrants—are more likely to be un- or underbanked (underserved) and often rely on cash to buy groceries and pay utility bills.
Even with an uptick in digital payment usage , cash remains a critical payment choice for many Americans. Some may be unable to use digital payment options because they lack access to broadband or a smartphone, for example. Others may not be able to access these options because they are unbanked. Data from the Federal Deposit Insurance Corporation's 2019 report How America Banks reveal that approximately 5.4 percent of households (7.1 million) were unbanked in 2019. Almost 14 percent of Black households are unbanked and presumably rely on cash or alternative payment options.
There are many reasons why cash can be a person's default method of acquiring goods and services, according to a forthcoming paper titled "Cash Is Alive: How Economists Explain Holding and Use of Cash" by Oz Shy, a senior policy adviser at the Atlanta Fed.
Unfortunately, recent data suggest that challenges to accessing cash existed prepandemic and accelerated during the pandemic. It may be especially difficult for the underserved, cash-reliant consumer, according to a report by the National Community Reinvestment Coalition:
- The number of banking institutions declined from approximately 18,000 in 1984 to fewer than 5,000 in 2021.
- The rate of bank branch closures doubled during the pandemic.
Rural areas tend to see the most bank branch closures, and those closures have contributed to a decline in ATMs as well. Adding to this, banks have been more cautious in providing accounts to independent ATM operators in part because of anti-money-laundering concerns. So some banks are adopting policies that prohibit business relationships with independent ATM operators or are charging much higher fees for their services—which means some ATM accounts with banks are closing and fewer ATMs are being established.
These closures matter, even to the unbanked consumer, who may need bank branches and ATMs, for example, to obtain cash from a prepaid benefits card for unemployment or social security payments, get a cash advance on a credit card, or cash a check at a bank where the check writer has an account.
As the digital economy expands, people in underserved communities and those who are cash reliant, whether by choice or lack of other options, are at risk for being further marginalized in the financial system. To help ensure that everyone, regardless of payments preferences, is included in this system, cash access and preservation in underserved communities across the nation remain important to maintain.
May 2, 2022
Taking the Long View: A Visit with Retail Payments Risk Forum Founder Rich Oliver
Rich Oliver, the founder of our Retail Payments Risk Forum (RPRF), paid a visit to our team recently and shared his vision when creating the forum, the challenges facing the payments industry, and the future direction our team could consider as the payments landscape continues to evolve.
In addition to founding our RPRF, Rich's payments expertise goes back to the 1970s when he led the effort to utilize the fledgling US Automated Clearing House (ACH) system to electronically deliver the first government payrolls and social security payments.
Drawing on his expertise, Rich wrote a book with George Warfel Jr. about the payments industry, The Story of Payments: How The Industrialization of Trust Created the Modern Payments System, that "tells the story of how payments—between people, merchants, employers, and governments—emerged from the ancient system of barter and grew, through various technological implementations ranging from coins and paper money to checks, wire transfers, and credit cards, to today's entirely electronic local and international payment systems."
In a wide-ranging conversation about the history of payments and Rich's role in many areas with the Fed, each of us in the RPRF took away some highlights to share with you.
Scarlett Heinbuch: Rich reminded us of the need to be bold in our thinking about the future of payments. We discussed advances in biometrics and how these initiatives could address identity and security concerns and make payments easier for all while also presenting other risks and challenges.
Nancy Donahue: One comment that made me go "hmm" was: "Do we have too many retail payments products that are trying to solve the same problem? Do they all make money? Do they all need to?"
Catherine Thaliath: What resonated with me was when Rich talked about potential risks of Buy Now Pay Later (BNPL). While viewed as a credit offering, it is nevertheless using a payment instrument in ways not previously done.
Claire Greene: "When it comes to product design, you can't assume you know what someone wants without doing the work." This was a humble statement from an innovator that applied in the 1970s and remains relevant today.
Dave Lott: Rich discussed the evolution of the current consumer banking product market where many of the explicit services (on-us ATMs, online banking, mobile banking, pay wallets, etc.) are provided free of charge.
Sally Martin: It resounded with me how much collaboration went on with the payments players in the industry. Also, the amount of time spent brainstorming on what the needs were and how to fill them, and in moving toward new offerings rather than replays of existing products. Rich's talk focused on moving into new territory—he was "agile" before it was cool.
Jessica Washington: We still need to collaborate on fraud mitigation at the strategic level. In the United States, we implemented chip credit cards but not so much chip-and-pin, plus we still have the magstripe, which is a major source of weakness, and we still have much work to do on card-not-present transactions.
As the RPRF founder, Rich challenged each of us to remember its mission: to be a source for non-biased thought leadership, to do original research, challenge norms, and push the envelope to move the payment system forward. Sometimes looking back at history can bring the future into sharper focus, which is what our chat with Rich did for us. As you look to the future of payments and payments risk, what stands out to you?
By the Retail Payments Risk Forum Team: Jessica Washington, Dave Lott, Scarlett Heinbuch, Claire Greene, Nancy Donahue, Catherine Thaliath, and Sally Martin.