Take On Payments

April 17, 2023

Fifty Years On: A Personal Payments Retrospective

I recently celebrated 50 years of working in financial services and payments. When you read this, I will have just retired from the Atlanta Fed after just over 10 years of being a part of the Retail Payments Risk Forum team. My colleagues have asked me to write about some of the major changes that I have seen in the payments environment over these last 50 years, so I thought my final post would be a good way to share that with you.

When I started my professional career in 1972, there were only three ways to pay at the point of sale (back then we called it the cash register): cash, check, or credit card. And often times the credit card was really a "charge card," as it only could be used at that company's stores. This was also true at gasoline stations, as each brand issued its own card. The Federal Reserve's Payments Study has continued to show a decline in the overall usage of checks and our Diary of Consumer Payment Choice research has tracked the reduced use of cash for payment since 2015. The ideas of a "checkless society" or a "cashless society" were sensational forecasts in the 1970s. They are highly unlikely to ever come true—at least in my lifetime. The reality is that, in the United States, the payments industry has only created new payment products and channels and never completely done away with any.

I had the opportunity to be involved in the early stages of ATM programs. These programs started out as proprietary networks. Only customers of the financial institutions owning the ATMs could use them, which at first could only be installed on bank premises. When the financial institutions realized they were in an "arms race" with their competitors that nobody was likely to win, they decided to form statewide ATM networks to share the resources. As a consultant, I had the good fortune to be involved in the formation of these networks in the states of Georgia, Florida, and Alabama. Subsequently, a number of the statewide ATM networks merged to form regional networks. Seeing the opportunity, the major credit card issuers got into the game in the early 1980s when they worked with state and regional networks to create national ATM networks.

With improved technology, those merchant cash registers became point-of-sale (POS) stations and those ATM-only cards were replaced with debit cards. With regards to debit and credit cards, I have seen the technology migrate from the magnetic strip to EMV chip and now to contactless. As for stored-value cards, transit systems were some of the first issuers, paving the way for the launch of the gift card and prepaid card industry, estimated in 2020 to be worth $767 billion.

Another major change I have seen is the emergence of fintechs. These companies first became consumer-facing with their offering of personal financial management software in the early 1980s. Starting out as little more than electronic checkbooks and budget management tools, these programs have become increasing sophisticated for both consumers and businesses. Fintechs continue to push the envelope, often to the chagrin of financial institutions and regulators, by offering innovative financial products and services.

These examples I have recounted are just the tip of the iceberg in terms of the massive changes in the payments industry. This continual pace of change is what has kept me so involved and interested during my half-century in the industry. Payments are part of my DNA and, although I am stepping away from the day-to-day involvement, I know that I will forever maintain my interest in payments.

By David Lott, formerly a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed and now retired

• April 17, 2023 in
  • ATM
  • cards
  • cash
  • checks
  • payments
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October 17, 2022

Webinars Address ATM Crimes, Financial Exploitation

ATM attacks don't generally appear in the news, despite their growing threat. As we've written before, these attacks can be both cyber and physical, and the physical attacks can be against both machine and the personnel servicing the machine. Another disturbing crime that may not appear enough in the headlines is the financial exploitation of senior adults. Two upcoming events in our Talk About Payments webinar series will give you the opportunity to learn more about these issues from the experts. The first, on November 3, covers ATM attacks. The second webinar takes place the following week, on November 10, and addresses the exploitation of seniors and community-based approaches to help mitigate vulnerabilities. More details about these webinars, as well as registration links, are below. We hope you will join us for both events.

November 3: ATM Attacks and Defenses
Because many financial institutions have closed or reduced the operating hours of many of their banking offices since the start of the pandemic, customer withdrawals of cash from ATMs have increased significantly. Unfortunately, the criminal element has shifted some resources to attacking ATMs and the personnel servicing them, including those who make currency deliveries. More than half of all ATM attacks in the United States involve thefts of the ATMs themselves, according to ATM Security Association data. The growth in dispenser jackpotting is also troubling. Because the methods of ATM crime can vary from city to city and month to month, it is critical that that ATM operators stay informed about current trends.

A panel of ATM experts join moderator David Tente, executive director of the ATM Industry Association, in discussing trends in cyber and physical attacks against ATM terminals and service personnel along with measures that can mitigate the risks. The panelists are:

• Brenda Born, supervisory special agent, Federal Bureau of Investigation
• Brad Moody, executive vice president of operations, Lowers & Associates
• John Toneatto, vice president of security and investigations, Loomis

The webinar takes place on November 3 from 1 to 2 p.m. (ET). To participate in the free webinar, please register.

November 10: Financial Exploitation of Aging Adults
Did you know that more than 10,000 US adults turn 65 every day, and that many of them will be victims of financial fraud? Elder financial exploitation is a growing problem, according to the National Council on Aging, which estimates financial losses of at least $36.5 billion dollars a year. With the rapidly aging population, we must identify and protect elderly citizens exposed to financial exploitation risks.

In the November 10 episode of our Talk About Payments webinar series, Drs. Thomas Blomberg and Julie Brancale, criminologists from Florida State University, describe the current research, theory, and policy responses associated with this growing social problem. They also address the patterns and variations of financial exploitation of older adults and discuss why some older adults may be more or less vulnerable than others. The presentation concludes with a discussion of areas in need of additional research and policy attention. Scarlett Heinbuch, a payments risk expert at the Atlanta Fed, moderates the discussion.

The webinar takes place on November 10 from 1 to 2 p.m. (ET). To participate in the free webinar, please register.

We encourage financial institutions, retailers, payments processors, law enforcement officials, academics, and other payments system stakeholders to join us for these informative webinars. You will be able to submit questions during the webinar. Please let your colleagues know about these webinars!

By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

• October 17, 2022 in
  • ATM
  • cybersecurity
  • identity theft
  • payments risk
  • privacy
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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.

By Scarlett Heinbuch, and

David Lott, both payments risk experts in the Retail Payments Risk Forum at the Atlanta Fed

• September 26, 2022 in
  • ATM
  • cash
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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?

By Scarlett Heinbuch, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

• July 18, 2022 in
  • AML/KYC
  • ATM
  • cash
  • supervision and regulation
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