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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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October 13, 2020

Digital Payments and the Path to Financial Inclusion

When Dr. Raphael Bostic joined the Atlanta Fed as president and CEO in 2017, the Atlanta Fed embarked on a reevaluation of its strategies. One important outcome was the creation of new areas of focus—high-priority initiatives—for the Atlanta Fed that include promoting safer payments innovation and advancing economic mobility and resilience. On the surface, these goals may appear to be unrelated. They are not. A new white paper by Raphael Bostic, Shari Bower, Oz Shy, Larry Wall, and myself reflects the Bank's view that safer payments innovation can help advance economic mobility and resilience.

With our new focus, the Atlanta Fed refreshed the way we engage with our industry partners. As part of that refresh, the Risk Forum met with the PeachPay community last year to begin a discussion of how payments innovation can help lead to better financial inclusion for a vulnerable population. PeachPay is a group of key players in the U.S. payments processing industry who meet to discuss best practices, provide education, discuss new product innovation, and discuss regulatory and policy issues that may affect the payments industry. Thanks to everyone who helped with this work.

As with most new technology, digital payments and fintech have pros and cons. All in all, however, we think digital payment services have the potential to create opportunities for people who mostly use cash to better manage their financial lives. That's why we focused the white paper on addressing the needs of cash-based users.

Of course, when we started writing, we had no idea that a global pandemic was in our future. We knew the trends towards electronic and digital payments were growing, but we could not have predicted that these trends would accelerate as they have. That acceleration is troublesome because, before the pandemic, an estimated 4 percent of consumers, approximately 5.14 million households, had no card or bank account. Having one or the other is required for anyone to participate in the digital economy. On top of that, this lack of a card or bank account is highest among people with the lowest incomes.

The white paper doesn't provide a definitive solution to the exclusion of cash-based users, but it does offer some ideas:

  • Preservation of cash: Mandate either by law or regulation indefinite support of the cash economy. Some options would include requiring that banks continue to support the cash infrastructure, or that merchants cannot refuse cash.
  • Bridge the gap: Create on-ramps to digital payments for cash users by offering cash-in/cash-out networks or public bank accounts in convenient locations.
  • Focus on cashless solutions: These solutions, including digital dollars or central-bank-backed digital currency, would keep characteristics of cash payments.

We hope you will read the paper.

Ultimately, solutions that keep the economy open to cash-based consumers will require collaboration among people in the payments industry, fintech providers, and the Fed, and it will require many ideas. We are forming a Special Committee on Payments Inclusion with many stakeholders to help generate these ideas. As we say in the paper: "Together, we will work to ensure that all individuals have ubiquitous access to safe, efficient, and inclusive payments.""