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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The Wholesale Story on Wires
Back in 2013, I had a once-in-a-lifetime travel experience: Paris in the spring. Also that year, I had a once-in-a-lifetime payments experience—literally: I walked into my local bank and requested a wire be sent to pay the rent for an apartment on the Rive Gauche. That's my lifetime experience with wires: one payment.
I'll bet your experience is similar; that is, you can count the wire transfers you have personally initiated or received on your fingers, leaving a few digits to spare. New data from the Federal Reserve Payments Study, released in October, show that this is typical for consumers.
The wire transfer systems—CHIPS, operated by The Clearing House, and Fedwire, operated by the Federal Reserve Banks—mostly handle monetary settlement transfers between financial institutions (FIs) and large-value payments by businesses. In 2018, 64 percent of wires were business payments and 25 percent were financial institution (FI) settlements or other FI business. Only 11 percent were initiated by consumers.
By my calculation, wires account for the lion's share of all noncash payments settlement by value: 93 percent of the dollar value of wires, checks, ACH in 2018 together. (Card payments are generally settled via ACH and otherwise do not move the needle in this calculation.) In addition, essentially all wires, by dollar value, are FI or business wires. In 2018, wires initiated by consumers accounted for one-third of one percent (0.33%) of all wires by dollar value. The average value of an FI or other business wire transfer was almost $5 million, compared to just about $120,000 for consumer wires.
While wire payments increased by number from 2015 to 2018, they grew more slowly than other payment methods, just 3.4 percent year over year. And the total value of wire transfers declined 2.5 percent per year. Wires initiated by consumers, that tiny slice of the wires pie, showed double-digit growth in both number and value in every year from 2012 to 2018.
The Federal Reserve Payments Study has been collecting data on wires since 2013. In October 2020, the Fed released allocations of wire transfers for 2012, 2015, and 2018, including by payer (consumer and business), by payee location (domestic and cross-border), and by clearing method (interbank and book transfer). You can download the data here. As real-time or faster-payments transactions gain popularity, it will be interesting to see if they affect consumer use of wires.
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