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