Economy Matters

The Federal Reserve Bank of Atlanta's report on payments inclusion is a toolkit of policy considerations for improving access to financial services while generating societal benefits through innovation and increased efficiency. The report, "Promoting Payments Inclusion in a Digital Payments Era," marks the fulfillment of the formal commitment of the Special Committee on Payments Inclusion. The Atlanta Fed convened this interdisciplinary committee, comprised of members from the public and private sectors, in 2021 to study payments inclusion. The Atlanta Fed provided support staff.

Released in December 2023, the report suggests steps for policymakers, regulators, and financial institutions to consider as they address payments inclusion. The term "payments inclusion" broadly describes providing options for transacting that promote economic resilience and well-being. Access to safe and efficient financial services is important to achieving upward economic mobility and resilience in the face of economic shocks.

According to the report, the goal of payments inclusion more specifically is:

• …to give all consumers the ability to access, use, and thrive from a variety of financial services that are the right fit for their unique needs. Transaction products and services and the way consumers make payments are critical components in determining overall financial outcomes. To be included in the world of digital payments supports greater financial prosperity.

Evaluating payments inclusion is part of the Atlanta Fed's responsibility to help maintain the safety and soundness of the nation's payment system. As part of this duty, the Atlanta Fed has incorporated an objective of maintaining a secure system of electronic and cash transactions that's accessible to all, including those of low to moderate income who may be more vulnerable to becoming disconnected from the increasingly digital-based economic system.

The Atlanta Fed also has expertise in these areas through its work on the issues of economic mobility and resilience and its proximity to Georgia's financial technology industry. Georgia's 200-plus fintechs handle a large portion of all US transactions, according to a report by the Georgia Department of Economic Development. Federal Reserve researchers and economists are part of the effort to quantify the system's payments inclusivity.

Seven barriers to payments inclusion

The Special Committee on Payments Inclusion started with the premise that payments inclusion is a component of financial inclusion. Work streams were created around three topics: why some consumers prefer cash over digital payments, how financial institutions and fintechs have supported greater adoption of digital payments, and what are the benefits of digital payments that could appeal to cash-based consumers.

The committee reviewed many important issues related to payments inclusion, including reasons some consumers don't use digital payment services, and looked at an array of consumer payment behaviors. The committee considered its findings and adopted a list of seven barriers to payments inclusion, detailed in the report. The committee settled on these seven barriers because of the practicability of implementing possible solutions and the measurability of success in reducing them. The report pairs each barrier with possible ways forward for policymakers, regulators, and financial institutions to consider as they begin work on increasing payments inclusion.

As an example, one of the barriers relates to the sometimes "high and unpredictable fees" for financial services. These fees can be a major stumbling block for some of the estimated 5.9 million US households that don't have a checking or savings account at a bank or credit union, according to results of the Federal Deposit Insurance Corporation's 2021 National Survey of Unbanked and Underbanked Households. About three in 10 responding unbanked households cited fees as a contributing factor to not having an account in survey responses to the questions involving "bank account fees are too high" and "bank account fees are too unpredictable."

The report suggests that, as part of the work to lower this barrier, policymakers could encourage awareness campaigns to teach consumers about free and low-cost financial services and to help them gain a greater understanding of their cash flow so they can avoid unnecessary fees. Regulators could consider reviewing regulatory requirements that would reduce high or unpredictable fees. And financial institutions could consider providing customers with "ongoing support to help people understand fee structures."

The Consumer Financial Protection Bureau may have taken a step in this direction when it announced in its fall 2023 rulemaking agenda its intentions to consider a possible rule on nonsufficient funds (NSF) fees and a possible rule on overdraft fees. The possible NSF rule would prevent NSF fees in certain circumstances, according to the agenda. The possible overdraft rule could allow these fees to be considered a finance charge and thus regulated under the Truth in Lending Act.

A foundation for ongoing work

The committee's report concludes with a call for action on payments inclusion, including more research into barriers that keep people reliant on cash, more collaboration to promote payments inclusion, and more consumer education on the value of digital payments innovations.

The spectrum of innovations in digital payments has the potential to greatly improve the quality of life of US households. The report observes:

• The rapidly accelerating growth of these innovations means consumers and businesses can reap better financial benefits, including early access to wages, the ability to pay bills in ways that match their cash flow, and the ability to create payment history that improves access to credit. In short, these innovations can give consumers better tools overall for financial management and improve a person's financial well-being and economic outlook. But as we have noted, digital payments can also exclude some people from the financial system, perhaps especially those who rely on cash as their primary means of conducting transactions.

The report will serve as the foundation for ongoing work in two parallel tracks. One involves an assessment of how to better measure the inclusivity of payments products and services, followed by suggestions that if followed would mean that principles of payments inclusion are baked into product design and future enhancements. The other is to continue research on topics identified in discussion of the seven barriers.

Many committee participants will continue to serve in future phases of the initiative, and new partners will be identified and brought on board.

The next stages of research will solidify the definition of payments inclusion while taking a close look at the technological details of the payments ecosystem. There is an opportunity to improve quantitative research into barriers encountered by underserved consumers to build evidenced-based solutions.

David Pendered

Staff writer for Economy Matters