Federal Reserve Bank of Atlanta Talk About Payments Webinar

Payments 2020: The Year in Review

Do COVID-driven changes in business and consumer payments choices—contactless adoption, cash acceptance and use, major growth in e-commerce traffic, increased fraud—reflect a temporary or permanent shift in retail payments? Retail Payments Risk Forum members addressed these changes in the December 17, 2020 webinar. They also discussed financial inclusion issues highlighted by the pandemic and the Atlanta Fed's ongoing work to promote economic mobility and resilience.

Send questions about the webinar to David Lott at david.lott@atl.frb.org.

You may view previous Talk About Payments webinars.


Jean Roark: Hello, and welcome to the Federal Reserve Bank of Atlanta's Talk About Payments webinar. Today's topic: 2020—The Year in Payments. I'm Jean Roark from the Center for Learning Innovation at the St. Louis Fed, and I'll be producing today's event. Before turning our call over to our speakers, I'll take a moment to walk through our logistics on slide two.

This event is set up a little differently than previous TAP webinars. We're viewing our speakers' videos today, which means that streaming both video and audio is the best option. We automatically sent all attendees to the stream upon entry, so for now, you can sit back, relax, and enjoy the webinar. If you have audio issues, you could still listen through your phone; the phone information is listed on the player page, but please know that because this event is streamed, if you listen through the phone, the audio will not sync with the presenters' videos.

To improve slide transition if you're listening through the phone, though, you can select the phone option in the media chooser—and that can be found using the gray gear up above the slide window. A couple more notes about the player page: We'd love to hear from you. Please send us your questions using the "Ask Question" button. And, of course, if you'd like a PDF of today's presentation, you can access that using the Materials button...You'll also find an FAQ document that can guide you through the logistics if you need to switch to the phone option.

And I'll cover the disclaimer as well before turning our call over to Nancy Donahue. The views expressed in this presentation are those of the presenters and do not necessarily reflect the positions or policies of the Federal Reserve Bank of Atlanta or the Federal Reserve System. And with all of that out of the way, I'm going to transition to slide three; and it's now my pleasure to turn the call over to Nancy Donahue with the Federal Reserve Bank of Atlanta.

Nancy Donahue: Thank you, Jean—and "happy holidays" and welcome, everyone, to the Retail Payments Risk Forum's fourth annual Talk About Payments Year in Review. What a year 2020 has been! When we made our predictions in the 2019 Year in Review—which included continued merger-and-acquisition activity, the evolution and risk of artificial intelligence, partnerships between big tech and financial service providers, and data and privacy rights—no one could have foreseen the COVID pandemic and its impact on how we conduct commerce in the United States. Not surprising, the pandemic's influence on payments behavior and choices of businesses and consumers is largely the focus of our conversation today.

I'm Nancy Donahue. I'm a project manager in the Retail Payments Risk Forum, as Jean said, and I am joined today by my colleagues Jessica Washington and Doug King.

Jessica Washington: Hey there! Happy to be here today. I'm happy that you are all here today. We always enjoy putting together this year-end payments review. Unfortunately, this year we do have the heaviness of the COVID pandemic that impacts all of our payments discussions today, and I just wanted to set the stage that payments are considered part of our essential services—not subject to shutdown, so I know we've been working hard all year—and that payments are a critical piece of our infrastructure. Also, it's the Fed's mission to keep the reliability and the resilience of the payment systems up and running, as they are critical to our economy.

It's easy for me to say that, sitting here today, but I wanted to make sure to thank all of our essential workers in the payments industry—and on the front lines, our health care workers as well. I wanted to also add one housekeeping note, that I will be diverting my eyes away from the screen to manage the questions on the webinar today. I hope that all of you have some questions. We would love to have this be very conversational.

Doug King: Very well said, Jessica. And Nancy, the fourth year of doing this—I was wondering how many years I've done this. I think Jessica has joined me for most of those years. This is your first year to be on this, so welcome to this fun event.

Donahue: Thank you.

King: It's funny, as I was thinking about the opening statements, I remember this time three years ago, we were talking about cryptocurrency prices and everything going crazy there. So fast forward three years to today, and Bitcoin just hit an all-time high. I don't think we're going to spend much time there, but it's good to be here once again. 2020, I know, has dragged on, and at times has seemed to stand still. But when we think about payments and commerce and trends, it's been fascinating to see—and we'll get into this—some of these trends really accelerate when, at times (like I said) this year, it seemed like it was standing still.

So let's jump into the fun.

Donahue: Absolutely. Yes. I did see that article today about crypto hitting that milestone price. That's going to be interesting to follow in the next year. But just to give you a little bit of background about the Retail Payments Risk Forum, our work consists of identifying risk in existing and emerging retail payments through research of payments, products, and services. Also collaborating with industry participants, regulators, law enforcement, the legal community, and others in the Federal Reserve System. Also convening—sometimes virtually, like today—with payments providers and entities that are engaged in establishing new products, laws, regulations, policies, and standards that affect and shape retail payments.

In addition to quarterly webinars, such as this one, we also publish a weekly blog series called Take On Payments. And you can access or subscribe to our weekly blog using the link in our presentation. Also, we have a link there to the Retail Payments Risk Forum web page, which houses all of our blogs, webinars, and payments research for you to access and use.

So let's just dive right into today's conversation—how the COVID pandemic has changed payments for businesses and consumers, both at the point of sale and online. So what was the state of payments, pre-pandemic? Based on data from the Federal Reserve Payments Study, we know that three-fourths of the number of noncash payments in 2018 were made by card, and by value, two-thirds were made by ACH. Of those card payments—in-person and remote—general-purpose card payments were nearly equal by value, and that was approximately $3.3 trillion each.

The number of remote card payments remains much smaller than in-person, despite having a compound annual growth rate of more than 20 percent since 2015.

King: So Nancy, thinking and looking back to the payments study, I think it's interesting to note as we think of in-person card transactions versus remote transactions from a fraud perspective. In the last study where the fraud data was published, the results showed that remote card transactions had a rate of fraud two times that of in-person transactions. So let's just keep that in the back of our minds, as we a little bit later get into the "payments during this COVID pandemic" discussion.

Donahue: Absolutely. As we just saw in the previous slide, in-person payments made up nearly three-fourths of general-purpose card payments by number, and half by value in 2018. And while the majority of these payments were chip authenticated—nearly 57 percent—just a small fraction were contactless, as you see in this chart; so slightly less than 1.5 percent by number, and just under 1 percent by value.

So besides car payments, the payments study also reported on continued growth in alternative payment methods from 2015 to 2018; in fact, person-to-person payments and money transfers, which we're going to touch on a little bit later in our discussion today as well, more than doubled during the three-year time period. On an annual basis, in-person mobile wallet purchases grew nearly 28 percent and remote purchases grew over 30 percent, both by number, from 2015 to 2018.

Lastly, and not shown here, consumers' use of cash declined in 2018 from 19 payments per month to 17, according to the Survey of Consumer Payment Choice.

King: And similarly, throwing our fraud hat on from the Risk Forum perspective, we've written a lot and spoken a lot through the years about the EMV chip transactions being more secure transactions than our old mag stripe transactions, so I think—what, did you have that at 54 percent, or 56 percent were chip transactions, I believe is what you had said, Nancy?

Donahue: 57 percent.

King: We definitely think there's been growth there since that data was recorded, and from a fraud perspective that is a very good thing. And even to where we are today, with the increased usage, perhaps, of mobile pay wallets—which offer even more secure technology, through the use of tokenization, than a traditional chip card—we think there are good fraud benefits, and we will look into that as we get into our COVID discussion.

Donahue: Yes. So, Doug, you have written on several occasions in our Take On Payments blog about the decline of brick and mortar, and high-profile bankruptcies of some household names this year have emphasized the effects of the pandemic on the retail sector that was already in decline due to increased e-commerce retail. And then the shutdown of many retail businesses cut off the ability for in-person transactions.

Some retailers that already had an existing omnichannel presence in place may have fared better as consumer purchases shifted to e-commerce this year, but it remains an open question whether increased foot traffic returns in the coming year. The National Retail Federation's winter 2020 Consumer View Survey showed over nine in 10 consumers viewed "buy online, pick up in person" options such as curbside, pick up at the register, lockers, or trunk delivery as convenient. So Doug and Jessica, now that consumers are accustomed to these new options, what do you think will happen with storefront locations? Do you think they will essentially become order fulfillment locations going forward?

King: It's going to be fascinating to watch. I think as of December 1 this year, there have been 11,000 retail store closures. I haven't been into a mall in a while. I don't know about others, but from stories I've read in various publications, some of these malls are virtual ghost towns these days in terms of empty storefronts. And some of those names on the slide that have declared bankruptcy, some are reorganizing and are keeping some stores open. But I know for others—for instance, Stein Mart has closed all stores.

Then the other thing that's not going to be captured under that retail slide, but is definitely part of commerce and will have an impact on payments, is the restaurant industry. I think to date there's been over 100,000 restaurant closures—for good, or long-term closures. If you read projections or analyst reports on that industry, things don't look to be improving there anytime soon. I've even seen some analysts are expecting up to another 100,000 closures there, so no doubt there's going to be a lot of available retail and restaurant space out there. Perhaps we'll get into our views on whether we think that will come back or not in a bit, but I think there is going to be a glut of real estate.

And it's not just in retail, unfortunately. I think we'll see that in the office space as well.

Washington: Yes, I had a couple of thoughts on this particular issue. I read that Glenbrook in a report said that it's absolutely a retail apocalypse, and the bankruptcy avalanche is just yet to begin, really. And we can't forget that it affects consumer bankruptcies and small business bankruptcies as well.

I wanted to point out, bringing this to payment industries in particular, that while we all look to mitigate the financial risks and the closures, as stewards of the payments system we do need to maintain the trust in the payments system. So as we migrate to e-commerce, which we're about to talk about more, we want to make sure that trust in the payments system also stays at the forefront in supporting these businesses in the transitioning that's about to occur, in the, as was said, "apocalypse." That snowballs into that consumer spending and store closures. It impacts the payments revenue streams.

And so with that, you're going to see some collapses and acquisitions and so forth. McKinsey actually said at a global level that they predict that payment revenues will decrease about 10 percent in 2020. So there are a lot of snowballing effects from the brick-and-mortar store in your neighborhood closing that affects all of the payments industry.

King: So anecdotally, as a side note, one impact: I used to always get frustrated. Uber, Lyft, and Rideshare are awesome things, but you'd be driving down the street and there'd be a car pulled over waiting for somebody to hop into the car—it was creating these traffic jams in certain areas. While it's not creating traffic jams, the amount of delivery vehicles driving through the neighborhood the last two to three months, and especially now in the holiday season, I mean it has been insanity compared to years prior—so just a little anecdotal side note on added traffic into the neighborhood, from this, our so-called retail apocalypse.

Donahue: Well, and I know we're going to talk about fraud later but, Doug, the comment you made about the restaurant industry—they were still experiencing quite a bit of fraud pre-pandemic—right?—because of the liability shift, and so it will be interesting to see what happens with those fraud numbers as we move forward and start to collect data, how big that swing could potentially be when we start to look at 2020 data.

Washington: I had to laugh a little bit when you were mentioning that, Doug, because the other day someone pulled up out front and they were looking very suspect, and I was not sure what they were doing. And it was actually a delivery driver who had toys. He didn't want my children to see the toys he was delivering, so he was being very helpful—but at the same time, I was very suspect.

King: Yes. I'm still taken aback seeing U.S. Postal vehicles out on Sundays, delivering packages.

Donahue: Oh, yes. Quite a bit. So, talking about e-commerce, this next slide illustrates retail e-commerce sales over the last 12 months—so between third quarters in 2019 and 2020. And of course, a significant spike was present in the second quarter of this year due to stay-at-home orders across the country, and maybe to some degree the economic impact payments that were distributed in the second quarter. But that resulted in e-commerce retail sales comprising over 44 percent of total retail sales, according to the U.S. Census Bureau.

Third quarter e-commerce retail sales dropped, but still made up more than a third of total retail sales, which was a nearly 15 percent increase, year-over-year. And according to forecasts by the National Retail Federation, online and other nonstore holiday sales will increase between 20 and 30 percent compared to last year.

King: I think just adding onto that, the holiday sales data just out from... I was calling it "Black Monday" and my wife said, "Doug, it's ‘Cyber Monday.'" But looking at that four-day weekend—and it's different this year, too, because that four-day weekend had been extended so long because a lot of online retailers started running specials in late October or early November, so it's really a longer time frame—but spending from that Thanksgiving Thursday through Monday, according to Adobe Analytics, which looks at some of the top 100 retailers, spending online during that time period was up 25 percent compared to last year.

So I think that trend where second quarter the numbers were substantially higher in e-commerce, we definitely have seen that carry over into this holiday season—which is not a surprise at all. But what was surprising to me, in a survey of consumers who were going to do their holiday shopping online, a majority of those consumers did not cite COVID-19 as the reason for that; it was convenience. So as we start thinking about trends, and "is this here to stay?" or "is this the retail apocalypse?"—that put a light bulb in my head. Perhaps people initially went online because of COVID, but then they said, "Wow, this is pretty convenient." And now that could be their driving force.

Donahue: There are just things, for me, that I have to buy in person. I mean, we do a tremendous amount of shopping online, don't get me wrong. But when it comes to things like clothing and shoes—those tactile items that, I want to feel it; I want to try it on; I want to see how it looks; I want to walk in the shoes before I buy them, and see how they fit. I don't see myself, personally, ever transitioning to totally online shopping for everything that I buy. I think there's still a need for those types of stores.

Washington: Well, and I agree to some extent. I think that where there's going to be significant drive into e-commerce, there's also a big portion of the retail sector that is less developed in those capabilities and so they'll be hit significantly as we move forward. I do think embedded payments, or some like to say "invisible payments," are going to become more popular, and those are through services like Uber or your food delivery programs—and even with your membership clubs and subscription services, those embedded payments.

Also, I think that when e-commerce really allows customers—consumers and businesses—to be in more control of that payment experience, that they're going to be more successful in retaining those customers over time. Because control now is so important in learning from the crisis, where we had no control over the past events.

King: It's interesting, Nancy, you talk about there are certain categories that you want to go shop in person. And I think for retailers, a lot of online retailers have been concerned with the notion of chargebacks, and fraud and chargebacks. And that's still a concern, but I think there's a new concern—and Jessica, you touched on this aspect of memberships—but this notion of shipping and then returns. I can look at my wife, and she might never have wanted to order shoes or clothes for the kids online. But now she's doing that because, hey, they're offering free returns and will just ship me a different size back and forth.

So I think that's going to be interesting to monitor how retailers manage those additional costs associated with shipping and returns, and is it done through membership programs like Jessica mentioned. But it is going to create additional burden, and perhaps cost, for retailers to manage.

Donahue: Well, and just as you were saying that I was having the same thought: When you think about returns, if you're shopping online for convenience but then you have to return something—and even if it's free returns, you're having to take it to a UPS drop-off or a FedEx drop-off, or whatever—and a lot of that in convenience goes away.

King: Absolutely. Or perhaps you're taking it back to a brick-and-mortar store to make that exchange, and the sole reason of not going—you end up there.

Donahue: Right.

King: And hence, as we talk about retail apocalypse, does that keep retailers wanting to keep footprints? Perhaps it becomes a return vestibule.

Donahue: Exactly, just like we were saying a couple of slides ago: Does the storefront become this location for picking up the items that you ordered online, and for returning them? And they can have a much smaller footprint, possibly, if that's what they're doing.

So during that second-quarter spike, what were consumers purchasing most? Groceries, pet and baby items, according to data from Comscore. I also note the other categories, with significant year-over-year increases—and I am certainly a contributor to those, as one of the many people who has spent this time at home doing major home improvement projects.

King: And to no surprise, you can see events were almost nonexistent during this period. I mean, it looks almost like a 100 percent drop—and I think that's going to be interesting as we talk about the future. What's it going to take to bring people back to those events, and will people go back to the events? I know I'm a college football season ticket holder. You are, too, Nancy. I didn't attend a game this year. I do intend to go back, but I think I have some fellow season ticket holders who said, "Wow, it was really nice sitting on the couch in front of my 70-inch TV, drinking a $2 beer rather than an $8 Coke in the stadium."

So as trends are being monitored, there will definitely be somewhat of a bounce back. But will we fully get back to where people feel comfortable in crowded events, and are they going to want to go back after experiencing them from the comfort of their own couch?

Washington: Yes. And I think that from this year, and however much longer we're displaced, the supply chains have changed and there are workers displaced, and there are new regulatory barriers in some cases. So the ability to go back to normal, if you will, then becomes more difficult.

We did have a comment from the audience that I wanted to share just briefly, from Kent Kirby at Dycom Software, that men and women's apparel—Nancy, you made the comment how important it is to experience the clothing, and I totally get that—but men and women's apparel are dramatically different, he says. "Men's clothing is much more standardized, and as a male I don't see myself ever walking into a store again." And so he'll buy his apparel online. So that makes a good point.

Donahue: Yes, that's an excellent point.

King: Should we jump to the next slide?

Donahue: Yes. I think we're there now.

King: Excellent. So we talked e-commerce, now shifting gears to the in-store experience—which has somewhat become an out-of-store experience, as we'll touch on. But the cash sign that you see there... I'm guessing that everybody participating today has seen that in some way, shape, or form at a store they've entered. Just last month our colleague, Claire Greene, hosted a webinar and spent a lot of time speaking to shifts in cash and changes in cash. But, no doubt, we have seen retailers, and even consumers, want to shudder away from cash for fear of it being dirty, or it might have some traces of COVID-19.

While those myths have been dispelled—or rumors, whatever you want to call them—no doubt they existed, and we are fearful creatures and when we hear some things, we might step away. So that has been a reality of in-person shopping, this idea of maybe some stores wanting to go cashless, to other stores wanting to be card-preferring—or another payment instrument-preferring—over cash.

So what have those other instruments been during this time? Contactless. I hate talking about watershed moments, but within the Federal Reserve System: Check 21. We were sending paper checks all over the country on a nightly basis, flying in airplanes. We had a big event that we all remember in 2001 where airplanes were grounded, and that was a big impetus for the electronification of checks input.

I think we're seeing a similar thing for contactless payments with this COVID-19 pandemic. We've been trying for 20-plus years with contactless card payments in this country, and they've just really struggled to gain any traction. And I finally think we're seeing contactless card payments gain traction, and that can be with the actual card or with a pay wallet, such as Google Pay and Apple Pay.

But as the headline shows, Mastercard now believes that a majority of Americans are using contactless payments. That doesn't mean that every single payment they're making is contactless, it's just that over half of Americans have now made a contactless payment. The National Retail Federation has found during—I think the numbers were through July or August, but they call them "no touch" payments, given the pandemic—but the retailers have seen them increase by 70 percent during this time period. While the base wasn't huge, that is a massive increase over a six-month time period, so to speak.

So I think the COVID environment has been a driving force for contactless so far this year. And then the other driving force, I would also say, and you touched on it earlier, Nancy—I'm going to forget the acronym and screw up how it goes—but the "order online, pick up in store or pick up curbside." And where we really have seen that is in the grocery space. I'm going to look over for some data here, because it's fascinating, but from early March to June, online shopping for groceries—either delivery or picked up—increased from 4 percent of all grocery shopping to 18 percent of grocery shopping. That is a seismic shift. And so, is that going to be sticky or not? Over 10 percent of those folks—and this was in June—said they were going to maintain that habit.

So as the pandemic lasts even longer, I would venture to say that more people are going to maintain that habit. So as we put our thinking caps on: Yes, I think this trend is here to stay, the contactless and "buy ahead, pick up." What do you guys think?

Donahue: I totally agree; and count me in on the online grocery shopping, because I'm totally there. But prior to mid-March, I was primarily a cash user for my day-to-day spending. Since then, I've stopped using cash, but that wasn't for any perceived sanitary reasons or health reasons but just a function of: I'm not going anywhere, so I don't need any pocket money.

Square put out a series over the last year called Making Change. Using their own payments data, they estimated the rate of change in the share of cash transactions, which is down—using their data—about 7.5 percent year-over-year, would have taken three years to occur had it not been for the pandemic. By contrast, by August of this year, approximately 70 percent of their clients were accepting contactless payments.

One thing that, I think, touches on several topics today is the Salvation Army's Red Kettle campaign. I think they are almost the poster child for what's happened in payments during the pandemic, because not only are they impacted by what's happened with brick and mortar, by the function that they set up outside brick-and-mortar stores, but also coin circulation issues. I read an article in Fox Business recently that they estimate their campaign's going to be down about 50 percent this year. And what's so fascinating is you can now make contactless payments using a QR code at the Salvation Army Red Kettle—and also via smart phone device, or by text message. So it's really "adapt to survive," almost.

Washington: I just wanted to say I completely agree with you, Doug. I think that this trend is here to stay. I think payment providers are going to need to cater to customers who really expect interoperability between their phones and the payment systems, so I see more of the shift to accelerated adoption and digital wallets. I also think that we're seeing some global trends where there's a cross between digital wallets and proving identity. And in some cases, for remote working situations and also in situations like customer on-boarding, and other ways like combating transaction fraud... with those trends really pushing us to be able to fight fraud better or provide better incentives, and just tie that to a simple experience—an omnichannel experience, if you will—for consumers, I don't see how it couldn't stick.

King: Absolutely. And Nancy, you mentioned Salvation Army—and Starbucks, just their latest earnings announcement. I thought it was fascinating. Prior to COVID, they were seeing about 60 percent mobile and drive-through orders. During the first quarter after the COVID pandemic, that had increased to 90 percent. This latest quarter, it fell to 75 percent, which is still substantially higher. And Jessica, you talked about future, omnichannel: Starbucks is shifting their store model towards convenience in the future, and so on this call they said their future store roster will be divided by 55 percent cafe, 40 percent drive-throughs, and then another 5 percent of a new pickup store format that they haven't, I guess, fully developed.

Before we jump, because I know coin circulation—you brought that up, Nancy—and I think we're going to touch on that in the next slide, just one other area that we've seen some change this year, but it's going to be more dramatic next year, is how we pay at the gas pump: automated fuel dispensers. The EMV chip liability shift has long since passed at the point of sale for retailers, but it is now set for April of 2021 for the automated fuel dispensers—and that had been pushed back several years and several times, but I think it is here to stay.

I know personally, I've been using chip or contactless more often when I stop to fuel up. Some of the retailers have even created mobile apps, so you can pay at the pump with your phone while you're sitting in your car—still kind of clunky, in my opinion, but it's interesting nonetheless—but that's going to be an area to monitor. It's changing a little for some people; some people might not have experienced that change. But this upcoming year, you will experience the change.

Washington: Good to know. Thanks, Doug. So on the next slide we're going to continue talking about cash and coin, and I'm not sure that we have talked about cash and coin on our year-end review before; we're usually so focused on electronic and digital options and trends, and as we've discussed, cash usage is declining rapidly. But cash in circulation has actually skyrocketed, and rather unusually, compared to other points in history.

And so we know that U.S. consumers are generally holding onto more cash, and cash in circulation continued to increase in April and after. And in November, the U.S. cash in circulation growth had slowed, but it was still increasing by an average of $4 billion per week in November. And so what does that mean? The Consumer Payments Research Group has some surveys out that have been in more rapid collection throughout the pandemic; and they found that both in April and August, surveys show that consumers are demanding more cash. Why might the consumers want more cash? Either they have it because they're stuck at home, and there's less opportunity to spend their cash. Or perhaps the stimulus payments are associated with just having more money, or having more cash on hand.

And then another reason we might have more cash at home—or stored—is for emergency preparedness, and that falls in line with some other research studies that the Cash Product Office at the San Francisco Fed has done regarding hurricane preparedness, seeing that growth in cash holdings. And so then that brings us over to the other side of the coin, and that is that coin circulation has emerged as a new disruption caused by COVID; and many have reported this as a shortage, but it is indeed not a shortage. There's actually more than $40 billion in coin already in circulation, most of which is sitting in America's 128 million households.

In June of this year, we formed the U.S. Coin Task Force; it was established as an industry collaboration group. There have been some recommendations created by the task force, as well as quite a bit of communication. There are also tool kits available on the GetCoinMoving.org website.

What's important here when we talk about getting coin moving is that pennies really do matter. And for some millions of Americans, cash is their only option for payments—and for millions more Americans, cash is actually their preferred payment method. We have to think that the weak circulation of coin—not being able to use cash because you can't get the right amount of change back—does affect millions and millions of Americans. It also hits hardest some of our small, cash-dependent businesses, and some of those groups are least well off.

Those are considerations when we talk about cash usage, and cash holdings, and coin holdings. I encourage everyone to check out the Get Coin Moving website; there actually is a great visual on the supply chain of coin that is a great explanation of how we actually have the circulation issue, and who all is involved in that process. There's also a tool kit, as I mentioned, so a great resource going forward.

King: And I know we have the question feature for questions, but I would love to know—sorry, Jessica, I'm going to have you with wandering eyes here—but for any of our viewers today who actually got coins moving, I want to see what the highest number was. So if any of you guys did your part, put in that number. I know our colleague, Dave Lott—wasn't it like $700 or $800 in coins that he ....

Donahue: Yes, it was.

Washington: And I'm going to interrupt with a question—some questions I'm saving until the end, but I wanted to take this one now: Do you think the cashless phenomenon will reverse post-vaccine? Do you see local regulation increasing to mandate cash acceptance? And I'll turn to you guys first if you have any thoughts on the matter, but I know I do.

Donahue: I would say no, I don't think that we're going to go cashless. I think we'll see more regulations, at the local or state level, put in place for the exact reasons you were just talking about, Jessica—it's a financial inclusion issue. I think that we will continue to see that trend in terms of banning cashless retail establishments.

King: But I do think those people who have access to cashless payments will continue to use them more and more. We've seen debit card usage increase for transactions under $10, which had traditionally been almost always cash transactions—and they still primarily are cash transactions, but I think you'll continue to see debit card eat away at those cash transactions.

But I don't want to get into what cities or municipalities are going to do from a regulatory standpoint. It is interesting, as we talk about this, that it's not unique to the U.S. I just read yesterday that China is mandating that retailers accept the yuan. They might have different reasons for why they would do that, compared to the U.S., but they did cite financial inclusion as one of those.

Washington: Yes. And to that point, Sweden actually last year—I think January 2020, actually—mandated that cash be kept in circulation, but the mandate is actually placed on financial institutions. Sweden is often a country that we point to as being the furthest along in a cashless society, but they do have that mandate in place. And I do find it interesting that the mandate is focused on those that supply the cash rather than those that are accepting it at the retail location.

And then in the U.K., in, I believe it was April of this year, they did mandate that there is going to be some preservation of cash, but they actually have not outlined exactly how that will look yet. So if I were to guess, I think there will be some sort of regulation in place, and—we're going to talk more about financial inclusion in a couple of slides, but—I wouldn't be surprised to see more. And of course, here in the United States the jurisdictions that have mandates in place—like San Francisco, Philadelphia, Massachusetts, to name a few—they are putting the mandate upon the retailer to accept cash. So that's what we've seen here in the U.S. so far.

But let's move on to the next slide, and I'm going to lead in with that. So we wanted to mention person-to-person payments and remittances. Just briefly, this is not a trend that's new. Everyone early in the year predicted this would be a rapid increase in P2P in a digital way. I just thought I'd share some stats with you that kind of checks in on this phenomenon. In Zelle's Consumer Payment Behaviors Report, they found that nearly three-quarters of consumers surveyed were most likely to use digital P2P services in order to provide financial aid to friends and family since the onset of the COVID crisis. So that's quite a bit reporting that they are depending on these mechanisms.

And then there have been some growth statistics that have come from Fiserv, from their credit union base, who are offering the digital P2P options via Zelle. Then Bank of America has also reported seeing a 33 percent increase in cash gifts during COVID through their Zelle.

Then on a different front, NACHA has been reporting P2P growth in their quarterly statistics. Just recently their third quarter statistics came out, and P2P growth rate was at 52 percent over the third quarter of 2019—and then compared with the growth rate back in 2019 over the year before that was 19 percent growth. So, 52 percent to 19 [percent]—huge jump. I think that we do need to exercise some caution when we talk about P2P services. This has been a source of scamming they were exploiting during the pandemic—and I don't want to get to our fraud slide yet, but that's coming up next. And so we just want to make sure that this emergency funds, that we have some caution in place.

Just briefly about remittances—international remittances this year are going to be much lower, and perhaps by a record number. Predictions show that it could be down 20 percent from a year before, which saw a record high. So just to keep a tab on those types of payments as well.

We'll move on to fraud—we are running low on time, so I will pass it back to Doug.

King: That's good. So we won't spend much time on the more dark stuff. But generally when we talk fraud at the Risk Forum, we're focused on card payments. And while card fraud is still out there, we unfortunately don't have numbers from the latest payments study yet on fraud to report, but I think from a card perspective, we're headed in a positive direction, even as we've seen more shopping go online. As I touched on, we know that those fraud rates for remote transactions are higher than in-person transactions; but from the point-of-sale, in-person perspective, I think the EMV chip is here to stay. People said, "Oh, we'll never get used to dipping our cards." We are dipping our cards, so that's been a positive development.

And then online, or for remote transactions, there have been positive developments, whether it's the launch of EMVCo's Secure Remote Commerce spec—more and more online retailers and issuers are using EMVCo's 3DS. Then beyond the card brands or card networks, we've had other providers from an authentication perspective, be it FIDO Alliance, WC3, who are making great strides from authentication. But the fraudsters in 2020—and we've seen this in 2018 and 2019—have been kind of shifting their focus to these bigger honey pots. No doubt in 2020 that's been ransomware and business email compromise.

You can see here on the slide how ransomware—not only has the overall number grown, just a $20 billion industry for the fraudsters, or losses for the good guys, but if you look at the actual ransom that people are paying, or being asked to pay, the growth there has been astronomical. We always talk about, should individuals pay ransoms? Law enforcement and the authorities say, "Absolutely not."

But again, it comes to each individual business, and these fraudsters are hitting the companies where it hurts most. So what does that mean in this COVID environment? They've been going after educational institutions, where folks are being taught online. They're hitting hospitals. Unfortunately, it's not always just dollars and cents that matter, because there are lives at stake.

Business email compromise is a similar dynamic. The bad guys are hitting where it hurts, and I think on the latest projections I've seen in 2020 that business email compromise will result in about $2 billion of losses for organizations. Talking about hitting where it hurts, I just read this week a Philadelphia food bank was hit with a million-dollar business email compromise. These stories go on and on. Jessica and I gave an hour-long presentation, just talking business email compromise and ransomware stories.

So as we think about fraud and losses, 2020 is going to be ransomware and business email compromise. They're going to be the big topics for us.

Then the other area, if we jump to the next slide.

The Risk Forum are big fans of Willie Sutton and his quote—we try to get him in all the time—"That's where the money is." So we know there were huge stimulus programs through the government—it was the $2 trillion CARES Act, of which I think $350 billion was earmarked for this Paycheck Protection Program; another $300 billion in direct stimulus checks to individuals, and then $250 billion for unemployment insurance. So that just attracted bad guys to this pool of money. And we've seen that: the Department of Justice has announced charges for multiple individuals. I think the stolen amounts from these programs were up to around $200 to 300 million. For some of these programs, about 10 percent of that was considered fraud or stolen.

Do you two care to elaborate any more on this topic?

Donahue: There's been a suggestion that the online loan fraud in the PPP program was attributable to challenges in identity verification. In September, a bill was introduced into Congress called the Improving Digital Identity Act of 2020. The primary goals of that bill include a federal framework of standards for digital identity verification services, and also interoperability of state systems that enable identity verification. So it will be interesting to see, in light of the federal government's experience in executing these programs and the fraud that's existed, what will happen going forward with a better program—more discussion about identity verification, digital identity.

Washington: In another development this year, the IRS said that they're going to start, in 2021, allowing all taxpayers to apply for an identity protection personal identification number, which is going to be a single-use code designed to block identity thieves from falsely claiming returns in your name—which, if there's another round of EIP, will also be helpful. Currently, that's only offered to those who have filed an affidavit because they've experienced identity theft. Now it's going to be available to all taxpayers.

All right, so let's move on to the next slide. We do have about five minutes left, and we have some questions that have come in. I'll use this as more of an update rather than discussion. I wanted to point out: financial inclusion has been on our minds at the Atlanta Fed. A couple of years ago, we established two strategies. One is promoting safer payments innovation, and the other is economic mobility and resilience. And we've looked for ways in which these two strategies come together.

So we actually published this year a paper called "Digital Payments and the Path to Inclusion," and we brought up discussion items based on the populations that rely on cash, either as a preference or because of need. We lay out some exclusion issues and bring up how we might solve this going forward. Similarly in the U.K., there's been a call for evidence on how to move forward with protecting vulnerable populations or cash-based users. We announced that we're going to have a special committee on payments inclusion to investigate these particular issues.

We do have a new focus at the Fed, to focus on inclusive recovery—and that includes the digital divide, which has been widened during the COVID pandemic. So there's a lot of research going into how the digital divide, and financial stability, are contingent upon each other.

Let's go ahead and move to the last slide. Doug said we had 20 seconds per bullet, so that will keep us in line. And then we might have time for a couple of questions.

King: So I'm going to take no time for my bullet. It says there, "central bank digital currencies." Quickly: the Boston Fed, in collaboration with MIT, is actually researching this topic, which has been a shift from the Fed from years prior. Again, we could spend an hour on this slide. So in the questions, if you want another hour from the Risk Forum, comment there and we'll put Claire and Dave on the spot for that next session.

Washington: Great, and I'll cover fintech. So we know that COVID has stifled innovation. It's reallocated our resources. But we do think that there's—or at least I do—I think there's an opportunity for fintechs in this space to really create that control, and that holistic view of consumers' finances, and making sure that businesses have more control of their payment options and can see across accounts. And so that's really an opportunity for a fintech, so as investments might be strained at the moment I think that there's going to be a lot of need and problems to solve for.

Donahue: All right, and in terms of the third bullet, earlier this month the U.S. House of Representatives passed the MORE Act—which, depending on the news source you look at, is viewed as largely symbolic in some ways. It does mark the first time that a full chamber of Congress has passed a bill of this type. But if no further action is taken on the bill by January 3 when Congress adjourns, it will be reintroduced in a future session.

In terms of gambling—sports gambling—it's now legal in 25 states. However, some banks, card issuers, and digital wallet providers continue to restrict online gambling transactions. So, more to come on both of those topics.

Washington: Very exciting. And finally: real-time payments developments. First, I do recommend checking out FasterPaymentsPlaybook.org. This was a collaboration project organized by the NACHA Alliance Group. FasterPaymentsPlaybook.org covers the faster payments options that are out there today and attributes of them, and also some strategy planning for those interested in moving forward there.

FedNow developments: If you've been wondering, this year we saw the initial features and functionalities shared. We also saw an ISO 20022 working group that's nearing their completion and recommendations. We also saw Reconcilement Working Group stand up for FedNow. Then there's a FedNow pilot program option available. We saw FedNow go out to fintechs and other vendors to explore the possibility of a sandbox—so more to come in that space.

I do think that instant payment strategies—real-time, however you call them, faster payments—it will be a time where we are focusing on contingency planning and resiliency planning, but it seems like a lot of solutions are necessary in speeding up the ways in which we exchange those payments in this particular situation. So I think that's a stay, continuing into 2021.

It looks like we are out of time, so I'm going to actually take our questions and we will go back and answer them, and we'll post those questions and the answers on our website, along with the recording of this webinar and the prior webinars from 2020. So I will pass it over to Jean. But if Doug and Nancy—do you want to have a closeout word?

Donahue: Just thank you, everyone, for your support, and happy holidays.

King: One question: Paul, if either of our universities played football, I might go to that game. [laughter]

Roark: All right, and with that, I'd like to thank our speakers today—Nancy, Jessica, and Doug—for sharing their time and expertise with us. A survey is now available to those of you who joined our webinar, and you will receive an email following this event shortly. You only have to fill it out once, but we really do appreciate every bit of your feedback.

Thanks again for joining us. This concludes today's Federal Reserve Bank of Atlanta Talk About Payments webinar. Enjoy the rest of your day.