Federal Reserve Bank of Atlanta Talk About Payments Webinar

Payments 2021: The Year in Review Transcript

Dave Lott: I want to thank each of you for joining us today and taking time out of your busy schedule to view our last webinar of the year. I'm delighted to be joined on the panel today by my colleagues Nancy Donahue, Claire Greene, and Jessica Washington. However, all the members of the Retail Payments Risk Forum team have been involved in the development of this webinar, and collectively, we represent approximately 150 years of financial services experience. At the Risk Forum, we work to identify risks in the payments space and to promote steps to reduce it through education and collaboration.

While those of us in this webinar are participating from our home offices, we wanted to give a shout-out to those on-site workers, both in the Federal Reserve System as well as throughout our economy, that have kept things moving.

Now that you know more about us, we have a quick polling question to allow our team to learn a little bit more about your professional role. Jean, could you launch the polling question? It should pop up on the right side of your screen here asking you to identify, of the categories listed, the best one that fits your role in the payments industry.

While we're waiting for you to submit your answers, I wanted to talk a little bit more about the Risk Forum's education mission. We produce a weekly blog called Take On Payments, and we hope that if you're not already a subscriber that you will sign on and become one. This week's topic is how changes in the casino industry have impacted payments and banking services, so we cover a wide range of subjects in our weekly blog.

Jean, can we see the results of the survey here? While those are coming up, at the end of this presentation there's a resource page that has links to all of our blogs, our webinars, our white papers, and the payments research studies that we are involved in, and we hope that you will use that as a frequent resource.

So the poll has ended. Okay. As expected, an overwhelming 61 percent—almost two-thirds of you—are in the financial services area. Good to see we've got some payment geeks in the audience as well. We expect some fabulous questions from all of you here. So, thank you for participating in the survey. We can go to the next slide.

As has been our custom, we devote the last webinar of the year to sharing our perspectives on the major payment issues and trends of the year. I don't have to tell you that the impact of the global pandemic on society, our payments behavior, our overall behavior, the economic conditions locally, nationally and internationally, have just been tremendous. The risk of illness, the tragic loss of life, the rules with regard to our social behavior and distancing, the huge surge in people working remotely for some industries, and the business shutdowns and the resulting loss of jobs—as well as stimulus payments—are many of the factors that have affected payments behavior of consumers and businesses.

But today we're focusing in on payments, because payments are essential services—critical to the smooth functioning of our economy. As you can see on this slide from the list of topics that we plan to cover, we know that there are many more topics that could be covered if time would allow. And we want you to identify those that were skipped and that perhaps we can address in the Q&A section. As we go through our discussions, I'm sure we're going to come back to that first item on the list because it has so many impacts on us. Again, I want to emphasize your ability to ask questions in the Q&A panel.

And finally, I need to provide our standard Federal Reserve disclaimer that the views presented here by any of the panelists are our own and not necessarily those of the Federal Reserve Bank of Atlanta, or the Federal Reserve System.

At this point in time, I want to turn it over to Claire Greene to get us started. Claire?

Claire Greene: Thanks, Dave. Hi, everyone. Thanks for joining today. You're up on the news, so you're probably pretty familiar with the general outlines of what I'm going to say. I did report on the payments and household finance response to COVID-19 in the July webinar, and you can see those additional slides at the Risk Forum website.

For today, though, I'd like to dive into the details a bit and talk about how the impacts of the pandemic vary quite a bit for different people. Employment status, living situation, income—all these different factors played a role. Looking at this slide first, we'll just take a quick look at the overview. In the chart you can see a dark, black line. That is separating online purchases from in-person purchases. The bars represent the three most recent years starting at the top: 2018, 2019, and 2020.

One thing that you can see that's notable about this chart is sort of a gentle shift to the left in 2020, when the share of all purchases by consumers made online increased to 16 percent. And you might think to yourself, "Well, that doesn't sound like such a big number," but it is important to keep in mind that payments behavior and shopping behavior is a habit, and as our habits, we cling to them—even in the face of some of the factors that Dave just mentioned.

To look a little bit at how different types of people are affected: looking at online purchases, higher income groups changed more. They increased their percentage share of online purchases more. Just for example, people with household income between $50,000 and $99,000 increased the share of their purchases made online from 12 percent in 2019 to 18 percent in 2020. In contrast, people in a lower-income group with household income between $25,000 and $49,000 actually had the same share of online purchases in 2019—12 percent—and they increased to just 13 percent in 2020.

This is a reminder of the first rule of survey research, which is to not use yourself. Your own experience may not be typical. Household income in the US is about $63,000 this year.

Another thing that we can see on this chart in the blue bars is that the percentage share of payments made with cards has increased, and also that most of the growth is coming to the left of that dark black line—so 3 percentage points, or three-quarters of the growth, occurred in the fact that people are making more online purchases.

And then looking at different kinds of people, people who work at home use cards more. They use cards for 81 percent of their purchases, compared to all consumers generally who use cards for 69 percent of purchases. And these are, of course, descriptive statistics. It's also the case that people in higher-income groups were more likely to be able to work at home (and there is data, of course, showing that higher-income groups use credit cards more). All those factors bundled together do play into this finding.

Another thing that we have found is that the use of cash in person, at the in-person point of sale, did decline slightly in 2020. I'm sure you remember, especially at the beginning of the pandemic, seeing those photos of clerks putting spray cleanser onto cash and just a lot of fearfulness about physical proximity. But still, even in April 2021, we do find that consumers still are making fewer in-person payments compared to their pre-pandemic levels.

And then, at the in-person point of sale you can think about ways you might have tried to pay—for example, contactless, or using a digital wallet—in your effort to reduce physical proximity, so this could also be a factor.

And then the last thing that I want to mention that's different for different kinds of people is person-to-person [P2P] payments. The vast majority of person-to-person payments still are made by paper methods—that's check or cash. Looking at different age groups we find that prepandemic, the younger age groups were already relatively high users of P2P payment apps. In the pandemic, it was the people in the middle years who changed the most. For example, of people between the ages of 35 and 44, just about 30 percent of them had used a P2P payment app in 2019—and that jumped to 44 percent in 2020.

I think about this P2P data in terms of our learning: we've learned to social distance, we've learned to attend weddings on Zoom, we've learned to pay another person by a method that isn't paper, and it's relevant to think about learning in terms of trying to think about how things might change—or remain the same—as we move forward.

This data is reported by consumers, and later Dave is going to talk about P2P more from the industry perspective in terms of consumer protection, risk management, and the payment services providers.

You can see here, this chart shows the percentage shares of US consumers who have adopted some sort of a technology-enabled way to pay. And you can see here that all these lines are increasing, generally, over the last five years or so—that this is not necessarily a 2020 phenomenon. When you look at the slopes of these lines, however—and we're reading from the top: online banking, making an online purchase, using mobile banking, or making a mobile payment—you can see, between 2019 and 2020, that the slopes are getting steeper here, especially for mobile pay (and that's the bottom, very darkest line).

So people who had set up and were ready to use some sort of mobile payment method went from 38 percent in 2019 to 46 percent in 2020. And we do have two-thirds of consumers saying that they made at least one online purchase in a typical month in 2020. So again, we learn how to use mobile pay and then maybe we use it more. So that's why this data is of interest.

Again, this data is reported by consumers. And payments is a two-sided market, also involving the business point of view.

Jessica Washington: Yes, Claire. And I think it's interesting, and a good sign, that consumer adoption is trending upwards because I'll talk about the business side and how the fintech trends are going in a few slides.

Greene: Yes. Lots of opportunity there, that's for sure. Looking into these newer ways to pay, the Federal Reserve Payments Study provides a different perspective from banks and credit unions, from card networks and issuers, on some of these newer ways to pay—including (of course) paying remotely, making a P2P payment via electronic means, use of digital wallet, and something I know Dave is really interested in, which is the use of the contactless card at the in-person point of sale. Data from that study, for 2019 and 2020, is coming out next week.

What I think is going to be fun—well, "fun" is a bad word for this; it's going to be really fascinating to look at—is to see how the path of the pandemic in 2020, sort of quarter by quarter, affected various aspects of the payments system. The payments study in 2020 in response to the global pandemic did collect quarterly data, so you can see how behavior, say, was different in Q1 compared to Q2. And just as a reminder, the national emergency was announced on March 18th, so right at the end of Q1.

Nancy Donahue: Moving on to more items that we have seen in the news over the last many months, the critical infrastructure attacks—such as the ones involving Colonial Pipeline, SolarWinds, major global IT service providers, and the world's largest meat producer—have kept the ongoing threat of ransomware in the mainstream news throughout this year. And although globally the number of monthly ransomware attacks is lower in 2021 compared to 2020, as you see in the slide here, they continue to trend upwards, according to data reported by the company BlackFog.

Also, according to the FBI's Internet Crime Complaint Center (IC3) statistics, in 2020 there was a 20 percent increase in ransomware attacks and a 225 percent increase in ransom amounts. Yet it remains widely reported that ransomware attacks are believed to be underreported. Based on government data released just this past October, ransomware payments exceeded $400 million globally in 2020—and just in the first quarter of this year exceeded $81 million dollars. According to FinCEN, ransomware-related SARs filings in the first half of 2021 exceeded all of those reported in the year 2020.

But conversely to the increase in ransomware incidents, ransomware payments appear to have declined in value over the last few quarters. And according to data reported by Coveware, while having peaked in the third quarter of 2020, both the average and median ransom declined approximately 40 percent in the second quarter of this year compared to the first quarter, but it is suggested that this decline is attributable to the proliferation of ransomware as a service rather than a decrease in the ransomware threat.

And in terms of attack vectors, bad actors continue to employ the same tactics with success, with brute force attacks on remote desktop protocol and also email phishing the two most prevalent points of entry for ransomware attacks in the first half of this year. We know from our own information security departments in our respective organizations prevention of brute force attacks includes the use of strong passwords, the use of a VPN, and also multifactor authentication. According to the Cybersecurity and Infrastructure Security Agency, which we refer to as CISA, the use of multifactor authentication makes it 99 percent less likely that you will be hacked.

CISA also reports that over 90 percent of successful cyberattacks start with a phishing email. And Claire, you recently wrote on this topic and the importance of the human firewall in our Take On Payments blog.

Greene: Yes. Like Nancy says, a lot of it is up to us. I think all of us are really pretty familiar with the rules-based training, where we're trained to identify attacks. And this training is extremely important. It tells us things like don't click on links from unknown senders, check the email address bar, et cetera. It's possible, it turns out, based on a research study that I recently read about) that to—not to replace rules-based training, but to augment it by mindfulness training. I know over the past two years, we've all been paying a lot of attention, breathing in, breathing out, trying to relax a little bit in the context of our situations.

And this was a study at a university—where I learned, first of all, that university students are notoriously susceptible to phishing attacks—where students were divided into two groups. Everyone got the rules-based training. One group got a refresher on the rules-based training. And the other group was taught the mindfulness approach, which basically is: pay attention, don't necessarily approach your email with the idea of "How quickly can I get through this?" as your first thought, and just by paying attention and slowing down a little bit.

These two groups were given a phishing simulation attack about 10 days to two weeks after the training, and the group who had had the mindfulness training did much better in identifying the phishing emails. So just a little something you might want to add to your toolkit.

Lott: Yes, that's very interesting. One other aspect, Nancy, you mentioned about even though the average ransomware payment has declined, the number of attacks has increased substantially—and I think that part of that is due to the fact that the criminal enterprises have expanded the target area for ransomware attacks. Initially, it was large companies, government entities, things of that nature. But now they've gone down to the mid- and even the small businesses—who they know don't have a lot of money to give, so their ransom payment is low, but they're going for quantity to make up for it.

Donahue: That's so true. No one is immune, whether business or consumer. Cybercriminals continue to leverage legitimate payment streams to receive their ill-gotten gains, as this word cloud is intended to capture—these are just a handful of those different payment channels that have been used in these attacks. Direct transfer, for example, follows traditional BEC [business email compromise] and EAC [email account compromise] scams, which we've discussed a lot on our webinars and in our blogs, where the victim receives a spoofed email containing doctored wire instructions, and the requested transfer is directed to a traditional DI [depository institution] where the cryptocurrency exchange has a custodial account.

Second hop transfers are also employed in BEC and EAC scams, but in this iteration the PII that is gathered from victims of previous scams is then employed to facilitate payments from future victims. "Chain hopping" is a practice of converting funds from one convertible virtual currency (or CVC) to another, and this practice increases the difficulty in identifying the origin of the funds. Similar to chain hopping, "mixing services" are websites or software intended to conceal the source or the owner of a CVC. "Anonymity-enhanced cryptocurrency," as the name suggests, is cryptocurrency with enhanced privacy and anonymity features—which, again, results in posing challenges to law enforcement to trace the movement of illicit proceeds.

Our colleague Scarlett Heinbuch blogged about crypto ATMs earlier this year in our Take On Payments series, and bad actors have also found a way to employ them to facilitate payment for fraudulent schemes. As we have learned and seen in our own experiences throughout the pandemic, while many businesses have legitimately employed QR codes to facilitate payments during the pandemic, QR codes also play a role in malicious use of cryptocurrency payments.

And with all of the news and high-profile infrastructure attacks that have taken place, there have been several new federal initiatives that have been implemented in 2021 to increase and improve prevention, reporting, and law enforcement efforts, including two from the Department of Justice just in the last couple of months—the first one being the Ransomware and Digital Extortion Task Force, which is intended to disrupt, investigate and prosecute ransomware cases. And then the National Cryptocurrency Enforcement Team is committed to disrupting the misuse of crypto committed by the virtual currency exchanges, mixing and tumbling services (that I mentioned before), and other money laundering activities.

If you are interested in learning more about how to protect yourself or your organization against ransomware, one of the other resources that has recently been established is the stopransomware.gov website, which is a centralized hub of federal cybersecurity and law enforcement resources.

Jessica, I know you're going to talk next about fintech issues, and there's certainly been a lot of investment around cryptocurrency in the fintech space in the last year.

Washington: Yes. Thanks, Nancy. Our next topic is fintech issues, which attempts to cover a good bit of ground. 2021 has been a great year for fintech funding and activity—the third quarter saw the second-highest-record quarter, making 2021 an all-around record year across the globe. Payment fintechs have had a great year. Funding in 2021 is already up about 80 percent, and US payment startups are actually leading in funding throughout the globe—and they had a blockbuster Q3.

It has been a record year also for payment unicorns: 31 new unicorns were added this year, bringing the total to 58. (My offline challenge to you is, "Can you name 10?") Big tech companies have shifted their activities a bit after their "big payments" push last year. We see big tech is now turning their attention to lending. Amazon, Facebook, and Google have a strategic focus on the business side of lending. meanwhile, Apple is really leaning on their sticky products and their loyal customer base and are more focused on the consumer lending side.

But we do know that small and medium-sized business lending is a very lucrative opportunity, so it makes sense that these big tech giants are positioning themselves this way. I saw one prediction that that market—the small, medium-sized business lending market—could hit about $3.5 trillion next year.

US banks are future-proofing as well by investing in fintech. We did see a dip in bank-backed fintech investments back in 2020, but there's already been a good bit of recovery in 2021 in this space. Banks have had a fairly steady portfolio over the past few years, with their popular investment categories being capital markets, wealth management, and alternative lending. The only new trend to talk about would be blockchain investments. They're showing a resurgence after slowing down after the 2015 highs.

And while we know that fintech has undeniable growth, the path forward isn't so clear when we start focusing on strategy and operational business models. There's a lot to think about when fintechs decide to either merge, go for an IPO, or perhaps charter, and whatever partnerships come of those classifications. The choices that they have have really big implications for the risk and regulatory responsibility that they accept, so it's not an easy strategy to think about.

And we are seeing a trend towards banking as a service. Last month, Green Dot executives reported that they expect high growth in banking as a service, and recently, they've seen big growth in their business-to-business service segment due to these banking-as-a-service programs.

And so, open banking in the United States: this is a big piece of our fintech ecosystem and conversation, especially over this past year. The reason this topic has made our list is for several reasons, one being the amount of capital that's pouring into this space—2021 investment dollars will beat last year's record, and that just leads to some sky-high valuations in the open banking market.

We continue to hear that financial institutions are interested in open banking, and we've seen some action that is fueling their open banking strategies this year. Mainly we've seen banks moving away from the passive, less secure, screen scraping technology and moving into adopting an API approach. That increases the security of those connections with third parties, and it increases the possibilities for data exchange. With these possibilities, open banking is really showing banks that they have new ways of acquiring and engaging—and expanding—their relationships and customers, and it drives revenue opportunities (potentially).

There are complications in this space. There are thousands of banks, and lots of data aggregators, and lots of fintechs. Developing APIs for sharing customer data is not necessarily an easy task for this ecosystem. And particularly, it's not easy for smaller financial institutions that do not have the resources to develop their own APIs. And so it's likely this type of transition could take many years.

Some events that happened this year that show us the interest from financial institutions: we know the Financial Data Exchange (FDX) group, which is a nonprofit industry standards body, has welcomed 26 new members just since May. That brings up their membership to 208 members. That is made up of some financial institutions as well as third parties. Also, we saw that Mastercard bought Finicity, which is a data aggregator and an open banking platform. And Visa made a play for Plaid, which didn't end up playing out this year.

When we talk about open banking, we shift into the regulatory thought process. And I think it's important to point out that the catalysts for open banking across the globe really could point back to two regulatory events—one being Europe's PSD2 initiative, and the UK's Open Banking initiative—and both rolled out about 2017, 2018. And the principal driver for authorities to make a regulatory approach was to stimulate competition in the financial services space.

The US is taking a market-driven approach, with more limited regulatory action and guidance so far. But it should be noted that the Consumer Financial Protection Bureau (CFPB) does have the authority under Dodd-Frank to promulgate rules around consumer financial data sharing, and it does say currently within the Act that when a bank is required to meet requests for providing consumer data that they should do so in an electronic form and it should be usable by the consumer. There was also a presidential executive order back in July that encouraged the CFPB to issue additional regulations in this space.

And I'd like to point out that this conversation is part of a larger data rights conversation, and data portability and interoperability. And that, historically, data protection laws have been focused on restrictions and when not to share or what can be shared. Open banking is really more about a permissive use of data, and so that would cause a large shift in how we've written regulations in the past.

Also, I want to point out that the trouble is, what is "open banking?" The FDX organization describes it as access to permissioned consumer and business financial data, with the purpose to improve financial experiences. The tricky part is that traditional banking also has a history of sharing data with third parties. What makes open banking different is the method of the data exchange, and here in the US we have two technologies in play.

Also, the use cases for open banking do vary a good bit. When you think about from a bank's perspective, an open banking strategy can improve their processes—like lending decisions and verifications, managing account history, statements and transactions, and transactions compliance-like things, and operational things that the bank needs to carry out. But from a consumer's perspective, when they drive open banking, it's looking at products that are focused on personal finance management, tax preparation, applying for a loan, opening new accounts, and even making payments.

And so how we talk about it—and if we ever are talking about regulation, or even just risk management—all of those use cases are very similar, but not as centric to an "open banking" catch-all term. There are a lot of nuances that go into those use cases.

I think it's time that I pass it over to Dave.

Lott: Thanks, Jessica. I wanted to take a few minutes to quickly dive down a little bit into some of the topics that Claire introduced in earlier parts of the presentation here today. This graph perhaps more dramatically shows the impact of ecommerce sales. The blue line is showing ecommerce sales as a percentage of total retail sales. As you see, the dotted vertical line showing the end of the first quarter—which is the end of March, and the start of the pandemic—showing that increase of 430 basis points is just seismic in nature.

Since that time, it's dropped down a little bit. But it's still at 13 percent of overall retail sales being ecommerce. And as you see in the red, rust-colored group again in 2020, the year-over-year quarterly results were just staggering. Of course, we knew in the early days you had a lot of retail businesses and restaurants that shut down their physical operation and so had to move over to the online ordering and the pickup side.

It's going to be really interesting. We talked about all these factors of what's going to happen in the future. We're already seeing some change here in terms of, as stores reopen, there's a return to in-store shopping. You look at the Thanksgiving sales numbers and even though they were very strong, they were pretty much static [compared] to 2020, and in some cases slightly below that.

And then there's been mixed messages from the third-party delivery services, in terms of their business levels going down, people being more comfortable going to the stores—perhaps they're not going in the store, they're doing a "curbside pickup" kind of thing as opposed to home delivery. So it's going to be really interesting to see how these changes continue on in 2022.

Claire also mentioned about P2P—peer-to-peer, person-to-person, whatever terminology you want to use. The fact of the matter is that the vast majority—70 percent of P2P payments, based on the Diary of Consumer Payment Choice—were still being done by paper—by cash, or by check or money order. But as you can see on this graph here, the P2P share electronically certainly is increasing as the applications grow more popular and gain usage there.

As you can see on this slide here, Zelle is the dominant force, followed by Venmo. Of course, PayPal also supports P2P, but they don't report their P2P transactions different from their purchase transactions so we could only show the Venmo numbers here. But still, look at the year-over-year growth. Tremendous activity here.

I'm going to talk next about buy now, pay later (BNPL). These electronic P2P companies, they're all making acquisitions on a global basis with regard to companies involved in the BNPL space so that they don't get left behind there.

There are a couple of issues here. We know in the electronic P2P space, the transactions are, for all purposes, instantaneous, if you will—settled within a couple of minutes—and the criminals are taking advantage of that. They're using that as the payment method of choice for their scams because of the finality of those payments. In reaction to that, the consumer advocacy groups have been encouraging the CFPB to look at trying to provide greater protection when consumers are scammed.

Many point to the efforts that have been launched in the UK, with their contingent reimbursement model (which was just adopted back in 2020), which basically says the customer is going to be reimbursed for a P2P payment that they made related to a scam if it's determined that that payment was through no fault of their own. In other words, would the common person feel that it was legitimate and only later find out that it was a scam? So again, something that we're going to be interested in following in the future here.

Buy now, pay later—what a phenomenon that has been. That truly has been the payment phenomenon of 2021, from my perspective here. Claire touched upon some of the activity by age group here. This chart here shows some results of a survey that were done by a unit of the Motley Fool back in July 2020 and then eight months later in March of 2021, where it showed almost 56 percent of their respondents had used a BNPL program as of March '21.

And you look at the numbers here—even though that 55+ group had the lowest usage level, if you look at the change from July to March: 98 percent growth. So even us old folks aren't immune to the buy now, pay later enticements coming through. And I think, Nancy, you remarked when we were preparing this about your experience this holiday season.

Donahue: I have done 100 percent of my Christmas shopping online, and I have received a buy now, pay later offer on every one so far. So it's certainly out there in so many websites this holiday season, like never before.

Lott: It is. But along with any new payment method, there are some issues. There was a congressional hearing just last month with regard to both earned wage access as well as buy now, pay later. The concerns from the consumer advocacy groups really fall into two categories. one is about late fees—that Motley Fool survey indicated almost a third (31 percent) of the people that had a program had incurred a late fee. And those fees generally are less than $8–10, but in some programs can be rather high numbers.

The other aspect is a concern about credit agency reporting, and the inconsistency in that some programs will not report good payment behavior, but they will report late payment behavior. And so there's that inconsistency there. Certainly, we all know that at the CFPB, there's been a change in directors there related to the change in administration. And also, they've been looking at those additional consumer protection issues.

So finally, talking about overall fraud issues here—we can jump to the next slide there, Nancy—criminals go wherever the activity is, wherever the opportunity is. And the merchants have this age-old problem of balancing a positive customer experience with having the necessary fraud prevention and detection tools—the more tools that they employ, the greater risk there is for a negative customer experience and the customer abandoning the transaction there. We've seen 3DS come into play, the new version of that, and that seems to be holding a lot of promise. But again, the key—just like the ransomware attacks, with phishing—customer education is the key to all of this.

So we're going to move on, since we're running short on time here.

Washington: Dave, I just had a quick comment: I've seen some articles recently about the rise of friendly fraud again, and I know it's a topic that you have studied and written about a lot over the years. But it seems like with the buy now, pay later boom, maybe there's potential for more friendly fraud in that kind of realm. I don't know if that's something.

Lott: Yes, that is a very legitimate concern. And the merchant community is indicating there has been a rise in friendly fraud—first-person fraud, if you will—so it's something they continue to battle.

Washington: It looks like it will be on our agenda next year, too.

I'm going to present payments inclusion, first by explaining a little bit about economic mobility and resilience. The Atlanta Fed, the Sixth District, has three high-priority initiatives, one of which is improving economic mobility and resilience. So that means that when times are good, you're able to get ahead, and when times are tough, you're able to bounce back.

We also have another high-priority initiative of promoting safer payments innovation. And we have a mission to promote accessibility, efficiency, and the integrity of the payments system. We operate payments systems. So both initiatives are very high priority, and we're very motivated to work within those realms.

So a little bit of diving into that topic: as you can see today there's no denying that payments are increasingly faster. They're increasingly digital. But as Claire always tells me—and I always remember this, Claire—payment behaviors are very slow to change. And so as payments are increasingly digital, we have to remember that cash is still very much on the table. More than 99 percent of us actually have some sort of cash or make at least one cash payment a year—I'll attribute that to Clare as well. And then also, those who use cash most tend to be of vulnerable populations.

So this year, the Atlanta Fed has set up a special committee on payments inclusion, and we want to be sure that cash-reliant consumers, or vulnerable populations, are not further marginalized from the economy as we become increasingly digital. So we are investigating and we are going to dig into what digital payment benefits can actually promote economic mobility and resilience—with not all payments being equal, right?

We intend to publish an initial report the first quarter of 2022 that will present the problems that we intend to tackle as a committee. The committee is made up of private parties, external stakeholders, and it is a diverse group of stakeholders as well. And then a year later, we hope to present some recommendations to the industry about paths forward to promote payments inclusion. So it's been a great opportunity—it's a valuable effort—but there's a lot happening in this space, so it pays to be very cautious.

For instance, when you think about innovations like faster payments, how can faster payments impact payments inclusion? And so that is an exercise that we are considering in our work.

And that brings us to our final topic today, which is faster payments. I think it's important to point out what are faster payments, and it encompasses electronic services that can provide funding within seconds or within a few hours. And that's sort of our US version. I've seen other things that assume that all faster payments should be instantaneous, but in our ecosystem we can talk about instant payment services—which would be available within seconds from the payer at the exchange there—and also, same-day ACH credit is a faster payment service, making use of an existing network and speeding up that settlement time. Also, we see more developments in the push-to-card payments where the push can be made within minutes of that payment initiation.

Now faster payments this year—I think the summary of it all is that we know that people are interested—businesses, financial institutions, and consumers. There was a survey that the Federal Reserve published of businesses' interest in their readiness for faster payments, and the primary objectives were to talk about what current practices they might have in place and point out any pain points and bring any awareness about the potential benefits for faster payments. There were some positive results there, that many businesses are already using some form of faster payments, and they expect to be able to use additional faster payment options within the next three years.

There was another report that was published this year, sponsored by Fiserv and produced by Javelin. They examined consumer perceptions of real-time, or faster, payments. They did state that there was some worry that 60 percent of consumers had some misconceptions about real-time payments in thinking that it wasn't necessarily the type of payment, or the technology behind it, but more so based on the hours or the day—so is it outside of banking hours, or was it on the weekend? And so that was a perception that consumers had about when a payment was fast or instant or not.

But in contrast, consumers also had a perception that nonbank apps—like digital wallets, that Dave just talked about—that those are actually instantaneous to their bank accounts when they want them to be.

I think that in conclusion, faster payments—we know there's great interest. This year a lot of ROI [return on investment] was proven in many different reports, but now is really a time for businesses and financial institutions to advance their operational knowledge and really get down to the nuts and bolts so we can think about how all of these different technologies will interoperate.

So I think it's time to look to the future. right?

Lott: Thanks, Jessica. Yes, 2022 is just around the corner here. And we'll leave you, before we jump into a couple of questions, with these quotes. The Federal Reserve clearly is going to continue the research efforts that we do to monitor the changes in payment behavior by consumers through the various studies that are done, and we will be publishing those. We're always pushed for time with the questions, and we've got a lot of great questions that have been submitted, so I'll turn it back over to you, Jessica, to pick a couple of them that we can address here in the next couple of minutes.

Washington: Okay, let's do that. We did have one comment I just want to share, that it looks like just before the webinar started, the CFPB opened a buy now, pay later inquiry from some technology companies. And that's probably because they knew we were going to talk about it. So that will be good to go and look at afterwards. Thank you for sharing that.

Here's another question, and this is directed towards Dave: If CRM—and that was on one of your slides, contingent reimbursement model—if it's enacted, what would the incentive be for FIs to enable irrevocable payments like faster payment models?

Lott: Yes, that's a great question. It's a pretty new experience over in the UK, so they don't have a lot of research done yet, although the preliminary is that the financial institutions have adopted very different attitudes towards their review of the cases. There was one financial institution that indicated that they reimbursed 100 percent or 99 percent of the claims. Another institution was as low as 10 percent.

Because it's not automatic. It's still a very subjective process by the financial institution, but there is a very strong concern that, again, there would be friendly fraud associated with such transactions in that. As well as the issue of—if I'm a victim of a scam and I go buy gift cards or some other means, I don't have any protection in that regard, so why should I have protection? So there are different sides of the argument with regard to that reimbursement model.

Washington: We might have time for just one more question, for Claire. Could you go over any insights into 2021 cash usage—like have the downward trends continued, or has there been some recovery as economies reopen?

Greene: I think that one thing that really is very important for cash usage is whether or not people have shopped in person at all. We do have a report—it's on the San Francisco Fed website (the Atlanta Fed and the San Francisco Fed collaborate on these consumer surveys)—we have a report showing that in-person shopping really dropped to the point where just about one third of consumers shopped in person in April 2020. And in August 2020 and then again in April 2021, it's up to about 60 percent of consumers saying they made at least one purchase in the past 30 days in person.

If we combine that with the data about people who say they made a cash payment for any of their in-person payments, that actually doesn't fluctuate anywhere near as much. So, whereas in the past we might have found that, say, 60 percent of people had made a cash payment—and that would be because 99 percent of them had shopped in person, just for example—now when we find that 60 percent of the in-person payers are making a cash payment... well, you have to take into account that only 60 percent of people shopped in person. If you do the math there that would put you up at about just 35 to 40 percent of people making any kind of a cash payment in the past 30 days.

So that's our most recent data from April 2021. We did complete our full surveys again in October 2021, and the data should be out, I think, probably in April 2022. But meanwhile, at the San Francisco Fed website, you can see some charts related to this. There's also more detail on cash usage at the Atlanta Fed. Anyone who's interested, you can email me and I'll send links.

Lott: Thanks, Claire. And thank you, Jessica. Just really quickly, before I turn it back over to Jean to close us out here: we had many other questions submitted that we weren't able to get to, but we will post those questions and our responses to those on our web page here next week.

So Jean, back to you to close us out.

Jean Roark: All right. Thanks so much, Dave. Well, we'll be sharing a survey with our participants. That will come via email after our event concludes, and we do look forward to hearing your feedback. I'd like to thank our speakers for sharing their time and expertise with us, and also thank our attendees for joining.

This concludes today's Talk About Payments webinar. Enjoy the rest of your day.