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Click to edit Master title style Secondary Title Payments 2021: The Year in Review Talk About Payments Webinar Retail Payments Risk Forum December 16, 2021 Click to edit Master title style Logistics Secondary Title 2 Retail Payments Risk Forum Click to edit Master title style Presenters Secondary Title Nancy Donahue Claire Greene Dave Lott Jessica Washington 3 Click to Question edit Master title style Polling Secondary Title What is your role in the payments industry? • • • • • • • Consultant Financial services Government/law enforcement Merchant Payments geek Technology provider Other 4 Click to edit Master title stylePayments 2021 in Review Secondary Title Impact of COVID-19 Data Security Fintech Issues eCommerce Trends Payments Inclusion Digital Currency 2022 Payments Outlook • Your Questions • • • • • • • The views expressed in this presentation are those of the speakers and do not necessarily represent the views of the Federal Reserve Bank of Atlanta or of the Federal Reserve System. 5 Consumer Behavior Click to editPayments Master title style 2019–20 Secondary Title Shares of purchases by US consumers REMOTE PURCHASES CLIMBED Higher income groups’ online purchasing surged. ONLINE 3% 10% IN PERSON Cash 30% CARD SHARE OF PURCHASES GREW Most of the card increase is due to the increase in remote purchases. At-home workers used cards most. USE OF CASH IN PERSON DECLINED Fewer consumers used cash even once: 78.4% to 69.2% from 2019 to 2020. NOT-PAPER P2P INCREASED Middle-aged groups—35 to 55—increased shares of notpaper more than did younger groups. 2018 Card 53% Other 4% 2019 3% 10% 29% 55% 3% 2020 3% 13% 25% 56% 3% Source: Survey of Consumer Payment Choice 6 Consumer Click to editTrends MasterAccelerated title style Secondary Title Shares of US Consumers Adopting Online banking 79% 75% Technology adoption trended up for at least the past 5 years. 66% 71% Online purchase 64% 59% Mobile banking 54% Changes from 2019 to 2020 were pronounced. 46% 45% 38% Mobile pay 25% 2015 2016 2017 2018 2019 2020 Source: Survey of Consumer Payment Choice 7 Click to edit Master title style Ransomware Remains Predominant Cybersecurity Threat Secondary Title Ransomware Trend by Month Copyright © 2021 BlackFog, Inc. Key statistics compiled and collected by BlackFog from various sources including BlackFog Enterprise. May only be used with attribution link to blackfog.com 8 Use of to Crypto in Fraud and Cyberattacks Persists Click edit Master title style Secondary Title 9 Fintech Issues Click to edit Master title style Secondary Title Payment companies up 80% • • 31 new unicorns Big tech shift to lending US fintech bank investments • • • • Capital markets Wealth & asset management Blockchain/crypto Alternative lending Fintech options • • • • • M&A IPO or SPAC Charters Partnerships Banking-as-a-service 10 Open Banking in thetitle United States Click to edit Master style Secondary Title • Record levels of capital pouring in • Already in 2021, investment dollars have surpassed last year’s record, rising to $2.2B across just 21 deals. • Increased buy-in by major financial institutions • Global regulatory change • Flourishing partnerships • Varying definitions and use cases I own my data Regulatory framework not ready yet 11 eCommerce Growthtitle style Click to edit Master Secondary Title eCommerce Sales as Percentage of Retail Sales and Y-O-Y Growth • eCommerce’s share of overall retail sales flattens as in-person shopping returns. 50.0% 44.5% 45.0% 39.1% 36.7% 40.0% 32.1% 35.0% 30.0% 25.0% • Thanksgiving weekend online sales in 2021 were strong but slightly lagged 2020. 20.0% 17.3% 16.6% 15.0% 10.0% 5.0% 0.0% 11.2% 11.3% 14.8% 11.8% 8.9% 16.1% 14.3% 14.0% 13.6% 13.3% 13.0% 6.6% 3Q 2019 4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 3Q 2021 Share of Total Retail Sales Source: U.S. Department of Commerce Change from Same Quarter Previous Year 12 Peer–to–Peer (P2P)title Payments Click to edit Master style Secondary Title eP2P Share • Overall, peer-to-peer (person-to-person) payments continue to be dominated by paper-based transfers. • Currency, check, money order • In 2020, 7 out of 10 P2P payments were made with paper-based payment methods. • Electronic P2P share is growing. 29% 24% 12% 2016 27% 13% 2017 2018 2019 2020 Source: 2020 Diary of Consumer Payment Choice. 13 eP2P Apps Click to edit Master title style Secondary Title • Market is dominated by PayPal/Venmo and Zelle. Company Zelle Venmo Q3 2021 Transaction $ $127 Bn Y-O-Y Growth 51% $60 Bn 36% • Many eP2P companies are active in acquiring global buy now, pay later (BNPL) capabilities. 14 eP2P Issues Click to edit Master title style Secondary Title • Criminals prefer eP2P payments due to their clearing speed and finality. • Irrevocability of eP2P transactions has created customer experience issues. • Consumer advocates encouraging Consumer Finance Protection Bureau (CFPB) to provide great protection when consumers are scammed. • Contingent Reimbursement Model (CRM) Code adopted in UK in 2020 coming to the U.S.? • Provides for consumer reimbursement if a customer suffers a loss “through no fault of their own.” 15 Buy Pay Later title (BNPL) Use ClickNow, to edit Master style Secondary Title • According to a Motley Fool 2021 survey, 55.8% of 2,000 adult respondents had used a BNPL program as of March 2021. • Usage grew from 37.7% in July 2020 Used BNPL Service (7/2020) Used BNPL Service (3/2021) % Growth 18 - 24 37.7% 61.2% 62% 25 - 34 46.8% 60.1% 28% 35 - 44 50.1% 60.6% 21% 45 - 54 42.2% 53.1% 26% 55+ 20.6% 40.9% 98% Age Range Source: Ascent Services (Motley Fool) 16 BNPL Issues Click to edit Master title style Secondary Title • Heightened legislative/regulatory attention • CFPB’s positions on the applicability of various consumer “credit” protections are evolving • Concern about late fees • Motley Fool (Ascent) survey reported 31% had incurred a late fee. • Late fees range from $0 to $38 depending on vendor and program. • Concern about credit agency reporting as well as handling of returned merchandise 17 Remote Payments Trends Click to edit MasterFraud title style Secondary Title • Payment fraud in the remote channel continues to outpace overall remote transaction growth. • Merchants continue to try to balance customer experience with fraud prevention/detection tools. • Primary eP2P fraud continues to result from account takeovers. • EMV 3DS shifts liability to issuer for online transactions. • Antifraud technology provider Ravelin claims that 68 percent of transactions in the US now use 3DS2 with a 99 percent authentication success rate. • Frequent customer education is key. • Challenges due to customers often going through third-parties 18 Payments Inclusion There is no single path to financial inclusion, which opens several areas for exploration. Ensure payment systems remain open for everyone Cash is still a viable payment option. Everyone has fair and equitable access to payment options Bridge the gaps, understand benefits offered by digital payments. Everyone can use payment options fairly and equitably Design and research inclusively, understand barriers to adoption. Economic resilience and mobility Through financial inclusion and an economy that includes everyone, we can promote economic resilience and mobility. 19 Faster Click toPayments edit Master title style Secondary Title Electronic payment services that provide funds to the payee within seconds or up to a few hours of initiation by the payer, including: • Instant payment services • Same-day ACH • Push-to-card • Digital wallet apps 9 in 10 businesses expect to be able to initiate and receive faster payments by 2023; many are ready to do so now. MARKET READINESS BRIEF: Businesses look to the future with faster payments (fedpaymentsimprovement.org) 60% of consumers think “real-time payments” are not truly instantaneous. 44% of consumers believe nonbank apps provide instant access to funds through their bank accounts. Real-Time Payments: An Urgent Priority for Financial institutions November 30, 2021; Fiserv and Javelin 20 Click to edit Master title style Looking ahead to Secondary Title “We are prone to overestimate how much we understand about the world andipsum to underestimate the Lorem dolor sit amet, role of chance in events.“ consectetur adipiscing elit. Quisque sodales eu arcu vel Kahneman vehicula. ProinDaniel vestibulum purus mattis enim maximus sagittis. Fusce ut libero at est ultricies dictum. “Distinguishing the signal from the noise requires both scientific knowledge and self-knowledge: the serenity to accept the things we cannot predict, the courage to predict the things we can, and the wisdom to know the difference.” Nate Silver 21 QUESTION TIME Click to edit Master title style Secondary Title Connect with us @Atlanta Fed Nancy Donahue Claire Greene Dave Lott Jessica Washington 22 Click to edit Master title style Secondary Title Resources Blogging every Monday at Take on Payments Consumer Surveys Federal Reserve Payments Study Payments Inclusion Community Bank Access to Innovation through Partnerships Conducting Due Diligence on Financial Technology Companies: A Guide for Community Banks • Retail Payments Risk Forum • • • • • • 23