Payment Trends: What s Hot and What s Not

Transcription

1 Payment Trends: What s Hot and What s Not Mary Hughes Federal Reserve Bank of Minneapolis

2 Mary Hughes Senior Payments Consultant Federal Reserve Bank of Minneapolis Payments, Outreach, & Standards Group Supports industry relations activities with business associations & end users Active on Business Payments Coalition Website: minneapolisfed.org/about/whatwe-do/payments-information Federal Reserve Banks Provide financial services to depository institutions & U.S. gov t Supervise & regulate financial institutions Establish & execute U.S. monetary policy Maintain a stable financial system & contain systemic risk 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 2

3 Ninth Federal Reserve District 3

4 Agenda 1. U.S. Payment Trends 2. Faster Payments 3. Electronic Payments vs. Checks 4. Incenting Usage of Preferred Payment Types 4

5 Quiz Time What 9 th District state hosts the world s largest french fry feed during its annual Potato Bowl USA? 5

6 1. U.S. Payment Trends from the 2016 Federal Reserve Payments Study Sixth in a series of triennial studies conducted since 2001 by the Federal Reserve System to estimate aggregate trends in noncash payments in the United States 6

7 6 th Triennial 2016 Federal Reserve Payments Study Leading reliable source for payments trends U.S. Consumers Financial Institutions Card Networks Sources of Data Processors Issuers of Private Label Payment Instruments Local Gov t State Gov t Noncash Payments in 2015 U.S. Business Federal Gov t Checks Debit Cards (Incl. Prepaid) Payment Types Credit Cards ACH Credits ACH Debits Fraud reported by fraud type for general purpose cards Excludes cash & wires 7

8 Debit Card Volume Highest; ACH Value Highest Source: The Federal Reserve Payments Study

9 Check Volume Still on the Decline Source: The Federal Reserve Payments Study

10 Key Initial Findings Since the 2013 Study All noncash payments: on the rise Debit cards: largest increase in # of payments Credit cards: highest growth rate in # of payments Checks written: declining, but at slower rate 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 10

11 Trend: Growth in Card-Not-Present (CNP) Transactions Growth seen in both in-person card payments and remote (CNP) Remote general-purpose card payments grew from 16-19% of total Growth rate of CNP transactions is more than double that of in-person Non-prepaid debit led growth in both categories 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 11

12 U.S. Card Fraud vs. Other Countries May 10-12, 2017 Source: The Federal Reserve Payments Study 2016 Chip-adopting countries cite declining counterfeit fraud accompanying chip adoption 12

13 Detailed Report Coming Soon from the 2016 Fed Payments Study 2017 Census of general purpose card networks Payments by counterparty: consumers, businesses, governments Use case analysis and aggregates Comparisons between 2012 and 2015 data Detailed Results of the 2016 Fed Payments Study Much more on fraud 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 13

14 Quiz Time What 9 th District state has the most lighthouses of any state in the US? 14

15 2. New Faster Payment Options New payment options Risks Opportunities Faster Payments 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 15

16 New Faster Payment Options When is there a need for speed? 16

17 When are faster or real-time payments needed?. Just-in-time inventory management fails & supplies are urgently needed. Desire to improve cash flow by debiting customers sooner. Emergency same-day payrolls Expedited bill payments Same day account to account transfers 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 17

18 Faster Payment Developments NACHA s Same-Day ACH The Clearing House s real time payments service Early Warning s clearxchange person-to-person ISO Real Time Payments Group Faster Payments Task Force collaboration 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 18

19 Unexpected law or regulation Unauthorized, fraudulent or erroneous payments Settlement risks Incentives to contain risk Operational risks 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 19

20 Faster delivery Predictability & accessibility Nearimmediate settlement Ubiquitous Safe & secure 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 20

21 International Payments Real Time on the Horizon 21

22 Real Time International Payments Initiatives The Clearing House is tracking payment initiatives elsewhere in the world, with the intent of eventually enabling real-time cross- border payments SWIFT is testing a muchimproved version of its crossborder wire service (which already works in real time) 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 22

23 Quiz Time What 9 th District state has more lakes than any state? 23

24 3. Electronic Payments vs. Checks What check acceptance costs businesses Why businesses are moving away from checks 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 24

25 Check Usage in B2B Payments U.S. businesses are slowly moving away from checks, but checks remain the most used payment type % of Organization s B2B Disbursements Made by Checks 81% 74% 67% 50% 51% How Suppliers Are Paid (number of payments) Commercial Cards, 10% Wires, 16% Checks, 46% ACH, 28% Source: 2016 AFP Electronic Payments Survey Source: 2017 Electronic Payments Report, PayStream Advisors 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 25

26 Why Check Writing is Risky Business Check fraud is easy: Low barriers & costs to entry Account & other information needed is accessible Paper facilitates fraud Common types of fraud: counterfeits, alterations Disadvantages of checks: High processing costs Vulnerable to fraud attacks Labor intensive Unpredictable cash flow & poor visibility Late payments Missed early payment discounts 26

27 Primary Reasons Businesses Give for Moving Away from Checks. Increase efficiency. Reduce cost. Prevent fraud. Facilitate straight-through-processing. Enhance remittance information handling Source: 2015 AFP Payments Cost Benchmarking Survey 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 27

28 How much does it cost to receive 20,000 checks per month? Source: 2015 AFP Payments Cost Benchmarking Survey 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 28

29 Median Cost of Receiving A Payment Wire Check Internal Cost $4.25 $1.57 External Cost $7.64 ACH Credit Card Debit Card CR $ $0.25 DR $0.11 $ % % 0.50% % CR $ $0.50 DR $ $ % % 1.00% % Source: 2015 AFP Payments Cost Benchmarking Survey 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 29

30 Quiz Time What 9 th District state has more species of mammals than any other state? 30

31 4. Incenting Customers to Pay Using Your Preferred Payments Types Encouraging customers to pay you electronically 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 31

32 Supplier Requested Payment Types 41% 35% 35% 30% 37% 34% 27% 34% 32% 20% 11% 18% 15% 12% 13% 7% ACH Checks Wire Commerical Cards Many Some Few No requests Source: 2017 Electronic Payments Report, PayStream Advisors 2017 Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 32

33 Example: ACH Debit Initiation Model Automated seller-initiated payment model Offers incentives for trading partners Discounts on amount owed, with higher discounts given for shorter payment cycles Variable payment dates (float) Bundle invoices from multiple deliveries in same billing period: one debit pays all Customer may get better terms than allowed with predictive credit scoring models (COD vs. 7-day terms if ACH debits allowed) s with payment & remittance information are sent 48 hours before ACH debit hits account Source: Payment Essentials: Motivating Trading Partners to Give Up Checks, AFP Exchange magazine, June Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 33

34 Persuading Smaller Trading Partners to Enroll in ACH Debit Program Checks are expensive for you to write Excellent credit references with business credit reporting agencies No credit holds on orders Reduce your back office expenses Better working capital management certainty of withdrawal date EDI / EFT reciprocity Source: Payment Essentials: Motivating Trading Partners to Give Up Checks, AFP Exchange magazine, June Federal Reserve Bank of Minneapolis. Materials are not to be used without consent. 34

35 Other Benefits of Electronic Payments Extended remittance information Reduced fraud risk Ease of integration with AP system Labor savings 35

36 Quiz Time What 9 th District state has the largest urban sculpture garden in the country? 36

37 Questions? 37

38 Resources 2016 Federal Reserve Payments Study payments-study pdf AFP Payments Security Guide, Faster and Better: Faster Payments Initiatives Take Off in AFP Payments Cost Benchmarking Survey 2017 Electronic Payments Report, Paystream Advisors 38