'We're at a Cusp Now in Payments': Discussing the Evolving Payments System

Tom Heintjes: Hello, and welcome to another episode of the Economy Matters podcast. I'm Tom Heintjes, editor in the Atlanta Fed's Public Affairs Department, and today we're sitting down with Claire Greene, a center director in the Bank's Payments Forum. Today we're going to discuss recent findings from the Survey and Diary of Consumer Payment Choice, which are tools that help us understand how the payments system is evolving. And as anyone who has studied the Federal Reserve knows, we are deeply involved in the US payments system, so a thorough understanding of changes in how people pay for goods and services-or anything, really-is important. So, without further ado, let's say hi to Claire Greene. Claire, thanks for being with us today. It's great to have you back on the podcast. It's been a while.

Claire Greene: Thanks, Tom. Thanks for speaking with me, and it'll be fun to chat about payments and the choices we consumers-you, me, and everyone listening-make.

Heintjes: As I mentioned, it's been a while since you've been on the podcast. The last time we spoke, payments data were available only through 2022-and in payments terms, that's a lifetime ago. What are the biggest changes you've seen since then?

Greene: It is a lifetime in payments terms, and especially in technology development. But I would add that as far as we people are concerned, we tend to be pretty slow to change. And one place we look for change in these surveys is in the mix of different payment instruments that consumers use-so just for example, the combination of paper, card, and electronic methods that people might use to pay. Since 2022, the last time we talked, we have continued to see a slow but steady increase in non-paper payments as a share of all kinds of payments, including both cards and electronic ways you might pay straight from your bank account. And I would say, just generally for this data, when we talk about a payment instrument, we mean the underlying method that gets the money from point A to point B in your bank account. So, any kind of a card -credit, debit, or prepaid-any kind of a payment that, for the experts listening, would be perhaps either an ACH payment from a bank account to another bank account, or an instant payment via one of the newer methods-RTP or FedNow.

Heintjes: We'll touch on some of those technology changes in a bit, but I wanted to ask you: Did any of the changes that you observed surprise you? Did you expect more change, or less, or how did you perceive that?

Greene: Anytime I talk to you, Tom, you give me an opportunity to re-examine my assumptions.

Heintjes: That's why I'm here.

Greene: I know when we first talked, I did mention that from 2022 to 2023, we saw an increase in the number of payments-by two-and also an increase in the number of credit card payments, specifically by two-so all the increase was in credit cards. And that's two out of about, say, 48 payments for a typical consumer over a month. So my initial idea about those year-to-year changes-which were then, again, the same from 2023 to 2024-is that they were not necessarily statistically significant, and could be noise in the data. I have a friend who's a statistician who says, "Two data points do not make a trend."

Heintjes: You hear that a lot.

Greene: The minute you start looking over three years or four years, you can really see in this data that it's a continuing sort of a drip, drip, drip-like, you have a leaky faucet and you just swipe at it with a dish towel, but then maybe you go away for the weekend, you put a cup underneath it-

Heintjes: The next thing you know, it's overflowing.

Greene: Exactly. And so it is the case that while we do think of the 2019-20 time period-the time of the COVID pandemic-as a cataclysm for payments, as we see in many other aspects of life, it is also true that change has continued slowly-and pretty steadily-over the next few years since then.

Heintjes: Yes, I know change does seem slow, but it also adds up, as you noted. Now, I know these data that we're discussing don't just fall in your lap. Without getting too into the weeds, can you briefly describe how you collect this information?

Greene: Sure. So, first we do use a survey provider, which is a survey research center at the University of Southern California, that finds the respondents for a panel of people that we then recruit-based on their demographic characteristics, to line up with the US current population survey. And one thing that's interesting about this panel is that it is recruited via address-based sampling-so that means it's not only people who have a landline, it's not only people who have an internet connection in their homes, it's not only people who have a cell phone, it's a full, as much as possible, sample from the US population.

Heintjes: So, just to be clear: Although we are here at the Atlanta Fed, this is a national survey.

Greene: That's correct. This is a nationally representative survey, and we also have information about our respondents based on income and demographic characteristics like age, race, and gender. So it's possible for us to look at how different groups-say, by income-might be making different choices when it comes time to make a payment.

Heintjes: Is this survey tool digital, or are they keeping a handwritten diary of entries of how they spend, or what?

Greene: It's digital. People go online every evening to report all the payments they make over the course of a day. And this survey is unusual because it has different parts to it, but an important part is a reporting survey, where instead of asking people to remember something-like, "How many debit card payments did you make in the last week?"-we will say to people, "Please tell us every payment you made today." And that's the date, the time, the payment instrument they used, the type of merchant they paid, the dollar amount, were they remote or in person, did they use any kind of a device, which could be a mobile phone, or it could be putting a check in the mail.

Heintjes: Wow. So is there anything in it for them? Do you give them, like, a dollar?

Greene: Indeed we do, yes. So, the panel is recruited by the University of Southern California, and people are offered the opportunity to participate in surveys. The people who get the offer are selected by Marcin Hitczenko, who is a statistician here at the Atlanta Fed. And then, people are paid for their time-at about, I guess, the rate of around the neighborhood of probably $1 a minute. I think if you do the whole thing, you would probably get in the neighborhood of $60-80.

Heintjes: Okay, well, there's an incentive, then.

Greene: Yes. And it is also the case that the panel is very actively managed at the University of Southern California, so people can call and say, "I don't know how to answer this question," or they can email and get any kind of help and support they might need. Heintjes: A sort of related question: Why do we collect this information? What uses do we put it to, other than giving us a reason to get together to talk on this podcast? Greene: Well, as you already mentioned, the Federal Reserve System-and the Atlanta Fed in particular-play a critical role in the nation's payments systems. This data is important to help policymakers and payments operators understand the impact of innovation or change, to get a clearer idea of what people are doing. And that relates, of course, to the Fed's mission to assure full employment and price stability, as well as an economy that works for everyone. So collecting this information helps with understanding how innovation might be affecting public policy, financial education, and consumer protection. And then, of course, the Fed is an operator of the payments system, and I think you could look at that from two ends of the spectrum: the oldest ways to pay, and the newest. Most Federal Reserve banks have a factory in the basement where dirty, crumpled cash comes in one loading dock door, and beautiful, shrink-wrapped, clean cash goes out another loading dock door. And this is a complex manufacturing process. There are conveyor belts, there are sensors to examine the bills, there are robotic assists, because cash gets heavy. This equipment has to be kept up to date, and we have to anticipate demand. So, part of what this survey does is to give us hints about what people and businesses are going to want to be able to have access to when it comes to cash in the future. Because of course, the Fed's mission related to cash is to have it be at depository institutions when people and businesses want it.

Heintjes: Right. And anyone listening to this podcast, I encourage you to come to the Atlanta Fed, and you can see some of what Claire is talking about in terms of sorting, bundling, and processing cash. It's quite fascinating. So, Claire, businesses, governments, nonprofits-all sorts of organizations-make choices every day about payment methods, but since consumer spending makes up such a large amount of economic activity across the whole country, I guess you would say that in some ways understanding consumer payment preferences is of especially great importance.

Greene: I don't want to rank it as of more importance than other items, but it is certainly true that consumer spending is something like 70 percent of US GDP. And so, what we collect is not exactly in line with what GDP is, because consumers do some spending on their own and then other entities do spending on behalf of consumers that goes into GDP. For example, if you have health insurance and your health insurance provider pays for a doctor's visit, that's part of GDP created by you, basically. And then on the other end of it, we do collect information about transactions you might make, say, to repay a loan, or even just to transfer money from one account you own to another investment account-which also would not be exactly in alignment with GDP. So, I think in addition to the idea of measuring economic activity-which is, of course, relevant and important-there's also the idea that the traditional view of the payments system had very much to do with the plumbing-transactions occurring between card networks and depository institutions, or between depository institution and depository institution-not having as much of a holistic view of the end users-consumers, businesses, governments-as the customers, let's say, of the payments system. And that's, I think, a valuable piece of what we can offer.

Heintjes: You mentioned the multiplying ways that people can pay for things and make transactions. Can you briefly summarize the factors that are at work in influencing their choices in making payments? I assume a lot of it is convenience, but other factors can play a role-like privacy and anonymity, and whether a consumer is banked, and factors like that. What goes into choices that consumers make?

Greene: I think this will resonate with you, generally, when you think about your own decision making. And I do just have to mention that "convenience" is I think the word that, as a survey researcher, I have come to detest, because it encompasses so many other factors that a different person might be thinking about. When we get to a point of needing to make a payment, generally speaking, the research using this data has shown that there are three factors that really matter. So, the first is the characteristics of the transaction itself. For example, is it a bill? Is it a purchase? Are you paying in person or remotely? What's the dollar value-super important? And then also, of course: Does the payee have a preference? Is the person or business you're paying going to limit what your choices are? Then the second thing, I think, is what you're mentioning, the characteristics of the payment instrument, and what we think about these various features. Again, we do use the word "convenient"-also "safe" and "low cost"-and we find, generally, currently in our research, that credit cards rank best among consumers for convenience, for record keeping, and also for security, and that cash ranks best for low cost and ease of getting it, or setting up, or just having it. And these ratings are really pretty stable from one year to the next. So, that's the second thing that matters. And then, the characteristics of the person-for example, income, of course, age, education-very important for consumer payment choice. Generally speaking, the higher your income, the more likely you are to have a credit card. Also, when you have that credit card, the higher your income, you're more likely to be paying off your card every month, which is very influential for your decision perhaps to pay for a sandwich and a Coke with a credit card and be able to get points, or to instead use either your debit card or cash for that kind of an everyday purchase.

Heintjes: I see more and more businesses that say, "no cash. We don't accept cash." I guess it's a business's choice not to accept cash anymore? For a while I thought they had to-but I guess that's no longer the case, is it?

Greene: It depends where you live. I live in Massachusetts, which in 1978 passed a law requiring in-person point-of-sale retailers to accept cash. And then I think it probably took another 30 years before additional laws were passed by some municipalities. It's more municipalities, I think, than other states. So, you're correct. Depending upon the situation, the person or business you're paying has the ability to restrict how you pay.

Heintjes: In terms of demographics, you've been talking a lot about what age cohort you're in, and what socioeconomic cohort. What factors stand out to you, as far as payment methods and preferences?

Greene: Well, I think something that everyone likes to talk about is age, and generally speaking the use of newer ways to pay. So, just for example, if we look at people who have used some kind of a mobile payment app in the last 12 months, when they're completing their survey-and that would be PayPal, Zelle, Venmo, Cash App, Apple Pay, Google Pay. We have a big, long list of mobile apps to remind people of what they might have used-and there, we find that people younger than 25, you're going to get north of 90 percent of people saying they've used one of those apps in the last 12 months, and then it pretty much descends as people get older. So, people between 45 and 54, maybe three quarters of them have used a mobile payment app. And then you look at the 60-plus group and it's still 50 percent. So it's not that older generations are not adopting mobile apps at all, it's just that fewer people in those older generations are using them.

Heintjes: When it comes to the payment method people use, is there a difference between paying bills and making purchases, or just buying something?

Greene: That, I think, is the really big difference. I'm sure you know from your own experience, when you walk up to the retail point-of-sale and you say, "Will you take cash?" or "Will you take a credit card?" or "Will you take this or that?", the clerk most likely is going to say "yes"-and perhaps will append to it, "I'll take anything you'll give me." As opposed to when it comes time to maybe pay your property tax bill or repay your credit card bill, when the entity that you're paying has some control over how you're going to make that payment. What you hear often in payments is this concept of the idea that a payment would be frictionless. That's a payment that's almost invisible, and so you don't really even notice that you just spent whatever it was on that new pair of shoes.

Heintjes: We're hearing a great deal about some of the innovative payment methods-cryptocurrency, stablecoins, which is a form of crypto, and payment apps not affiliated with a conventional bank, and instant payments like the FedNow service, Buy Now, Pay Later, just to name a handful-it's quite a dizzying constellation of products, really. What do your surveys show about consumer acceptance of these products, and comfort level with them and so on? It can be quite overwhelming.

Greene: One thing that I would do is, I would take a step back and describe this whole constellation of innovative things in two different categories. And the first would be, new methods of authenticating or authorizing a payment that is still a traditional payment. It's still, at the very heart, a card payment or a payment straight from your bank account, whether that's via ACH, or via FedNow or RTP, one of the instant payment rails. And these are dollar-denominated, backed payments-and it also might include, for example: Buy Now, Pay Later, a new way of obtaining credit or ways of authorization, like using your fingerprint, or when you're in a store where you can sort of tap in, and then pull whatever you want off the shelves, and then just walk out. Those are all, to me, very traditional payment methods, with a different wrapper. And then when you start to look at crypto and stablecoins, these are changes that the typical consumer so far is not really encountering. In our data, we do ask people if they own crypto-and we think of them as crypto assets more than as methods of effecting a payment, of course, because it's not a US dollar-denominated payment method, which is what we're measuring. Since 2021, crypto ownership, of all the various kinds, has hovered around 9 percent of our survey respondents. It did bump up during the pandemic. It did change that way, as many things did. And the other thing you can see in the data, especially in the early years: Anytime there was a price jump and it got in the news a lot, more people would buy. And then there was one year, there happened to be a decline in value in October, which is our survey month, and then you could see a drop. We ask people why they own crypto, and the most common response is for investment.

Heintjes: So not really a payment method, per se.

Greene: Not a payment method, per se-and also, something with the potential to be influential at some point in the future, or even influential just in the way people frame their investment activities.

Heintjes: Separate from our conversation today.

Greene: Separate from our conversation today.

Heintjes: So, Claire, I want to ask you: Is cash still king? We always hear "cash is king." Is that still the case? I rarely see people pulling out cash for transactions, even for small items. What are trends in cash that you see?

Greene: Definitely over time-and certainly over the time of our surveys-shares of purchases, for example, that are made in cash has declined, and that's of course a factor of two things. First of all, more people making purchases remotely when they can't use cash, and then secondly, more people tapping their phone to effectuate a credit card payment when they're in the store. So two different things that are happening there to be influential for cash. But I would say that cash is indeed still king. In our survey we asked people, "Did you use X payment method in the last 30 days?", and cash has the highest share of people reporting that they did use it at least once-so that's 83 percent of people in 2024, four out of five saying, "Yes, I used cash in the last month." And I do find, like in conversations with people, people will tell me, "I never use cash"-and then before the conversation is over, somehow we've gotten to the last time they used cash, just for example. I'm staying in a hotel here in Atlanta, and some hotels I know you can Venmo the housekeeper, but in this hotel you can't, so I'll be stopping at the Fed ATM in order to take care of that. And then the other thing about cash is, it isn't only conceived of by us as a payment method. It's also a store of value. And in COVID especially, people increased their cash that they were holding-not maybe in their wallet for spending, but stored, say, in their house, their car, their office. And we do find that more people stored some cash, and of the people who stored cash, they had more. I think in 2019, about 20 percent of consumers had some cash in their stash, and in 2024 that's 45 percent. So, a different sense, I think, of emergencies. Here at the Atlanta Fed, of course, hurricane preparedness is so important, and financial institutions-and the Fed, of course-are prepared to provide cash when people want it in emergencies.

Heintjes: Yes-we saw that, especially with Katrina-how crucial cash was to people's day-to-day lives. You mentioned mobile payments. I'm going to drill down into mobile payments a bit. Mobile payments are not "new" anymore, but the payment method is certainly newer than credit and debit cards, certainly. What do the Survey and Diary tell us about mobile payments?

Greene: Most, or many, mobile payments are funded by credit and debit cards, or prepaid cards. And I can tell you that in 2010, we first asked about mobile payments, and we had 1 percent of people reporting that they had made some sort of a mobile payment. And that could have been, at that time-remember when you would text to a charity in order to make a donation? I think that was a lot of it. And then fast-forward 14 years, and we've got 70 percent of US consumers saying that they've made a mobile payment at least once in the prior year. And the thing I think is interesting about it is, when we think of a mobile payment, I envision a consumer holding a phone out over a terminal at the in-person point-of-sale. But that's really just 10 percent of in-person payments at this point. It's just as easy to tap your card in a lot of situations. It turns out the killer app for mobile pay is remote shopping, where 85 percent of remote purchases were completed via a mobile device.

Heintjes: Interesting. You know, Claire, I can't have this conversation with you and not talk about the penny-the humble penny. Now that we've stopped minting the penny, do you think there will be an effect on payments? I've seen some research that indicates it could affect prices.

Greene: As you know, of course, the Fed is not a decision maker about the penny-that's the Treasury Department's role, and in May the Treasury did stop minting new pennies. In 2024, it cost 3.68 cents to make a penny, and FedCash Services ensures that currency and coin will be available to meet public demand. Now, we don't have specific data about the penny in our survey research, but we do find that of the cash payments that people report in our survey-this is research by Oz Shy, an economist here at the Atlanta Fed-72 percent of the cash payments were reported ending either with 0 cents or 5 cents. This is in line with other research that Oz has done, in which he found that the $20 bill is what you most commonly get from the ATM. And so, payments of $20 flat, $40 flat, $60 flat-more likely to be made in cash. But you asked me about retailers-sorry. I see those signs, too, but I can't tell you how frequently that is happening, at what kinds of stores, in what geographic regions. It reminds me, I was in Chicago over the weekend and I saw a sign that said, "We have Ozempic," and I don't know how many stores are selling Ozempic. I can't tell that from just seeing the signs on the doors. It is up to retailers to figure out what their policy is going to be. When you think about it, there really are so many different things that they could do, right? They could change their pricing policy wholesale. They could change their pricing policy for cash payments only. They could always round down, they could always round up, they could do something in the middle, they could mess with their merchandising in some way that I can't imagine. So it's really hard to make predictions. I think it just depends on each individual retailer's marketing and operational strategies.

Heintjes: While we're on the topic of more traditional payment methods, let's touch on checks. It's pretty established that check volume is down, but I was surprised to learn that check fraud is huge. I think I read-something from you, in fact-that indicated that the amount of check fraud is greater than the total value of checks written. Do I have that right?

Greene: No, that's not right.

Heintjes: Okay, correct me.

Greene: Let me correct you. So, it is the case that checks are returned-aka, bounced-and they're returned for all different reasons. The most common reason is for insufficient funds-about, I think, 55 percent, or something like that. And then checks also are returned for possible fraud, and then there are other reasons, like the bank account's been closed. There are something like 21 different reasons they come back for. And so, the total value of checks returned for possible fraud increased faster than the total value of all checks returned. So that's a little bit of a tricky ratio.

Heintjes: But an important distinction.

Greene: Yes. We survey about 5,000 people, and that isn't enough for us to calculate a fraud rate-for checks, or any other payment instrument. I can tell you checks were 6 percent of all consumer payments, by number, in 2015, and in 2024 they were 2.5 percent. So definitely dropping. But checks have this capability of being universally accepted. Your landscaper, who doesn't want to be paid by some electronic means, just for example, would probably take a check.

Heintjes: Many of the innovations that you've been talking about today are geared toward enhancing consumer service and convenience. You mentioned making things frictionless, and qualities like that. But do you see ways where the consumer can be better served in the payments ecosystem of today?

Greene: Well, sure. First of all, I want to be a bit of a Luddite here and say that frictionless payments make it easier to make payments, but they don't necessarily make it easier to stick to a budget. Many payments innovations-I'm going to use the dreaded word "convenient"-while they are convenient for us, may not help us with our ultimate goals. So, I think that's something for consumers especially to be aware of. There are a lot of opportunities still remaining in cross-border payments, which in many cases are still expensive and slow. And then I think another thing that we should be thinking about, in terms of fraud protection-and especially fraud protection tools for seniors. I hear a lot of commentary that's really talking about people my age, and in the US right now there are more than 2 million people who are aged 91 or older. And many of those people have computers, have cell phones, are operating in the digital economy-perhaps with declining eyesight, or difficulty managing a touch screen-and I think there's a really big opportunity for safe payment products for super-agers.

Heintjes: We've been talking today a lot about people's behaviors, and I want to approach that topic from maybe another angle, and that is how they fill out their Diary that you've been studying. How reliant are the results on people not forgetting that they filled up their car, stopped on the way home for a gallon of milk, etc.? Have new technologies changed the way people retain that information, or convey that information?

Greene: This is, of course, something that keeps us awake at night, because we ask a lot of detailed questions, but we really want our top-line numbers to be as accurate and complete as possible. This is why we have a professionally managed survey panel. In the past we used to send out a little purse, and it included two different formats of paper booklets that people could use to settle out. We don't do that anymore. We do have a video where we really emphasize for people the most important things they have to do, which is count their cash and tell us how much they have-they do that four times over the course of the survey-and also be sure to record every payment they make. And for that, we pull out lots of different transactions as reminders-for example, tolls-we have a whole big list of those trivial things you might forget, that candy bar you buy every day at the vending machine, that sort of thing. Another thing we call out is automatic bill pay. On the very last day of the survey, we have a separate list of all the kinds of bills you might pay, and people have to check off: Did you pay this or that? If people read a list, they won't read it as carefully, but if they have to check off, that makes a difference in how much attention they pay. So all these different techniques we use to hope we have the information as complete as possible.

Heintjes: Do you and your Fed colleagues, over time, tweak the survey to improve its accuracy, and do those tweaks affect the resulting data?

Greene: We did a lot of tweaking between 2012 and 2015 for the Diary, and we do less affecting these important top-line numbers. One thing we are always thinking about is how can we reduce survey burden-that is, how many questions, say, a person has to answer for each payment they make-because we think that encourages them to enter all the payments. So, we're always looking at any follow-up question we've used and saying, "Has a researcher used this question?" And if a researcher hasn't used this question in three or four or five years, maybe we could take it out.

Heintjes: I guess you're striking a balance between getting thorough information, and not being annoying.

Greene: Exactly. Not being annoying is absolutely vital-you're correct.

Heintjes: So, this is all really fascinating, but I'm going to ask you: What do we do with the results? As I noted at the top of the episode, the Fed is a big player in the payments system-so does this information meaningfully affect what we do?

Greene: Definitely. The Federal Reserve is a data-driven organization, and it makes decisions based on information. As I mentioned, there's a factory in the basement of every Fed that has to say how many new cash processing machines are we going to buy, and where are we going to put them, and how many years do we need them to last, and how many people do we need to hire? So that's one really important part of it. Another thing is, as all this innovation is happening in the payments ecosystem, it's really interesting to economists to see how consumers might be substituting in what I'm going to call new products for old products-and this is information that applies for all kinds of products and services, including payments. And so, we're at a cusp now in payments, where we've got these new instant payment rails, which are not consumer-facing. It's almost like you got an iPhone and it had no apps on it, and then-now apps are built on top. So, apps are going to be built on top of the new payment rails, and that could lead to a big change in how we pay-and therefore, what should be happening with the ACH system, or what should be happening with consumer rules in different states. So, this information is important for that.

Heintjes: I guess underlying all this is ensuring that the consumer feels confident and secure about the payments system in general.

Greene: Yes, I think that's very important. We hear a lot about fraud, and we read a lot about fraud, and it is important to keep in mind that the payments system is fundamentally secure.

Heintjes: Yes. It's good that people want to use new methods, but you also want to feel confident and safe in what you're doing with your transactions. So obviously, this is all very key.

Greene: Yes.

Heintjes: Well, Claire, this has been a really interesting and fascinating conversation, and I want to thank you so much for spending some time with us today.

Greene: Thank you so much. You always ask me questions that make me really rethink my assumptions, and also look things up. I look forward to hearing more of your podcasts.

Heintjes: Well, thank you so much. And I should note that we'll have a link to the payments survey we've been discussing on the Atlanta Fed's website-our newly redesigned website, I should add-at atlantafed.org. And I would like to say that we'll have you back on the podcast soon, but I'm sad to note that you're retiring from the bank soon after 15 years of service. I will surely miss you as a colleague, and I'll miss our conversations about payments and what makes people tick in general. It was always interesting to talk to you, and I wish you the best in your retirement.

Greene: Thank you, and I'll look forward to hearing your podcast.

Heintjes: I know you'll be a regular listener. And that brings us to the end of another episode of the Economy Matters podcast. I'm Tom Heintjes, editor in the Atlanta Fed's Public Affairs Department, and I would like to thank you for spending some time with us today. I hope you'll join us again next month for a new episode.