Atlanta Fed Conference Focuses On Evolving Payment Systems

September 23, 2024The Atlanta Fed's forum on payments inclusion. Photo by Stephen Nowland

The Atlanta Fed's recent forum on payments inclusion provided a glimpse into current technology and regulations intended to help millions of people across the country have access to safe and efficient payment methods.

The theme of the forum, "Innovating for Inclusion," focused on improving the payment system to enable all consumers to pay by the method of their choice at an affordable price. The task isn't easy. One speaker at the forum used the word "battle" to describe efforts to change current conditions in payments.

"I don't think it's very much of an overstatement to say it is a battle. The stakes are very high for the folks that are really, sometimes, actively in the crosshairs of some of the worst predatory lenders," said Scott Astrada, who directs public policy and social impact for Affirm, a payment network that offers flexible and transparent pay-over-time options.

The forum was the second one on inclusion convened by the Atlanta Fed as it continues its sustained efforts in the arena of payments inclusion. Following a paper on the subject released in 2020, the Bank in 2021 established the Special Committee on Payments Inclusion. The interdisciplinary, public/private group issued a report in 2023 that suggested measures for the financial services sector and policymakers to consider in moving toward payments inclusion.

Atlanta Fed president Raphael Bostic commended the project's progress. "It has been a true labor of love and has exceeded my expectations about what we could accomplish, where we could go, and how we could create a conversation that would continue over a long period of time," Bostic said during a fireside chat at the forum. His session was moderated by Sunayna Tuteja, the Federal Reserve System's first chief innovation officer.

Atlanta Fed president Raphael Bostic speaks at the payments inclusion forum. Photo by Stephen Nowland

Jessica Washington, assistant vice president in the Atlanta Fed's Payments Forum, described the content of this year's three panel discussions: one on how new technologies are designed with inclusive principles; one to provide an update on the planned national strategy for financial inclusion; and one on cash-in/cash-out networks (CICO).

This program built on the foundation of the inaugural forum in 2023, "Breaking Barriers," at which speakers explored ways to enable vulnerable populations and low- and moderate-income households to tap into the benefits of the digital economy.

The Atlanta Fed's Jessica Washington speaks at the forum. Photo by Stephen Nowland

"Not everyone can participate in digital payments," Washington said at the recent event. "For instance, cash reliant, vulnerable, or marginalized populations can be further marginalized when they are without access to the economy. That shifts our thinking, and that's why we're here for discussion."

Here are key takeaways from the panel discussions.

Inclusion principles in emerging products

Two panelists who spoke about the latest payments products opened with two old-fashioned business concepts: knowing and serving the customer.

Cross River serves fintech clients whose customers want to receive their wages as quickly as possible. Keith Vander Leest, head of payments for Cross River, described some of the customers as gig-based workers who want instant payments on earned wages. Emerging technology enables Cross River's clients to serve these customers. Employers can deliver payments within seconds through the private-sector real time payments (RTP) network operated by The Clearing House as well as through FedNow, an instant payments platform operated by the Federal Reserve System.

Cross River's Keith Vander Leest. Photo by Stephen Nowland

"With RTP and FedNow, you can get paid on the weekend. You can get paid in the middle of the night," Vander Leest said. "This is just one area of innovation that we can help drive."

Astrada portrayed some of Affirm's customers as people whose creditworthiness is higher than the scores that traditional credit reporting has assigned them. He said the firm's founding principle is that "there is a better way to underwrite," an outlook that propelled Affirm to develop an underwriting system in which each purchase financed by the company undergoes its own underwriting process. Affirm doesn't allow customers to overextend because it knows their capacity to repay a loan.

"The innovation really is in the underwriting," Astrada said. "Innovation and evolution really are the way to solve old problems with new ways. I think it requires good faith and rigorous participation from all stakeholders, advocates, regulators, and the business community to have guardrails and allow innovation to follow."

Working together on a national strategy for financial inclusion

National policymakers are considering a regulatory framework for a possible national strategy for financial inclusion. Congress in 2022 instructed the Treasury Department to oversee the project, and consequently Treasury has hosted a series of roundtables to hear from stakeholders. In addition, the department is reviewing the 103 public comments submitted in response to a request for information, which closed in February. Natalia Li, director of Treasury's Office of Consumer Policy, said the feedback has helped shape a policy proposal due to be released later this year.

"One of the things we've heard loud and clear is that the US national financial inclusion strategy should move beyond access," Li said. "We envision the whole concept as more of a continuum. It's not a stage you reach as a consumer."

Li described the three sequences of the continuum:

• Access. "The starting point is with access, and that's access to safe and affordable financial services and products, as well as information."
• Financial resilience. "The ability to manage your day-to-day finances, absorb financial shocks and emergencies, without significant disruptions to your finances."
• Financial well-being. "That includes, very importantly, the opportunity to build wealth."

Consumer protection is the overarching objective of the strategy, Li said: "We know that there is a sort of legacy of predatory inclusion, especially preying on underserved communities."

Two advocates of a national strategy described their past efforts to win support for, and shape, a potential national strategy.

Erin Borġ, initiative lead for inclusive financial systems at Aspen Institute's Financial Security Program, described how Aspen started in 2021 to build a coalition to support a national strategy. At the end of the process, it had a cross-sector group of 110 signatories.

David Rothstein, senior principal with the Cities for Financial Empowerment Fund's BankOn initiative, said the existing financial system proved its ability to open accounts for previously unbanked consumers so they could receive federal payments during the pandemic. There's room to build on that progress, he said. "Some of the things that are already existing simply need to be connected," he said.

The role of cash-in/cash-out networks in payments inclusion

Cash remains a pillar of the nation's payments system and shows no signs of going extinct, according to speakers at the final panel of the forum. The CICO providers described why cash was vital to their customers:

• "At Walgreens, about a third of our payment types are still cash.…What we find is that cash users are partitioning their money [and] sometimes that doesn't mean depositing it all in their bank account," said Maria Smith, vice president of payments and financial services at Walgreens.
• "It's the idea of 'I cash my paycheck every Friday. I put my cash into different envelopes so I can do my budget. This is how I've always done it. This is how I'm always going to do it,'" said Elizabeth Mansfield, vice president of account management for banking and fintech solutions with Paymentus.
• "Cash is one less step. Instead of having to go load my cash that I already have on me into my bank account, and then going to my bank account to make that payment, which if it's by ACH [Automated Clearing House], for example, could take two to three days. Instead, I skipped that whole step and just make the cash payment and post directly to my biller that same day and I avoid late fees," said Crystal Bryant Minter, senior vice president of money movement at GreenDot.

The CICO networks serve as a waystation for consumers who rely on cash but want or need to use digital payments for certain transactions, as well as those who are in the process of adopting digital payments. It's a big job. Smith talked about the security concerns associated with accepting cash and providing cash-dispensing machines in Walgreens stores. Greg Donahue, vice president of network solutions at NCR Atleos, talked about supporting multiple languages across a fleet of 40,000 ATMs.

Donahue also discussed fraud prevention at ATMs: "All the deposit-capable ATMs utilize cash recycling technology that validates each note against a currency template we get from the Fed that gets updated every single quarter. We're catching counterfeit and getting that out of circulation."

When Washington closed out the discussion with a question about what innovations the speakers anticipate, Mansfield brought the conversation back to consumers who want to pay in cash. The response underscored the challenge of establishing a national strategy for financial inclusion in a diverse marketplace.

"You're talking, again, more about digital services, and I think we need to go back to consumers that want to pay in cash," Mansfield said. Mansfield observed that the payments system could accommodate both people who want to pay in cash and companies that seek to digitize their back-end systems. "It's a win-win for both," she said.

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