Payment Cards Center Research Articles

Financial Management Tools and Consumer Confidence: Chase Blueprint

On March 10, 2015, the Payment Cards Center hosted a workshop on the development and performance of Blueprint, a set of money management features developed by JPMorgan Chase & Co. (Chase) and available with several of Chase's credit cards. The workshop featured presentations by Thomas O'Donnell, managing director of Chase Consumer and Community Banking Quality, and Florian Egg-Krings, general manager of the Slate and Blueprint portfolios. O'Donnell discussed the development of Blueprint, a process that began during the financial crisis and the Great Recession of 2007-2009. Egg-Krings then shared some insight on the adoption and success of several Blueprint features. Lastly, both O'Donnell and Egg-Krings briefly discussed their expectations for the evolution of Blueprint in the coming years. This paper summarizes the presentations of O'Donnell and Egg-Krings, supplemented by additional research.

Trends and Preferences in Consumer Payments: Updates from the Visa Payment Panel Study

Michael Marx, senior director, Visa Research Insights, conducted a workshop in 2009 at the Payment Cards Center (PCC) as the economy was emerging from a recession. At that time, it appeared that the recession had affected consumer payment preferences, especially those related to cash and credit cards. To get an update on consumers' use of the various payment methods, the PCC invited Marx to facilitate another workshop in 2014. More recent findings from the Visa Payment Panel Study reveal declines in cash use -- a return to the long-term trend -- and increases in credit card use, perhaps signaling some return of confidence among consumers. Check use continued its unbroken long-term decline, and debit card growth has slowed. Private label cards have also registered a steady decline in their share of spending volume for a number of years. Their revolving credit utility, however, remains consequential in financing consumer purchases.

Trends and Preferences in Consumer Payments: Updates from the Visa Payment Panel Study

Michael Marx, senior director, Visa Research Insights, conducted a workshop in 2009 at the Payment Cards Center (PCC) as the economy was emerging from a recession. At that time, it appeared that the recession had affected consumer payment preferences, especially those related to cash and credit cards. To get an update on consumers? use of the various payment methods, the PCC invited Marx to facilitate another workshop in 2014. More recent findings from the Visa Payment Panel Study reveal declines in cash use ? a return to the long-term trend ? and increases in credit card use, perhaps signaling some return of confidence among consumers. Check use continued its unbroken long-term decline, and debit card growth has slowed. Private label cards have also registered a steady decline in their share of spending volume for a number of years. Their revolving credit utility, however, remains consequential in financing consumer purchases.

Improving Experience in the Prepaid Card Industry: A Customer Service Workshop

Contact Solutions LLC provides third-party contact center support for a number of government-sponsored prepaid card programs, including U.S. Treasury’s Direct Express. One of the explicit objectives of these programs is to link previously unbanked individuals with access to electronic banking services. With little prior experience as banking consumers, these individuals exhibit usage and behavior patterns, including their consumption of customer service, that differ from those of customers more familiar with financial services. This has presented some new challenges for contact centers. Contact Solutions executives facilitated a Payment Cards Center workshop during which they described some of these challenges and discussed how contact centers are responding.

Funding Credit Card Loans: Current and Future Considerations

Many factors influence credit-card-issuing banks’ decisions about how to fund credit card loans. These factors include the size and structure of the institution, economic conditions, and the regulatory environment. Against the backdrop of a much smaller market for credit card asset-backed securitization, the Payment Cards Center (PCC) wanted to better understand how changes in any of the above factors and in the funding sources accessible to credit-card-issuing banks are affecting funding strategies now and in the future. To gain this perspective, the PCC interviewed a diverse set of credit-card-issuing bank executives. These participants were asked about the composition of their funding sources, changes in the markets for these sources of funds, and the effects of existing or potential regulation. This paper presents several themes that emerged from these discussions.

Driving Positive Behavior Change Through Education and Motivation: Summary of a PayPerks Workshop

Start-up firm PayPerks has developed a financial capability and rewards platform that combines online education with sweepstakes-based incentives. PayPerks’ initial emphasis has been on improving the understanding and use of prepaid cards among individuals with little prior experience using payment cards. Participants can earn points in a variety of ways, including taking short, self-directed tutorials on prepaid card use. Every month, those points become chances to win cash prizes in sweepstakes drawings. PayPerks co-founders facilitated a Payment Cards Center workshop where they demonstrated their product and discussed the journey it took from raw idea to commercialization. Two significant new PayPerks partnerships were also announced during this workshop.

Clearing and Settlement of Interbank Card Transactions: A MasterCard Tutorial for Federal Reserve Payments Analysts

The Payment Cards Center organized a meeting at which senior officials from MasterCard shared information with Federal Reserve System payments analysts about the clearing and settlement functions that MasterCard performs for its client banks. These functions involve the transfer of information pertaining to card-based transactions (clearing) and the exchange of monetary value (settlement) that takes place between the banks whose customers are cardholders and those banks whose customers are card-accepting. This document summarizes some of the key points from that meeting.

Small Business Use of Credit Cards in the U.S. Market

America’s small businesses have adopted credit cards as both a payment method and a borrowing vehicle. The segment also uses other payment card products, including debit, charge, and prepaid cards. The dollar volume of spending with cards designed for small businesses increased by 230 percent over the five-year period from 2003-2008. But the recession of 2007-2009 and contemporaneous changes in the regulatory environment had effects on both the supply to and demand of small businesses with respect to credit cards. To obtain an update on these issues, the Payment Cards Center hosted a workshop facilitated by Frank Martien, a partner with First Annapolis Consulting. During the workshop, Martien presented evidence of improved supply and demand conditions for small business credit cards. In addition to these positive post-recession observations, Martien described how the symmetry between a small firm’s accounts receivable cycle and the billing cycle for a credit card may help explain why credit card use is so attractive to this segment. This summary also discusses recent developments in the small business debit card market.

A Prepaid Case Study: Ready Credit's General-Purpose & Transit-Fare Programs

Today, prepaid cards are used in dozens of payment applications. To examine the most recent developments, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop on August 22, 2011. Leading the workshop was Tim Walsh, president and chief executive officer of Ready Credit Corporation, a firm that developed network-branded prepaid cards for use in transit-fare systems and also markets general-purpose, reloadable prepaid cards to consumers. Walsh discussed the unique opportunities and challenges associated with using prepaid cards for transit purposes. He described a model of customer acquisition that emphasizes direct advertising, high-quality call centers, and high rates of enrollment in direct deposit. Walsh compared and contrasted card usage patterns in his transit and general-purpose programs. He also described the importance of cost-effective messaging strategies that reduce program costs and teach customers how to reduce the fees they incur.

Insolvency Risk in the Network-Branded Prepaid-Card Value Chain

The value chain for network-branded prepaid cards involves more parties than those commonly present in credit- or debit-card-issuing arrangements: the merchant acquirer, processors, a payment network, and a card-issuing bank. These additional participants may include a program manager, a distributor, and a seller. Since a number of independent businesses make up the chain, each one, as well as cardholding consumers, could be exposed to losses resulting from the insolvency of another party in the value chain. This risk is both real and manageable, as illustrated by two recent incidents involving network-branded prepaid cards: the failures of Silverton Banks, N.A., and Sprinbok Services, Inc. The Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop on March 18, 2011 to examine the implications of insolvency in the network-branded prepaid card value chain, to review how market participants gave responded to this risk, and to discuss controls the industry has developed to mitigate and address these challenges. Kirsten Trusko, president of the Network Branded Prepaid Card Associations (NBPCA); Terry Maher, partner at Baird Holm LLP and general counsel to the NBPCA; Jeremy Kuiper, managing director of the Bancorp Bank, and Ted Martinez, head of Visa’s North America credit settlement risk team, led the workshop. This paper summarizes the information presented at the workshop, including the ways in which consumers and businesses are protected from the insolvency of the issuing bank of a key participant. In addition, this paper highlights practices that have been developed in the industry to mitigate this risk.

Federal Regulation of the Prepaid Card Industry: Costs, Benefits, and Changing Industry Dynamics

On April 8-9, 2010, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a conference that brought together leaders in the prepaid card industry, regulators, consumer groups, law enforcement agents, and industry researchers to discuss the economics of prepaid cards and the benefits and costs of their regulation from the standpoint of several different product categories. In particular, the conference examined ways in which prepaid card products can differ, how the industry has developed over time, ongoing industry dynamics, ways in which the usefulness of prepaid products to criminals might be limited, whether consumers who use prepaid cards are adequately protected, and the challenges facing regulators. This paper summarizes the highlights from the presentations given at the conference and the discussions that ensued.

The Electronification of Transit Fare Payments: Examining the Case for Partnerships between Payments Firms and Transit Agencies

Several of the nation’s largest payment-card-issuing banks are working with public transit agencies to enable consumers to pay fares by using payment cards, and more such partnerships may be on the horizon. On April 23, 2009, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop to discuss the potential adoption of electronic payments by transit agencies from the perspectives of several subject matter experts from J.P. Morgan Chase & Co. James Lock, vice president and senior adviser, Treasury Services Global Advisory Solutions group; Jameson Troutman, strategy manager with Chase Card Services; and Krista Gallagher, from Chase’s retail banking team, attended the workshop. This paper looks at several electronic transit-fare payment models and the potential opportunities these models present to transit agencies and payments firms - such as the opportunity for transit agencies to reduce costs and to operate a more efficient payments infrastructure or the opportunity for the payments industry to increase consumers’ use of contact-less payment technology. This paper also identifies significant obstacles to widespread adoption of systems that allow consumers to use their credit, debit, or prepaid cards to pay fares directly.

Heartland Payment Systems: Lessons Learned from a Data Breach

On August 13, 2009, the Payment Cards Center hosted a workshop examining the changing nature of data security in consumer electronic payments. The center invited the chairman and CEO of Heartland Payment Systems (HPS or Heartland), Robert (Bob) Carr, to lead this discussion and to share his experiences stemming from the data breach at his company in late 2008 and, as important, to discuss lessons learned as a result of this event. The former director of the Payment Cards Center, Peter Burns, who is acting as a senior payments advisor to HPS, also joined the discussion to outline Heartland?s post-breach efforts aimed at improving information sharing and data security within the consumer payments industry. In conclusion, Carr introduced several technology solutions that are under discussion in payment security circles as ways to better secure payment card data as they move among the different parties in the card payment systems: end-to-end encryption, tokenization, and chip technology. While HPS has been very supportive of end-to-end encryption, each of these alternatives offers its own set of advantages and disadvantages.

The Electronification of Transit Fare Payments: A Look at The Southeastern Pennsylvania Transportation Authority's New Payment Technologies Project

Over the past decade many of the nation's largest public transit providers have gone from fare-payment systems based on cash and coin to more modern electronic systems that implement payment cards, including agency-issued prepaid cards, credit cards, and debit cards. On September 16, 2008, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop to discuss the challenges and opportunities facing the Southeastern Pennsylvania Transportation Authority (SEPTA) as it attempts to redesign its transit-fare payment system to accept payment cards. Jerry Kane, manager of SEPTA's New Payment Technologies Project, led the workshop. This paper summarizes Kane's presentation and the ensuing discussion. In addition, this paper offers some thoughts on why the modernization of transit-fare payment systems has begun around the country; what obstacles still stand in the way of using credit, debit, and prepaid cards to pay fares; and what this movement means for consumer payments generally.

Maintaining a Safe Environment for Payment Cards: Examining Evolving Threats Posed by Fraud

On April 23 and 24, 2008, the Payment Cards Center of the Federal Reserve Bank of Philadelphia and the Electronic Funds Transfer Association jointly hosted Maintaining a Safe Environment for Payment Cards: Examining Evolving Threats Posed by Fraud. The conference included panels representing four key constituencies: Issuers, consumers, merchants/acquirers, and networks. The panelists addressed the nature of payment card fraud in the 21st century. This paper summarizes the highlights from the presentations and the discussions that ensued.

Legislative Responses to Data Breaches and Information Security Failures

On July 23, 2008, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop to discuss federal and state legislative responses to data breaches. The workshop addressed several laws and legislative initiatives designed to create greater safeguards for personal consumer information frequently targeted by data thieves and often subject to the failures of information security protocols. Diane Slifer, J.D., M.B.A., who has frequently presented at forums on data security and has represented clients in matters related to data breaches, led the workshop. Slifer examined several highly publicized data breaches and explained how various laws and regulations have been put in place in order to protect and inform consumers whose personal information has been compromised. Additionally, she discussed several legislative initiatives designed to potentially create a more structured and secure environment for private consumer data overall. This paper summarizes Slifer's presentation, the ensuing discussion, and additional Payment Cards Center research. In addition, it offers a brief overview of recent data breaches, a description of various ways that federal and state laws operate, and some thoughts on how effective these laws and regulations have been.

The Laws, Regulations, Guidelines, and Industry Practices that Protect Consumers Who Use Gift Cards

This paper discusses consumer protections available to gift-card users. Specifically, it examines the ways in which value loaded at the time of purchase is protected for future card use or returned to consumers when the card is not used or has expired. The consumer protection information included in this paper is derived from a number of sources, including several types of state statutes, Federal Trade Commission decisions, financial industry regulatory agency guidelines, and previous interviews with payments industry experts regarding practices concerning network-branded gift cards. This paper expands research begun by the Payment Cards Center in 2004 into prepaid cards generally and the protections available to consumers who use gift cards specifically.

Proposed Changes to Regulation Z: Highlighting Behaviors that Affect Credit Costs

On June 29, 2007, the Payment Cards Center of the Federal Reserve Bank of Philadelphia sponsored a workshop led by Jeanne Hogarth, program manager, Consumer Education and Research Section, Division of Consumer and Community Affairs, Federal Reserve Board of Governors, to discuss the Board's proposed changes to disclosure requirements for open-end credit, in particular, credit card billing statements and solicitation materials. Hogarth tied the proposed changes to her own research that identified certain behaviors most likely to affect the interest rates consumers pay for credit card borrowing. Given these research findings, Hogarth argued that having access to easily understood information about critical credit card terms and conditions can help consumers make more financially efficient decisions.

Alternative Data and its Use in Credit Scoring Thin- and No-File Consumers

On November 27, 2007, the Payment Cards Center of the Federal Reserve Bank of Philadelphia invited Jennifer Tescher, director, and Arjan Sch?tte, associate director, of the Center for Financial Services Innovation, to present a workshop. The Center asked Tescher and Sch?tte to share CFSI's research on the developing role played by alternative payment data in evaluating risk for consumers with thin- and no-credit histories. After a discussion of thin- and no-file consumers and the challenges they face accessing credit, the speakers addressed aspects of supply and demand that are influencing the development of the market for alternative data. Several additional factors acting on this market were also examined: the costs and complexity of changes to IT infrastructure, legal and regulatory hurdles, and the broader economic impacts of extending the market for consumer credit.

The Merchant-Acquiring Side of the Payment Card Industry: Structure, Operations, and Challenges

On January 19, 2007, the Payment Cards Center of the Federal Reserve Bank of Philadelphia sponsored a workshop led by Marc Abbey, managing partner at First Annapolis Consulting, to discuss the merchant-acquiring side of the payment cards industry. Abbey described the often overlooked acquiring industry as a dynamic growth business that is an integral part of the payment cards industry. He outlined several factors that have affected the evolution of the industry and described the current state of industry dynamics in terms of growth, competition, and business economics.