Economics-Watching: From Code to Cash: How Programmable Payments Are Shaping the Future of Finance

[from the Federal Reserve Bank of Atlanta, by Chris Colson, payments expert]

When I was first introduced to computers, programming languages like COBOL, Fortran, and Pascal were standard. None of them were particularly user-friendly, especially for someone like me who isn’t a natural coder. Over time, new languages and tools appeared, making programming more accessible.

Today, we have low-code and no-code platforms [related YouTube video] that allow people with little to no coding experience to build apps. Just as programming has become easier, payments are becoming programmable, offering automation, simplicity, and flexibility.

Programmable payments are automated transactions that occur when specific conditions or events are met. Unlike traditional payment methods, which can rely on manual approvals or fixed schedules (think monthly software transactions), programmable payments offer a more dynamic approach. For instance, a programmable payment might only occur when a product is delivered or a service is completed.

Two key technologies power programmable payments: smart contracts and application programming interfaces (APIs). Smart contracts are self-executing digital agreements that run on blockchain and automatically release payments once specified conditions are met. APIs allow different systems to communicate, which enables the automation of payment processes across platforms. For example, a business might set up an API process that triggers a payment and then marks the invoice as “paid” in its accounting software.

The biggest advantage of programmable payments is automation. By automating transactions, businesses can eliminate repetitive tasks like payroll or vendor payments, reducing the time spent on manual processes while also minimizing the risk of human error. Automation can also help businesses save money, as they may no longer need intermediaries like banks or payment processors to facilitate transactions. Blockchain-based smart contracts can bypass the need for banks to verify payments, resulting in faster, cheaper transactions.

Transparency and security are other significant advantages, particularly when programmable payments are powered by blockchain. Each transaction is recorded on a decentralized ledger, providing a clear, auditable trail of activity. This can help reduce the risk of fraud and create a more secure system for managing payments.

The potential of programmable payments goes beyond automating individual transactions. For supply chain management, payments that are automatically triggered upon delivery of goods can reduce the need for manual verification, and thus improve operational efficiency. In decentralized finance, programmable payments can streamline processes like loan repayments and insurance payouts, improving speed and transparency.

As the Internet of Things expands, integrating programmable payments could allow devices to handle payments autonomously. Imagine a car that automatically pays for tolls or parking, or a smart refrigerator that orders and pays for groceries when supplies run low. The possibilities for real-time, automated payments between connected devices are enormous.

Despite all the potential, programmable payments face challenges. The technology—particularly blockchain-based systems—can be complex and requires specialized expertise, which can increase upfront costs for businesses. In addition, the regulatory environment around programmable payments is still evolving, especially for cross-border transactions. This creates uncertainty for businesses.

Much like low-code and no-code platforms make app development accessible to non-coders, programmable payments are moving toward a future with minimal human intervention. Both are about simplifying complex systems: low-code/no-code platforms hide the complexity of software development, while programmable payments automate financial processes with predefined logic.

Both point to a future where systems execute tasks on their own, based on rules set by users. The goal is simple: Once the conditions are established, the system handles the rest.

Programmable payments are reshaping the future of finance. It’s an exciting future that promises smarter and more streamlined and efficient financial operations.

Economics-Watching: Money Transmitter Regulation: Key to Payments Modernization

[from the Federal Reserve Bank of Atlanta, by Claire Greene, payments risk expert in the Retail Payments Risk Forum]

In October, I wrote about the potential for standards to make business-to-business payments more efficient. Today, let’s talk about standards again, this time for money transfer businesses and the state regulations covering them.

We all know these businesses: Venmo, Western Union, MoneyGram, PayPal, CashApp. The roster seemingly grows by the day. Many crypto firms also are registered money transfer businesses. Money transfer businesses typically are nationwide and global in scope. Nevertheless, these multi-state and multi-national businesses are regulated under the separate licensing rules of individual states and US territories. Federal laws, including the Bank Secrecy Act and the Electronic Fund Transfer Act, also apply to money transfer businesses.

For new and established money transfer businesses and for state regulators, the hodgepodge of state regulations creates headaches. To do business everywhere in the United States, money transfer businesses must register separately in each state and US territory and meet license requirements that can vary from state to state. They can face multiple state examinations, also with different requirements, simultaneously (and annually). During examinations, regulators review operations, financial condition, management, and compliance with anti-money laundering laws.

Fortunately, many states have acted to address this confusing and inefficient situation by adopting the Model Money Transmission Modernization Act (MTMA) [archived PDF], sample legislation developed by the Conference of State Bank Supervisors to establish nationwide standards and requirements for licensed money transmitters. Fourteen states have adopted some version of the MTMA: Arizona, Arkansas, Georgia, Hawaii, Indiana, Iowa, Minnesota, Nevada, New Hampshire, North Dakota, South Dakota, Tennessee, Texas, and West Virginia. In my home state of Massachusetts, the legislature’s Joint Committee on Financial Services heard testimony on a version of this bill just last month. For traditional money transmitters and new fintech entrants, the MTMA aims to reduce the substantive and technical differences among the various state laws and regulations. This kind of change has the potential to reduce compliance burdens, encourage innovation, and remove barriers to entry for new market participants.

The MTMA is important given the prodigious growth in person-to-person, or P2P, payments via apps. Among all US consumers, half of P2P payments were sent using noncash methods in 2022, up from less than 30 percent in 2020 (see the chart). From Massachusetts alone, money transmitters sent $31 billion in 2022, according to the state’s Division of Banks.

Half of P2P payments were made electronically in 2022.

The MTMA also has the potential to create efficiencies for state supervisors. For example, the Conference of State Bank Supervisors (CSBS) has facilitated a collaborative exam program for nationwide payments and cryptocurrency firms to undergo one exam, each facilitated by one state overseeing a group of examiners sourced from across the country. According to the CSBS, transmitters in more than 40 states that have laws addressing core precepts can benefit from the streamlined exams.

The MTMA is another example showing that standards create efficiencies that are good for businesses, good for regulators and, by extension, good for consumers.

Economics-Watching: Global Data Tracks Decade-Long Decline in Check Payments

[by Claire Greene, payments risk expert in the Retail Payments Risk Forum at the Federal Reserve Bank of Atlanta]

From around the world, we have more evidence that people are shifting from checks to other means of non-cash payments. Using data from the Bank for International Settlements (BIS), my Atlanta Fed colleagues Antar Diallo and Oz Shy found that from 2012 to 2021, in all 20 countries they examined, the number of checks declined as the number of cashless payments increased. Since checks are cashless payment instruments, it’s notable that the total of cashless payments increased even as a component of this calculation declined.

Among the 20 countries that reported the number and value of these payments to the BIS, the United States had by far the highest per capita use of checks per year in 2021: 30 checks. Only six countries reported more than two per capita (chart below), another 12 between zero and two. Belgium and South Africa reported zero.

Yikes, you say, 30 checks per person per year in 2021! How is that possible? Most checks in the United States—about two-thirds—are estimated to be written by businesses, according to the Atlanta Fed’s Check Sample Survey. That would put the average number of checks that U.S. consumers write at about 10 per year on average, which is in line with the findings of the 2021 Survey and Diary of Consumer Payment Choice.

Given the high per capita use in the United States, it makes sense that our year-over-year decline from 2012 has been slower than that for other countries. The per-year decline in the number of U.S. checks from 2012 to 2021 was slower than the decline for all the other high-use countries listed in the chart. The United States was down 6.7 percent per year from 2012 to 2021, compared to down 8.8 percent per year for Canada at the slow end and down 17.4 percent per year for Austria at the quick end.

No way around it: we love our checks, and our response to innovation has been tepid compared to that of other countries.

Economics-Watching: Third-Quarter GDP Growth Estimate Increased

[from the Federal Reserve Bank of Atlanta’s GDPNow]

The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. The Federal Reserve Bank of Atlanta’s GDPNow forecasting model provides a “nowcast” of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the U.S. Bureau of Economic Analysis.

GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the modelIn particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2023 is 4.1 percent on August 8, up from 3.9 percent on August 1. After recent releases from the U.S. Census Bureau, the Institute for Supply Management, the U.S. Bureau of Economic Analysis, and the U.S. Bureau of Labor Statistics, an increase in the nowcast of third-quarter real gross private domestic investment growth from 5.2 percent to 8.1 percent was slightly offset by decreases in the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real government spending growth from 3.5 percent and 2.9 percent, respectively, to 3.2 percent and 2.7 percent, while the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from 0.08 percentage points to 0.11 percentage points.

The next GDPNow update is Tuesday, August 15.

Economy-Watching, USA: First-Quarter GDP Growth Estimate Decreased

[from the Federal Reserve Bank of Atlanta]

GDPNow

First-Quarter GDP Growth Estimate Decreased

On April 5, the GDPNow model estimate for real GDP growth in the first quarter of 2023 is 1.5 percent, down from 1.7 percent on April 3.

The next GDPNow update is Monday, April 10.

Want to see even more economic data? The Atlanta Fed’s EconomyNow app will put GDPNow and all its data tools right in your hands. Download it today to see the latest data on inflation, growth, and the labor market.

Economics-Watching: Underlying Inflation Dashboard Updated

[from the Federal Reserve Bank of Atlanta, February 24, 2023]

Underlying Inflation Dashboard Updated

We’ve updated our Underlying Inflation Dashboard with data from the U.S. Bureau of Economic Analysis, the Federal Reserve Bank of San Francisco, and the Federal Reserve Bank of Dallas.

Want to see even more economic data? The Atlanta Fed’s EconomyNow app will put GDPNow and all its data tools right in your hands. Download it today to see the latest data on inflation, growth, and the labor market.

World-Watching: Atlanta Federal Reserve Wage Growth Tracker Was 6.1 Percent in January

[from the Federal Reserve Bank of Atlanta]

The Atlanta Fed’s Wage Growth Tracker was 6.1 percent in January, the same as in December. For people who changed jobs, the Tracker in January was 7.3 percent, compared to 7.7 percent in December. For those not changing jobs, the Tracker was 5.4 percent, compared to the 5.3 percent reading in December.

The Atlanta Fed’s Wage Growth Tracker is a measure of the nominal wage growth of individuals. It is constructed using microdata from the Current Population Survey (CPS), and is the median percent change in the hourly wage of individuals observed 12 months apart. This measure is based on methodology developed by colleagues at the San Francisco Fed.

The Wage Growth Tracker is updated once the Atlanta Fed’s CPS dataset is constructed (see the “Explore the Data” tab on that page). This is usually by the second Friday of the month. The exact timing depends on when the Bureau of the Census publishes the microdata from the CPS.

Stay informed of all Wage Growth Tracker updates by subscribing to the Atlanta Fed’s mailing listsubscribing to their RSS feeddownloading their EconomyNow app, or following the Atlanta Fed on Twitter. You can also build your own cuts of Wage Growth Tracker data using the CPS Data Application from CADRE or alternatively from here. Look for instructions and program files in the “Explore the Data” tab on the Wage Growth Tracker.

Economics-Watching: Fourth-Quarter GDP Growth Estimate Inches Up

The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our GDPNow forecasting model provides a “nowcast” of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the U.S. Bureau of Economic Analysis.

GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.

Recent forecasts for the GDPNow model are available here. More extensive numerical details—including underlying source data, forecasts, and model parameters—are available as a separate spreadsheet. You can also view an archive of recent commentaries from GDPNow estimates.

Please note that the Federal Reserve no longer supports the GDPNow app. Download the Federal Reserve’s EconomyNow app or go to the Atlanta Fed’s website to continue to get the latest GDP nowcast and more economic data.

Latest estimate: 3.9 percent — January 3, 2023

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2022 is 3.9 percent on January 3, up from 3.7 percent on December 23. After last week’s Advance Economic Indicators report from the U.S. Census Bureau and this morning’s construction spending release from the U.S. Census Bureau, the nowcasts of fourth-quarter real gross private domestic investment growth and fourth-quarter real government spending growth increased from 3.8 percent and 0.8 percent, respectively, to 6.1 percent and 1.0 percent, respectively, while the nowcast of the contribution of the change in real net exports to fourth-quarter real GDP growth decreased from 0.35 percentage points to 0.17 percentage points.

Economy-Watching: U.S. Market Probability Tracker Updated with June’s Employment Data

[from the Federal Reserve Bank of Atlanta]

The following information is now available on the Federal Reserve Bank of Atlanta’s website.

Market Probability Tracker Updated with New Employment Data
On Friday, the U.S. Bureau of Labor Statistics released June’s employment report. Find out how this affected the market’s assessment of future rate moves at the Market Probability Tracker.

U.S. Labor Trends: Atlanta Fed’s Labor Market Tracking Tools Updated with May Data

[from the Federal Reserve Bank of Atlanta’s Center for Human Capital Studies]

What do May employment data from the U.S. Bureau of Labor Statistics mean for the outlook for labor markets? Find out in the Atlanta Fed’s Labor Market Distributions Spider Chart, Jobs Calculator, and Labor Market Sliders.

Want to see even more economic data? Our EconomyNow app will put GDPNow and all our data tools right in your hands. Download it today to see the latest data on inflation, growth, and the labor market.