The Winds of Change Continue in the Payments Category
As we mentioned in our previous blog, card usage continues to gain momentum. This trend has continued into 2021 with no signs of slowing down. The use of cash continues to decline, while the most popular payment method is the debit card. However, the gap between credit cards and debit cards is closing. In 2020, the Federal Reserve Bank of San Francisco conducted a study asking consumers which payment forms they used. To facilitate their payments, the respondents indicated that they used debit cards for 28% of their payments, credit cards for 27% of their payments, and cash for 19% of their payments.
Digital Payments on the Rise
Due to stay-at-home orders and concerns about contact with physical surfaces, the pandemic fueled the increased usage of digital payments. Despite lifting lockdown restrictions, consumers are still concerned with the sterility of surfaces, further decreasing the use of cash and pin pads that thousands of individuals will invariably touch in any given month. As such, contactless payments have seen an increase, with 50% of shoppers polled by Mastercard in 2020 using that service for everyday purchases. This trend has continued into 2021.
A 2021 State of Contactless Payments study conducted by Raydiant showed that 80% of consumers polled had used contactless payments in the last 12 months, while 57% noted they are more likely to do business with merchants who offer contactless payment options. It is interesting to note that same study showed 74% of consumers surveyed were still concerned about the cleanliness of cash. Even though the country has met the 70% vaccination rate target, consumer germ-conscious behavior will continue. The new threat being posed by the Delta COVID variant will further reinforce these concerns.
To Reward or Not to Reward
On July 1st, 2021, American Express announced multiple new platinum card benefits and increased the welcome bonus offered to consumers. As card usage increased during the pandemic and into 2021, so did consumer awareness of card rewards programs. Logically, consumers opt to use cards with the most significant number of benefits. As a result, financial institutions must come to the table with added rewards categories and more opportunities for bonus points and perks. American Express added $200 in hotel credits, $200 in Uber ride/eats rebates, and $240 in digital entertainment rebates, including Apple TV, Netflix, Hulu, etc. These increased benefits and rewards are designed to move the issuer’s card to top of wallet status.
While card issuers are increasing their benefits, consumers are reducing the number of credit cards they carry. According to Elite Personal Finance, the average number of credit cards a consumer carries has decreased from 3.7 in 2019 to 3.0 in 2020. This reduction in the number of cards creates additional pressure on financial institutions to offer top-level benefits and incentives that consumers want.
Person to Person (P2P) Electronic Payments
In its 2021 Consumer Payments Report, Fiserv found that 47% of consumers did not know if their financial institution offered P2P payments. This is important because, as noted in our P2P Blog, financial institutions have been using this service as a sticky product to keep existing members and attract new ones.
While P2P has created a whole new level of payment convenience, today’s digital users expect instantaneous transactions where funds are sent and received in real-time. 70% of the survey respondents indicated that they expect funds to be credited within 60 minutes of the transaction request. Additionally, Fiserv noted that 79% of consumers stated they had used P2P payments with their financial institution or another company such as PayPal, Zelle, Cash App, or Venmo.
With P2P transactions expected to grow to $612.23 billion by 2023, P2P is a vital payment method for your members. And based on our discussion of credit card usage earlier, a P2P offering needs to have a credit card funding option to meet the credit card payment shift due to COVID.
Tying it All Together with Mobile Convenience
Consumers always look for the benefit of convenience. Just as the debit card replaced the usage of checks and contactless payments have reduced the need to swipe a card (isn’t it annoying when you tap your card and are asked to swipe or insert the chip instead?), the mobile device is quickly becoming the focal point for payments. All of the payment methods and sources mentioned earlier in the article can be accomplished and managed within the mobile device. Whether consumers want to use credit cards, their checking accounts, or P2P to make a payment, that can all be completed in the mobile banking app It would make sense, then, that a mobile banking application that offers the most payment methods would be a consumer’s first choice.
Pay and Acquire
Cash and carry has been replaced by pay and acquire. Look no further than the transition in the entertainment industry as an example. Previously the purchase of a movie or music album resulted in a consumer receiving a physical copy of that item. If the purchase was made online, the purchaser had to wait for that item to be delivered and also have the appropriate device type to play it. Today’s entertainment consumer pays for the item, immediately downloads the item, and can play it on the device used for the purchase. This is just one example of how digital has changed consumers’ purchase and fulfillment expectations. And, if a store does not meet this expectation, the consumer will find one that does.
Payments are no different. Consumers expect the ability to access their funding sources and facilitate their payments within the same device, with the payment occurring immediately. As with the retail example above, consumers will abandon financial institutions that cannot meet these payment expectations. The challenge, then, is how to position your credit union as the payment facilitator of choice. Rewards, various real-time payment methods, and access to a range of funding sources within the same digital app can all create the immediacy and convenience consumers expect.