Digital Payment and Mobile Wallet Growth Spans Across All Generations
In a blog that we posted about generation segments a year ago, the prediction was that all generational segments would continue their progression into the use of digital services. Was that prediction accurate? Yes and no. While the migration to digital services among all generational segments was a result of COVID restrictions, specific segments gravitated toward specific payment technologies. All generational segments, however, have kept traditional funding sources.
The latest FIS PACE survey found that 32% of mobile wallet users now have three or more mobile wallets such as Apple Pay and Google Pay, representing a 21% increase from 2020 when adoption truly took off during the pandemic. To illustrate: A consumer is using PayPal because that is the first wallet they set up due to the product’s longevity. That same consumer also began using the Apple Pay wallet because it enabled them to add payment sources and conveniently store other types of documents such as plane tickets. That same consumer then set up a Venmo wallet to make payments to friends, family, and small businesses.
This study, conducted in the first quarter of 2021, showed the greatest increase in mobile wallets to be among Gen Z and Millennial segments, with some Millennials now using as many as nine mobile wallets.
Much To Do About Mobile Wallets
Born after 1996, Gen Z was among the first to embrace digital payments, well before the pandemic. They are highly comfortable using technology for financial transactions, including using mobile payment apps for P2P payments. Online payment statistics show that 68% of Gen Z consumers are interested in instant P2P payments, more than any other generational segment.
While mobile wallets were predicted to become a major payment technology upon their introduction, the move to contactless payments as a result of COVID and the movement of generations that grew up with mobile phones is finally creating traction for this contactless payment method. The FIS Pace survey asked 1,015 American consumers if they owned mobile payment wallets such as PayPal, Apple Pay, Venmo, Mastercard Masterpass, etc. The results show that 57% of Gen Z respondents owned mobile wallets in Q1 of 2021 versus 50% during the same period in 2020. However, 65% of younger Millennials increased their mobile payment wallets in 2021 versus 59% during the same period in 2020. Senior Millennials, on the other hand, were less enamored with mobile wallet technology as they reported a 7% decrease in usage. Likewise, Gen X showed a slight decline in mobile payment wallet usage from 49% in 2020 to 46% in 2021.
Is the mobile wallet product an exercise in futility? That depends on whether you are a glass half-empty or half-full type of observer. The glass half-empty critic would say that there was minimal movement in the usage of mobile wallets even in light of COVID. The glass half-full proponent would say that mobile wallet usage is headed upward overall, despite small decreases among several segments.
An important point to remember is that many smaller merchants do not have NFC terminals that can process contactless payments. With the uptick in contactless payment usage, merchants are quickly upgrading their point-of-sale hardware to accept contactless payments.
We also need to consider that digital card issuance, where a card can automatically be added to a digital wallet upon issuance, it also in its early stages. As that process becomes more prevalent, expect mobile wallet usage to increase. It may not be too far in the distant future where physical cards are “old school!”
Don’t Touch Me
Due to consumers wanting to restrict physical contact with any surface as a result of COVID, contactless payments really took off. With respect to Gen Z, contactless payment usage increased in this demographic segment to 17% in Q1 2021 from 9% during the same period in 2020. Young Millennials saw the most significant increase in contactless payments at 29% in 2021 versus 10% in 2020. Senior Millennials lagged behind their younger counterparts in contactless payment usage but still posted an increase of 19% versus 10% for Q1 2020. While Gen X was not enamored with digital wallet technology, their usage of contactless payments increased to 13% in 2021 versus 7% in 2020.
Digital Card Issuance Ups the Digital Transition Ante
As more generations move to the digital channel, there may be a shift in payment source preferences. Digital card issuance enables credit cards to be instantly issued and available for usage upon the approval of a card application. That card can then be seamlessly added to a digital wallet. With traditional physical debit card and credit card delivery methods still taking one to two weeks, the immediate usage of a card in a wallet would seem to further increase mobile wallet usage and impact the use of physical cards for contactless payments.
The ease of onboarding a digital card into a mobile wallet may also increase the usage of mobile wallets by older generational segments. Simplicity is often one of the most significant attributes for digital adoption. Digital card issuance also becomes a strategic tool that could deter the consumer from using a secondary card for purchases if they had to wait for a replacement card being mailed in lost/stolen situations.
While there had been predictions that digital commerce and payments would reach a tipping point, no one could predict that a pandemic would be the catalyst for the transition. COVID created an environment where every generation was forced into the use of digital commerce and payments. The usage of mobile wallets and contactless payments is increasing among the generational segments. Those segments with slow adoption may see a lift as digital card issuance goes mainstream.
Another byproduct of the COVID experience was the consumer expectations of immediate fulfillment and a convenient digital commerce experience. The immediate usage of cards through digital issuance, having those cards immediately available in a digital wallet, and the increased acceptance of contactless payments means that we may see a surge in the usage of digital wallets when next year’s survey results are published.
One COVID payment prediction that has been proven is that once the pandemic is over, many consumers will continue to follow personal habits developed and used during the pandemic. Digital payments are one of those habits. Will 2022 be the tipping point for mass usage of digital wallets among all generational segments and will the reign of the debit card end? We will have to wait and see.