Payments preferences are shifting by generation. What does this shift look like and how are traditional methods like cash, credit, and debit faring overall? We explore this and more.
A discussion paper released earlier this year by the Federal Reserve Bank of Philadelphia that commented on the findings of the Visa Payment Panel outlined how payment preferences are changing among Consumers. The paper, titled Consumer Payment Preferences and the Impact of Technology and Regulation: Insights from the Visa Payment Panel Study, specifically looked at the changing roles of credit cards, debit cards, mobile wallets, and peer-to-peer (P2P) payment technologies.
Other studies have been done as well, focusing on payment preferences by generations, which continue to evolve as new technologies emerge and younger generations gain purchasing power. The general consensus is that, while brick-and-mortar retail still has a strong foothold in the market, Gen Z and Millennial consumers are continuing the push toward innovative online payment options. Omnichannel payment options are essential as preferences for convenience become stronger — and as what is considered “convenient” varies from generation to generation.
For a long time, cash was king. In many ways, it still reigns over American shoppers , with almost a quarter (24%) reporting that they make all purchases using cash. Yet experts forecast that cash will represent a smaller percentage (11.2%) of the U.S. GDP by 2021 than it has in the past (12.6% in 2016). Its decline may be partially due to the growth of ecommerce, which requires digital ways to pay. Online sales totaled more than $360 billion in 2016 and should top $638 billion by 2022 — a 77% increase.
While these are important factors that shift the payments game in favor of innovative digital options, age plays a big role, too. According to commissioned research conducted in Q1 of this year by branded payments provider Blackhawk Network, brick-and-mortar shopping is still popular across all generations:
That said, more than half (51%) of Millennials surveyed in the Blackhawk study said they are likely to shop online for egifts. That eclipses the online preference of other generations, who tend to prefer traditional shopping methods. Just 46% Gen X, 42% of Gen Z, and 30% of Boomers said they are likely to shop online for egifts. This trend continues when it comes to mobile payments: 42% of Gen Z consumers surveyed and 46% of Millennial consumers surveyed said they order from mobile phones for delivery each month. Only 29% of Gen X and 13% of Boomers reported doing so. Gen Z is also the frontrunner for using alternative and emerging innovative payment technologies on a monthly basis:
Other generations average just 8% usage of these innovative payment methods. Branded payments are also more popular among younger generations as payment tools. Millennials lead the pack in usage of branded payment tools, with 72% reporting they have used egifts and other mobile payment solutions, like:
Gen Z, not to be outdone, is also interested in these payment methods; 63% report using egifts to make a payment. In some cases, both generations reported purchasing egifts for self-use, pointing to a greater trend of digital branded payments use.
While emerging payments methods are certainly popular with the younger generations, the overall preference still remains with credit cards. The U.S. leads the majority of countries in terms of spending with debit and credit cards, though there is some flexibility in terms of how people prefer to pay using credit:
A LendEDU poll found that consumers 18 and older tend to prefer traditional payment methods (cash, credit, and debit) to alternative methods. Another poll from the Federal Reserve seemed to confirm these findings; respondents were asked how they would typically make a $10 purchase at a local store and the overwhelming majority said they were use traditional options:
While the credit vs. debit debate has volleyed back and forth for years, it does seem that credit is coming out ahead today. A recent Mercator Advisory Group report noted that well over half (62%) of U.S. households use credit cards and many (46%) prefer to use credit cards for in-store payments. While there are slight variances in this preference by age range, the overall finding is that credit is the preferred payment method for both online and in-store payments.
If one thing is certain, it is that consumer payment preferences are fluid and evolving just as quickly as technology itself. In many ways, consumers have grown comfortable with traditional payment methods like debit, credit, and cash. Credit has become a particularly convenient option for consumers who are familiar with it and can use it for both in-store and online purchases.
On the other hand, generational shifts are skewing payments preferences in favor of innovative technologies. Mobile payments, P2P payments, and voice payments — while new and not yet at critical mass — should not be overlooked or underestimated. Staying abreast and offering newer payment methods while continuing to offer tried and true options will remain critical, especially as fraud prevention tools and regulations catch up with newer alternative payment methods.