The upward trajectory of digital payments is seeing a sharp uptick as consumers seek out alternative ways to pay in the wake of a global pandemic. Here’s what you need to know to prepare for a digital payments future.
Digital payments have evolved significantly over the last several years, and that evolution was bumped into high gear as the result of the pandemic. Consumers quickly adopted new preferences, erring on the side of digital and becoming more tech-savvy in record time. As both convenience and concern over health matters continue to push consumers towards remote and touchless options, digital payments will continue to grow.
Cash is No Longer King
Experts agree that the pandemic has accelerated the drive toward a cashless society. Whether or not this will come to pass in our lifetime is up for debate; however, the notion may have a troubling ripple effect on the under- and unbanked. According to the Federal Deposit Insurance Corporation (FDIC), roughly 7.1 million American households fell into the unbanked category in 2019, leaving those individuals without a bank or credit union account. While that number is trending downward, the possibility of a spike due to the economic volatility of the pandemic is not out of the question.
Yet the push away from cash continues with businesses reporting more cashless payments than ever. Square reported that about 8% of U.S. sellers on Square were cashless on March 1 of 2020 — a share that increased to 31% in just under two months. A 2019 Federal Reserve Payments Study highlighted that Americans opted for non-cash payments 143.6 billion times in 2015. By 2018, that number had increased to 174.2 billion times and the value of those payments increased by $10 trillion.
In terms of pros and cons, there are ample parties that argue each side. On one hand, card brands (who stand to profit from a move toward digital payments) note that digital payments would reduce money laundering and tax evasion while cutting down on the resources needed to handle physical currency. Others cite privacy issues, the marginalization of the under- and unbanked, and digital fraud as reasons why cash shouldn’t be booted. Regardless of the arguments on both sides, digital payments continue to rise, and payments organizations should pay attention to evolving consumer behaviors to stay ahead of the curve.
Peer-to-Peer (P2P) Payments
The global peer-to-peer (P2P) payment market accounted for $1,845.29 million in 2019 and is projected to hit $4,491.14 million in the next seven years — growing at a CAGR of 11.8% during the forecast period. It’s no surprise these types of digital payments have done well during the pandemic; they offer an alternative to cash for people who are looking to exchange funds with friends or pay for things like haircuts, rent, and other services that may accept non-traditional payment methods. Since P2P apps are tied to a person’s bank account, debit card, or credit card, there are no fees associated with this type of payment.
These social-distance-friendly payments offer flexible ways to pay, but they are also being leveraged in new ways as a result of Covid-19. While people in need may have turned to popular crowdfunding sites like GoFundMe in the past, they are now leveraging P2P payment platforms to send and receive financial help from friends, family, and strangers alike.
The fear of touching surfaces has kicked off a whole new growth spurt for mobile payments, where digital and contactless payments have offered people a seamless, germ-free way to pay. As a result, merchants everywhere are amping up mobile payment offerings: roughly two-thirds of retailers report they now offer some version of no-touch payment. More than half (58%) of retailers accept contactless cards, which is up from 40% last year. Mobile payments are on the rise, too; More than half (56%) of retailers accept digital wallet payments on mobile phones.
Interestingly, mobile wallets had experienced a less-than-stellar growth rate prior to the pandemic, with adoption rates dragging along. As the coronavirus prompted people to seek out alternative, touch-free payment methods, mobile wallets have taken center stage. A PYMNTS.com report shows that Apple Pay use for in-store transactions has increased by 59%. Of consumers who have Apple Pay-enabled phones, 7.8% are now using the mobile wallet to make POS purchases — up from 4.9% in March of 2020.
Preparing for the Future of Digital Payments
Perhaps the biggest takeaway from the findings on digital payments, especially the increase tied to the pandemic, is that consumers want options. It reinforces the importance of omnichannel payments and the acceptance of multiple payment types for retailers. For payments companies, it should signal the need for streamlining and securing digital payments.
The pandemic has highlighted the importance of remote payment options, but it has also underscored how quickly consumers can get up-to-speed on novel payment types in order to meet their own needs in a bind. Payment service providers and retailers alike should not shy away from emerging payment technologies but rather focus on potential use cases and how they might improve the customer experience from start to finish.