The evolution of consumer payment methods continues to unfold, reshaping payments decisively around the world. This has been especially elevated during the Covid-19 pandemic where transactions have increasingly shifted online as stores have been forced to physically close. Overall, the ways we pay are affected by our cultures, habits, innovations, and the technology available to us.
According to the Worldpay Global Payments Report, in 2020 the biggest trend in consumer payment continues to be the rise of mobile payments, making shopping easier than ever and already leading e-commerce payment preferences with 42% of spending in 2019—up from 36% since 2018.
Personalised customer experience
As we know, besides innovation, the commerce and banking sectors are striving to provide a multitude of payment methods, personalised according to the customers’ preferences, both online and in store.
While Deutsche Bank believes that cash will stay, the coming decade will see mobile payments grow at light speed, leading to a reduction in the use of plastic cards. Over the next five years, it is expected that mobile payments will comprise two-fifths of in-store purchases in the U.S., quadruple the current level. From retailer-specific apps to wallets issued by financial institutions, device manufacturers and technology platforms, mobile payments are providing convenience and safety to consumers and businesses around the world. In 2020 alone, over one billion shoppers will make a mobile payment.
Similar growth is expected in other developed countries; however, different countries will see different levels of shrinkage in cash and plastic cards. In emerging markets, the effect could arrive even sooner. Many customers in these countries are transitioning directly from cash to mobile payments without ever owning a plastic card.
Generation-Z – the children and young adults of today – also play a significant role in shaping the future of payments. Born and raised in a mobile-first world, this technology savvy generation makes up close to 26% of the global population. Learning how to navigate the world in the era of “fake news” and having their digital lives saturated with messages of questionable quality and authenticity, Gen-Z seeks more personalization, higher quality, and greater performance from businesses.
Brands seeking to earn the favor of Gen-Z will need to cater to their digital, flexible, and mobile-focused payment preferences as well. The ever-present smartphone is becoming the new wallet of choice for this generation and many consumers are choosing to put their preferred cards in their phone instead of carrying the physical card. This is driving big changes in global point of sale payment adoption: from 16% in 2018 to 22% in 2019.
China leads the way in digital wallets
We can deduce much about the future of payments (especially during the pandemic) from developments in China where the country is creating world-leading mobile payments infrastructure. There, the value of online payments is equivalent to three-quarters of GDP (71%), almost double the proportion in 2012. Today, just under half of in-store purchases in China are made via a mobile phone, way above the levels in other developed markets (25% in Germany and 24% in the U.S.).
Mobile payments already account for 22% of global point of sale spend in 2019 and it is projected they will account for nearly a third (30%) of consumer payments within five years. The growing share of mobile payments adoption will come largely from gradual declines in the physical use of credit cards, debit cards, and charge/deferred debit.
The COVID-19 factor
COVID-19 is expected to have a profound effect on the payment cards market. Contactless is considered the more hygienic and safe way of making payments. This trend is being reinforced by commerce ecosystem players who are advertising that contactless transactions increase safety and health. Globally, contactless adoption is projected to increase between +6% to +8% when compared to pre-COVID-19 expectations, while an additional 110 million contactless payment cards are expected to be issued in 2020.
In addition, Mastercard global transaction data and consumer research suggests a significant acceleration in the use of contactless payments. According to the poll results, the number of contactless card payments at supermarkets, groceries, and pharmacies during the March 2020 lockdown as a proportion of all face-to-face card payments, grew by 25% compared to the previous year. Citing safety and cleanliness, 79% of people worldwide and 91% in Asia Pacific say they are now using tap-and-go payments. The data reinforces how people look for alternatives in store, seeking to avoid handling cash, pens, and keypads in favor of a safe and quick tap to check out.
Finally, according to findings of an April 2020 report, contactless cards and mobile payments are growing in the U.S. and Canada as the coronavirus pandemic continues. Nearly one-third of consumers in the U.S. became first-time users of contactless payments during the pandemic, and the majority plans to continue paying contactless post-COVID-19. Contactless card payments in the U.S. are projected to increase eight-fold between 2020 and 2024, and mobile proximity payments are also rising rapidly.
In the next post, we are going to focus on financial fraud and the efforts the industry is taking to secure online, digital transactions. Meanwhile, you may read our Sensitive Data Protection in the Retail Card Payments Ecosystem brochure to understand how technology can provide complete protection of sensitive data generated during retail card payment processing activities.