North American shoppers are notorious for their devotion to plastic. Credit cards remain the leading consumer payment method across the Continent today. However, mobile-payment methods are slowly revolutionizing the way they pay.
In a recent consumer-behavior survey by Worldpay from FIS, 56% of respondents admitted they believed smart phones will replace debit and credit cards as the primary method of payment in five years. These figures were even more significant among Gen Z and Millennials. Moreover, recent research has found that the Covid-19 pandemic has accelerated the adoption of mobile and digital wallets.
In 2019, almost 80% of U.S. consumers indicated their preference for using a debit or credit card when shopping online, according to Worldpay’s study. The remaining 20%, however, noted their preference for digital wallets like Amazon Pay, Apple Pay, and PayPal. Digital and mobile wallets have emerged only in the last decade, and industry visionaries have consistently predicted that they will inevitably phase out their much older, plastic brethren.
Yes, this shift has been on the horizon for some time now. But North Americans continue to lag behind other countries in digital- and mobile-wallet adoption. For example, in China, digital wallets like AliPay are now the leading form of e-commerce payment and are projected to surpass cash at the physical point of sale by 2023. While we’ve seen a coming tipping point for mobile-wallet use in North America, the extent to which the pandemic will accelerate that adoption remains to be seen. All signs, however, are suggesting change will come quickly in the wake of the global crisis.
Consider some other factors that are accelerating adoption as well: Gen Z and Millennials, who are more digitally inclined than other generations, are overtaking preceding generations in their spending dominance, and their appetite for digital and mobile wallets is driving the trend. Among the FIS survey respondents, 75% of Gen Z have used a smart phone to make a payment in-store, compared with just 25% of Boomers.
Additionally, 62% of Millennials and Gen Z cited speed as the primary reason for using digital wallets, whereas safety was the primary factor for Boomers. Digital-payment solutions such as contactless transactions appear to be appealing to both cohorts for different reasons. While young people enjoy the convenience that comes with digital wallets, older people value the security it brings.
While credit and debit cards still lead among most consumers’ payment preferences, no single payment method—EMV chip, contactless card, or mobile/digital wallet—has risen to the top of consumers’ preferences across all generations. Retailers should offer their customers a variety of trusted and tested payment methods across all in-store and online channels and prepare for an increase in the adoption of contactless payment methods.
Worldpay from FIS’s 2020 Global Payments Report finds digital wallets gaining significant traction with North American shoppers, projecting that digital wallets will surpass credit cards as the leading e-commerce payment method by 2022—accounting for 33% of e-commerce payment volume. Whether or not it phases out traditional payment methods, mobile and digital wallets are becoming an essential payment method in North America and around the world.
Clearly, brands need to be prepared, and the starting point is to develop a clear understanding of how their customers prefer spending while ensuring a quick, secure, and convenient checkout experience. Serving the needs of today’s consumers requires a comprehensive strategy that supports both new and traditional payment methods, whether in-store or mobile.
—Jason Pavona is general manager for global e-commerce, North America, at Worldpay Merchant Solutions, FIS.