Once upon a time, people mostly shopped at brick-and-mortar stores or ordered merchandise by mail or over the telephone. Now, a growing number of people are choosing to shop online instead. Here’s a closer look at how the retail and payment landscape has evolved.
Now, a growing number of people are choosing to shop online instead. And online shopping and mobile payments could see a permanent boost in the wake of the coronavirus crisis.
Consumers’ payment choices are also changing rapidly, thanks to a boom in new financial technology, apps and other payment services. As mobile and contactless payments slowly grow in popularity, retailers, banks and other financial services companies are increasingly debuting new ways to pay for goods and services.
Here’s a closer look at how the retail and payment landscape has evolved over the years.
See related: Best credit cards for online shopping
Online and in-store shoppers have more payment options than ever
Consumers shopping at a brick-and-mortar store can choose to pay with cash, physical debit or credit cards, prepaid cards, gift cards or other traditional payment methods. Or, depending on the merchant, they may be allowed to pay for purchases with an NFC-enabled smartphone, a mobile payment app or even a wearable device, such as a payment-enabled smartwatch.
When shopping online, consumers have even more options to choose from, including:
- Online payment services and apps, such as PayPal;
- Buy-now-and-pay-later services, such as Afterpay;
- Point-of-sale installment loans, such as Affirm;
- Virtual payment cards such as Privacy; and
- Social media payment services, such as Facebook Pay.
Despite the surge in options, most shoppers continue to use cash, credit or debit cards to pay for purchases. According to the Federal Reserve Bank of Atlanta’s Diary of Consumer Payment Choice, debit cards are the most frequently used payment choice, followed by cash and credit cards. Meanwhile, electronic payments make up just 11% of all payments – up from 10% in 2017.1
Online sales continue to grow
Consumers also have more choices nowadays about where to shop, both online and in person. According to the National Retail Federation, there were 3,100 more stores in the U.S. in 2018 than the year before.2
Most people choose to shop for at least some or all of their purchases in person. However, research shows that an increasing number of people are spending more of their dollars online – particularly when they’re buying recreational or other discretionary purchases.
According to the analytics company comScore, for example, consumers spent more than 24% of their discretionary funds online in the first quarter of 2019. Meanwhile, total digital spending, including purchases made from a smartphone and computer, reached $137.9 billion in the first quarter – up from $120.2 billion the previous year.3
A separate report found similarly robust growth. According to Digital Commerce 360, sales at North America’s top 1,000 e-retailers grew by 17.7% in 2018. Excluding Amazon (which recorded 20% more sales in 2018), online sales grew by 16.8%.4
In-store retail sales, by contrast, have either declined or grown at slower rates. According to the Department of Commerce, for example, online sales grew by a little over 13% in 2019. In-store sales at clothing and accessory stores, book stores, sporting goods stores, hobby stores and music stores, by contrast, slumped during the same period.5
According to comScore, consumers shopping online tend to spend the most on clothing and computers. They also tend to spend more money on big-ticket purchases, such as electronics and event tickets.3
Consumers are paying more bills online
Consumers aren’t just shopping online. They’re also paying a larger proportion of their bills from their phones, tablets and home computers. According to the Federal Reserve Bank of Atlanta, for example, consumers paid nearly half of all their bills (43.2%) online in 2018.1
Consumers are especially likely to reserve their biggest bills for electronic payments, the Fed’s research suggests – likely because it’s more convenient than sending a check or paying with cash. As a result, more than 53% of the dollars spent on bill payments were paid electronically.1
Consumers are also becoming increasingly comfortable paying their bills on the go, using their mobile phones. According to a survey of more than 3,000 consumers by the payment company ACI, more than a third of respondents with a mobile wallet (39%) have used it to pay a bill.6
Meanwhile, 21% of all respondents to ACI’s survey said they had paid a bill with a mobile phone app last year – up from 19% in 2018.6
Younger consumers are especially likely to pay bills with their phones, ACI found. For example, more than 28% of generation Zers and more than 27% of millennials plan to use their phones to pay more of next year’s bills. Just 7% of baby boomers, by contrast, said the same.6
Consumers are warming to mobile payments
Consumers are also doing more shopping with their mobile phones, multiple reports have found. According to the consulting firm McKinsey, for example, more than three-quarters of all U.S. consumers made some kind of mobile transaction – such as an online payment, an in-app payment or an in-store mobile payment – in a 12-month period ending in August 2019.
Peer-to-peer payments and in-app payments (where you load a card into an app and pay from the app, rather than a payment processor) are growing at an especially fast rate, McKinsey found.7
People still prefer to do most of their digital shopping with a computer, though.
People like to research, browse and shop with their mobile phones
According to the consulting firm Deloitte, people are especially likely to use their phones to shop from a retailer’s e-store. In addition to researching products and browsing products on their phones, for example, consumers are also making more online purchases from their phones.8
According to Deloitte’s 2019 holiday survey, for example, 70% of smartphone users planned to make a holiday purchase on their phones – up from 59% in 2017. Consumers’ enthusiasm for mobile shopping isn’t translating to in-store mobile phone use, though. For example, according to Deloitte, people are significantly more likely to make an online purchase with their phone than use it to pay at checkout.8
Point-of-sale mobile phone purchases are slowly, but steadily, increasing
Some people are embracing in-store mobile payments, though, while others are showing more willingness to test them.
A 2019 study by Pymnts, for example, found that roughly 40.5% of U.S. consumers have downloaded at least one mobile payment app to their phones. The substantial number of people who have downloaded a mobile payment app indicates that many are at least thinking about using their phones to pay at checkout, even if they haven’t tried it yet.9
Among those who have taken the time to set up a payment app on their phones, most use it fairly regularly. For example, more than 60% of consumers who have downloaded a payment app use it more than once a week, Pymnts found.9
|Mobile phone users who pay with their phone …||Percentage of users|
|About once a day||20.1%|
|Multiple times a day||9.3%|
|A few times a week||31.3%|
|Once a week||13.2%|
|A few times a month||15.6%|
|Once a month||7%|
|Less than once a month||3.4%|
The percentage of consumers who pay with a phone at least occasionally is also growing.
According to the database company Statista, for example, an estimated 29 million American consumers used their mobile phones to make purchases at least once last year – up from 22.4 million in 2017.10
People are also spending more, on average, on their phones. According to Statista, for example, the average mobile phone user spent $3,009 on their phones in 2019 – up from $1,597 in 2016.10
In addition, people are beginning to switch the cards they use when paying with their phones, McKinsey found – perhaps so they can enjoy different kinds of rewards.7
Young people are especially likely to embrace mobile
Although mobile payment usage is growing across nearly every age group, most mobile payment users continue to be fairly young.
For example, McKinsey’s annual digital payments survey found that 91% of all millennials have made some kind of mobile payment (either at point-of-sale, in app or online) in the last year. So have 80% of generation Xers.
Baby boomers, on the other hand, are more receptive to mobile payments than they used to be, McKinsey found. However, they are still less likely than younger generations to try it. For example, just 64% of baby boomers made some kind of mobile payment last year.7
A separate study by the payment firm TSYS found that younger consumers are also more likely than older consumers to have linked their credit or debit card to a mobile wallet. For example, 42% of consumers under the age of 35 have added a debit card to a digital wallet. Only 19% of consumers between the ages of 35 and 54 have done the same. Meanwhile, just 8% of consumers 55 and older have linked a debit card to their mobile wallet. 11
Separate research published by Statista also found that young people are overwhelmingly more likely than older consumers to use their phones to make a purchase in-store. For example, 79% of mobile payment users who have made an in-store purchase are under the age of 45. Over 52% are under 35.10
Many consumers are still wary of mobile payments
Not everyone is comfortable with mobile payments, though. According to a 2019 survey by Pew Charitable Trusts, a substantial number of consumers still avoid mobile payments because they’re concerned about security.12
For example, almost 30% of respondents said they had avoided mobile payments, at least occasionally, because they were afraid of losing money. Meanwhile, a large number of people (38%) felt that mobile payments didn’t have very many consumer protections. People were much more likely to trust the protections on more traditional payment methods, such as credit cards.
Some people were even concerned their credit card payments wouldn’t be protected if they made the payment with a mobile phone app. That’s not true, though. Credit card payments made with a mobile phone are just as protected as credit card payments made in person.12
Overall, consumers are much more likely to regularly use traditional payment methods, such as credit cards and debit cards, than mobile phones. For example, 91% of respondents said they had used a physical card to make a payment within the past month. Just 56% of respondents, by contrast, said they had made a mobile payment within the past year. Only 47% made a mobile payment within the past month.12
Online and mobile payments continue to grow in popularity, particularly among young people. However, in-store mobile payments still aren’t as popular as other digital payment methods.
Analysts predict that digital payments – including in-store mobile payments – will grow in popularity, though, as younger consumers mature and more people become comfortable with alternative forms of payment. As Pymnts noted, mobile payments are still relatively new and need time to catch up with other payment methods.
“Financial innovations often face early difficulties, and consumers’ slow adoption of the personal credit card illustrates this,” wrote researchers. “It has taken almost 70 years for the technology to find use among most adult U.S. consumers, and our research indicates that 62.1% of them now own at least one credit card.” In comparison, “mobile card apps have gained remarkable traction in a comparatively short time period.”
- Federal Reserve Bank of Atlanta, “2018 Diary of Consumer Payment Choice”
- National Retail Federation, “Retail store numbers continue to grow”
- Comscore, “2019 State of Retail”
- Digital Commerce 360, “Top 1,000 Report”
- U.S. Department of Commerce, “November 2019 Advance Monthly Retail Trade Report”
- ACI Worldwide, “2019 ACI Speedpay Pulse”
- McKinsey & Co., “2019 Digital Payments Survey”
- Deloitte, “Deloitte 2109 Holiday Retail Survey”
- Pymnts, “Bridging the Gap: Mobile Card App Adoption Report”
- Statista, “Mobile POS Payments: United States”
- TSYS, “2018 U.S. Consumer Payment Study”