Debit is the favorite, even overtaking credit for department store buys, and alternative payments are coming on.
Americans have their choice of payment methods for most purchases, including credit cards, debit cards, cash, checks and newer forms of electronic payments, such as mobile wallets and wearables. As new forms of payment become popular, our preferred methods of payment have been changing.
What method of payment is the most popular?
In a 2018 survey, payment processor TSYS asked 1,222 consumers which payment form they prefer. Fifty-four percent chose debit cards, while 26 percent selected credit cards, and only 14 percent specified a preference for using cash.1 Consumers’ preference for credit cards decreased by 7 percentage points over the same survey’s results from 2017, while the results for debit cards rose by 10 percentage points.
Over the years TSYS has been conducting its U.S. Consumer Payment Study, debit remains preferred for daily purchases at the gas station, supermarket and discount store. Now, it has also overtaken credit as the preferred way to pay at department stores. Previously, credit was the most popular payment method at department stores, most likely due to people’s preferring credit for higher-value purchases.1
Preferred payment types varied by income, too. The TSYS survey found that people more than $100,000 a year preferred credit cards, while those making less than $100,000 preferred debit.1
Why aren’t digital wallets catching on?
Mobile devices have permeated many aspects of our daily lives, but digital wallet use remains a small factor in the overall payments picture.
Part of the reason could be on the retailer side, with only 36 percent of merchants reporting that they currently accept digital wallet payments in a study commissioned by JP Morgan Chase.2 While 56 percent of large businesses said they accept mobile wallets, only 25 percent of small businesses said they accept them.2
Merchants are not the only slow adopters. In the same study, only 16 percent of consumers said they had used a mobile wallet.2
Some factors cited as hampering the adoption of digital wallets include fears about security and concerns that a merchant wouldn’t accept payments via digital wallets.
Digital security concerns change purchase behaviorIn the wake of many recent high-profile hacking cases, computer security has affected how consumers make purchases.
The 2017 American Express Digital Payments Survey shows that 73 percent of consumers surveyed have made three or more online purchases in the 12 months prior to June 2017. However, 37 percent say they have abandoned an online purchase due to security concerns.3
Nevertheless, nearly half of online shoppers (47 percent) say they’ve increased the frequency of their online purchases over the last year, and 71 percent of merchants say the proportion of their annual sales generated through online and mobile channels increased over the previous year. 3
However, the survey also shows that, security aside, plastic is still preferred – 20 percent of those surveyed are no longer carrying cash and 46 percent say that they rarely or never use cash.3
Frustration with chip cards may increase digital wallet usage
Since 2015, credit cards with embedded EMV chips have become the standard.
According to EMVCo, an international standards organization, which reports over 6.1 billion EMV chip cards in global circulation. EMV adoption rates in the U.S. rose to 52.2 percent in 2016, up from 26.4 percent in 2015.4
However, many consumers aren’t excited about the enhanced security of chip cards.
Mobile payment processor Square found in a 2016 survey that 37 percent of respondents say that waiting in line was their top pain point at stores, more than 87 percent of credit card users reported being frustrated that chip cards were slower to process than those with magnetic stripes. Ninety-one percent of debit card users expressed the same sentiment.5
The trend toward using credit cards as a sole method of payment
In recent years, the percentage of people who use their credit cards as their sole payment method (rather than to finance purchases) has risen dramatically. More than half of all credit card holders use their cards for everyday spending.
According to the FINRA 2016 Investor Education Foundation’s National Financial Capability Study, 52 percent of respondents reported always paying their credit cards in full in 2015, representing an increase of 11 percent compared to the same study in 2009.6
Person to person (P2P) electronic payment trends
Bank of America’s 2018 Trends in Consumer Mobility Report shows that P2P mobile payments are becoming mainstream, especially among younger Americans.
While only 44 percent of total respondents said they used P2P payments, compared to 36 percent in 2017, 51 percent of millennials said they used them, and 37 percent of Gen Xers.7
The bank’s 2017 Trends in Consumer Mobility Report showed that P2P payments are seen as “less annoying” than other forms of payment. For example, 51 percent of respondents found paying via check to be a pain, while 38 percent were annoyed by delayed checks or checks that are never cashed.7
Of those who use P2P payments, 68 percent said the payment was convenient and saved time, and 48 percent were motivated because friends were using it.7
Cash payments dwindle
Early predictions of a quick move to a cashless society have proved premature, but cash payments are still plummeting. According to the 2016 Federal Reserve Payments Study, noncash payments increased at an annual rate of 5.3 percent (3.4 percent in value), between 2012 and 2015. Debit, credit and ACH payments grew while check payments fell during this time period.8
The Fed’s 2018 Annual Supplement to its Federal Reserve Payments Study found that this trend continued, with the number of debit, credit and ACH payments growing, and the number of check payments dwindling.8
A 2016 Gallup poll also found that far fewer Americans are using cash than five years previously. Only 10 percent reported using cash for all their purchases, down from 19 percent in 2011.9
But still, only 12 percent say they never use cash, hardly changed from the 10 percent who said the same in 2011. 9
How consumers are paying their bills
When you think of “preferred payment method,” you might only consider retail purchases, both in-store and online.
But consumers must also select a method of payment when paying bills.
Fiserv, an online bill payment provider, issued its 8th Annual Billing House Survey in 2016, which found that more than 90 percent of households used more than one payment method for paying bills. The average number of payment methods in 2015 was 3.6, up from 2.9 in 2014. 10
More than 33 percent of those surveyed reported paying a monthly bill through their mobile phone, a 22 percent increase over the previous year’s survey.10
However, by far the most popular payment method for bills is the biller’s website, followed by checks and financial institutions’ websites.10
- TSYS 2018 U.S. Consumer Payment Study
- The Intersection of Payments and Commerce in a Digital World commissioned by JP Morgan Chase
- 2017 American Express Digital Payments Survey
- EMVCo Worldwide EMV Deployment Statistics Q4 2016
- What Consumers Think About Chip Cards and Mobile Payments survey by Square, Inc.
- Financial Capability in the United States 2016 by FINRA
- Bank of America’s Trends in Consumer Mobility Report 2018, BoA’s Trends in Consumer Mobility Report 2017
- The Federal Reserve Payments Study 2016, Fed’s 2018 Annual Supplement to Federal Reserve Payments Study
- “Americans Using Cash Less Compared With Five Years Ago” Gallup survey July 2016
- Fiserv Eighth Annual Billing Household Survey 2016