There has been a great deal of discussion across the payments industry on how COVID-19 affected consumer payments during the pandemic lockdown. Now that we are almost a year out from the start of the pandemic, the real question is will consumers return to the more traditional payment methods of cash, checks and ATMs, or will they continue to manage payments digitally?
Bethany Ewing, principal, customer service, marketing, mobile payments lead for Deloitte Digital and Peter Pearce, senior manager of financial services strategy for Deloitte Consulting, share data that was conducted for a study for Deloitte. Deloitte Digital surveyed 2,000 Americans as part of their HX in Uncertainty report to find out how COVID-19 affected the payment preferences of consumers.
The study shows that these shifts are likely to be real and permanent. Over a quarter of individuals indicate they plan to use digital payment tools more often and nearly half say they’re more comfortable than ever with mobile banking. This survey is just a snapshot, and preferences will continue to evolve the longer this crisis unfolds.
The story thus far isn’t as much a broad-based jump ahead in maturity of payment preferences for all Americans as it is a ‘catching-up’ of those with lagging preferences.
For many individuals who use legacy payment methods, which includes cash and accounts for one-third of the total value of U.S. consumer payments, the new norm of social distancing and quarantine has had a forced-adoption effect. Temporary bank branch closures and fear of high-contact surfaces have pushed this group to move online, or to their phones, for their banking and payments needs. The effects are here to stay especially in light of the resurging of the virus.
Over 80% of consumers who depended upon cash and checks as their primary forms of payment prior to the pandemic plan to use digital payment tools post-COVID-19. The more analog the payment method the greater the adoption of digital. For example, individuals who primarily wrote checks are adopting mobile payments the quickest, even faster than consumers who primarily use cards. Only 13% of check-users don’t plan to use digital payment tools at all in the future, compared to 20% of card-users.
There are several possible reasons why digital lagging occurred: card payment methods might seem more hygienic, causing fewer Americans to ditch the payment type in favor of digital. There was also a national coin shortage, limiting the opportunity of cash users to transact in their favorite method. Also contributing to the situation was the the acceleration of all types of digital transactions where a digital payment is the only option.
Digital laggards aren’t the only segment quickly that changed preferences. Communities whose health has been disproportionately impacted by COVID are also quickly and permanently adapting too. Diverse communities (e.g., African Americans, Hispanic Americans, etc.) are 50% more likely than average to increase adoption of mobile or digital tools as a result of the crisis. Those living in cities/urban areas are 63% more likely. These groups have witnessed COVID’s impact firsthand in their communities and are changing payment preferences as a result.
These trends will accelerate as the virus continues to wreak havoc on our communal health and economy. This crisis will likely continue for some time, causing preferences to only shift further. The U.S. is traditional in payment method preferences relative to Asian countries, where consumers use apps like WeChat to conduct much of their financial and non-financial life. But the U.S. is much less cash-based than many European nations like Germany where nearly half of consumer transactions are made with cash. While we conducted the research in the U.S. we expect these trends are playing out across the globe.
Both in the U.S. and across these other markets, these trends have significant implications for market actors. Banks must continue to invest in digital and mobile tools that ease the transition to contactless while rethinking the role of physical branches as cash and check usage declines.
Fintech players and tech heavyweights (e.g., Google, Apple) may have a leg-up in embedding banking tools and features into devices that receive heavy everyday use, driving the convenience factor and putting pressure on incumbents to deliver similar experiences.
Finally, merchants, particularly those who serve at-risk communities, must ensure they accommodate shifting payment preferences with contactless payment acceptance methods but still support cash as a payment option as well.
New technology means little if consumers are not ready to use it, and the catching up of digital laggards will cause COVID to have long-term impacts even more radical and transformative on the payments industry than some watchers first imagined. The very fabric of the payments ecosystem has greater incentive now than ever to reorganize.