The events of the past year have significantly shifted the way we live and work, accelerating adoption of technology to meet our changing needs and behaviors. Consumer uptake of contactless payments is one example: after many years of lackluster adoption, usage has surged during the pandemic. Visa has seen a 150% increasein contactless payments in the U.S. A Mastercard global studyconducted last April indicates that in February and March, the pandemic’s first two months, contactless transactions grew twice as fast as on-contact transactions in grocery and drugstores.
Perhaps most notably, of the over half of Americans now using some form of contactless payments, 70% say they expect they’ll continue to do so after the pandemic. Research indicates that consumers’ desire to receive COVID relief funds may have boosted digital payment adoption during the pandemic, with Paypal seeing more than 7 million new accounts opened in April alone. The increased use of contactless payments, while first tied to physical health and safety during the pandemic, also presents an exciting opportunity to advance financial security for financially vulnerable Americans.
But in order to achieve systemic financial change, it’s essential to take the unique needs of underserved low- to moderate-income people — particularly women, Black and Latinx consumers— into account when developing products. Contactless payment technology can reach this market and has the potential to transform their access to quality financial solutions. Financial service firms would realize a business benefit as well: If Black Americans reached full parity in terms of wealth with white Americans, financial services companies could realize up to $60 billion in additional revenue from Black customers each year.
On the other hand, if the needs of underserved and low- to moderate-income consumers are not accounted for when developing these new financial tools, they can instead serve to widen the wealth gap and worsen systemic financial inequality that’s been highlighted by the pandemic.
Treating contactless payment technology as a pathway to systemic change is an opportunity to meet business goals and drive social change simultaneously, but to do so requires key actors in the space to consciously design products to meet the needs of the full market, including financially vulnerable consumers.
New opportunities to enable saving
Faced with difficult financial circumstances during the pandemic, Americans are using financial services in innovative ways to cover expenses and support one another at this time. Peer-to-peer payment platforms like Venmo have been used to crowdfund personal expenses, pay bills and even to park their money. As usage of Venmo increases and users link the service to their checking accounts or prepaid debit cards, there is an opening for both traditional financial institutions and fintechs to design services and interventions that will build users’ financial security.
Further, major retailers like Costco, Kroger, Walmart, 7-Eleven, CVS Pharmacy and small businesses, including restaurants, have upgraded their systems to support and incentivize the use of contactless payments as 36% of consumers say that their loyalty to their “everyday” stores changed due to the availability of online payment options. Transit systems are also moving towards contactless payments.
Major retailers like these can be instrumental in advancing their customers’ financial security. For example, our work with Walmarton a prize-linked savings program launching in 2016 resulted in more than $2 billion being moved in the first two years through the Vault, a safe and accessible savings pocket of the Walmart MoneyCard prepaid card. As we examine the proliferation of places in which contactless payments can take place, there’s an opportunity to replicate this success across platforms by designing products that encourage and reward saving.
Access to traditional financial institutions through new actors
Partnerships between big tech players and traditional financial institutions also have the potential to transform the space and increase access for low- to moderate-income consumers. Google Pay has partnered with financial institutions, extending consumer reach and helping banks offer mobile friendly banking services, which increases access to those services. The financial institutions provide FDIC insured accounts while Google provides the mobile platform and access to the institutions in a more consumer-friendly way.
Mobile wallets also play a role in increasing access to banking. Digital currently wallets make up over 21% of all in-store transactions, expected to grow to 30% by 2023. This growth appears to be pandemic-driven: mobile wallet adoption in the U.S. jumped from 38% among consumers surveyed before the pandemic, to 55% today. As more people adopt this technology in their day-to-day transactions, forward thinking financial institutions must explore innovative ways to offer access to savings and wealth building solutions that meet the unique needs of underserved consumers.
As we look forward to the potential end of this health crisis, the savings crisis and issues of financial insecurity for millions of Americans will persist. However, the pandemic has demonstrated that financial services have the ability to quickly move to build and enhance product offerings that serve customers through a health crisis. The same model can now be leveraged to enable customers to save and build financial stability by leveraging their adoption of new technology with properly designed tools and solutions to save. At this moment, big tech players, financial institutions and non-traditional actors like retailers have a unique opportunity for systemic financial change that can advance financial security for millions of Americans.