Consumers are demanding cross-channel, digital-first payment options as the lines between physical and digital payments are becoming increasingly blurred.
Digital payments gained momentum even before the global shift to digital commerce and payments due to COVID-19. Still, the pandemic has made the case for digital-first payments clear. With the e-commerce market having the potential to increase from $3.3 trillion in 2022 to $5.4 trillion by 2026, businesses and financial institutions (FIs) alike must ask some tough questions about how prepared they are for this long-term shift. While some businesses and FIs were already pivoting to offer online and mobile transaction options, others have found the adjustment a lot more challenging.
Consumers hold power when it comes to evolving payment methods, and in this digital age, they expect to have digital payment options. What’s more, sophisticated consumers have grown to expect personalized, convenient payment options like instant cross-border payments through virtual cards and wallets, peer-to-peer payment, and variable recurring payments. Delivering a payment experience that meets these expectations requires a look at how existing payment methods are faring and what needs to be done to appease a growing number of consumers who are “digital natives.”
Digital payments have become increasingly important for businesses due to their unique benefits, like offering unmatched convenience and allowing businesses to accept payments quickly and easily. The following are the significant benefits of digital payments over traditional modes of payment:
While purchases were once as simple as a swipe of the credit card on a point-of-sale (POS) device, today’s consumers expect a wide array of options. These include mobile order ahead, buy online and pick up in-store, contactless in-store payments, mobile banking options, and much more. The lines between physical and digital commerce has blurred, while businesses and FIs must proactively deliver the seamless experiences customers expect.
Not only are payment methods evolving, but customer preferences are becoming more complex. One of the biggest challenges is offering payment options that satisfy customers across generational divides.
Baby Boomers (born between 1946 and 1964) love credit cards. The average Baby Boomer holds 5.5 credit cards and has a median credit limit of $11,000. In terms of special offers and benefits, more than half prefer credit cards with cash-back rewards, followed closely by store credit cards. This generation also pays more attention to the APR on cards than its younger counterparts and is even concerned about that metric.
Gen Xers (born between 1965 and 1980) are early adopters of wearables and voice-activated devices for payments, though 73% say they prefer to purchase products in-store. Furthermore, the highest average credit card debt for Generation X is $7,004, making them the highest total debt of all generations, with only a small portion of them paying off their monthly credit card balances.
Millennials (born between 1981 and 1996) are somewhat caught in between the physical and digital worlds and are the only generation that prefers debit cards over all other payment types. They do share a love for mobile commerce with Gen Z, as both report an 82% level of interest as compared to just 63% of Gen X and 39% of Boomers. Additionally, Millennials will likely avoid shopping at stores that don’t prefer contactless payments.
Members of Generation Z (born between 1995 and 2015) grew up with smartphones and are no strangers to digital payments. To say they prefer them is an understatement; this generation is more likely than any other to use alternative payment methods outside of cash-based or credit card systems. For example, a significant chunk of Gen Z consumers report having made in-app payments, and also agree to do so regularly. Furthermore, about 66% of Gen Z have adopted digital wallets, according to an approved study. Merely 32% of Gen Z consumers make in-person payments, with 79% of them readily engaging with new payment methods.
The preferences outlined above make it clear that digital-first payments are not optional now or in the future. Both businesses and FIs must focus on enabling digital experiences that allow all consumers to pay how, when, and where they would like, whether that is in the comfort of their own home or via a mobile phone at a physical location.
Delivering an optimized digital-first experience will mean increased third-party partnerships that help businesses and FIs leverage data to offer the most personalized experience possible. Platform partnerships can also ensure that online payment capabilities are safe, secure, and widely available across devices. Fraud prevention will also be a critical consideration as hackers intervention increases in new channels and payment methods. Adding an extra layer of security via tokenization can help protect sensitive payment data while reducing fraud and boosting authorization rates.
Enabling a digital-first payment experience will require a digital transformation of varying magnitudes for organizations that have disconnected front-end and back-end operations. Moving to cloud infrastructure and leveraging an API-led connectivity approach can help businesses and FIs keep all the moving pieces functioning while delivering an optimized, digital-first payments experience.
Let us help you navigate your digital-first payment roadmap and optimize your payment experience. Get in touch today!
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