Purchasing methods in the US – innovatively static

This editorial was first published in our Payment Methods Report 2018 – Innovations in the Way We Pay. The Payment Methods Report 2018 presents the key trends and developments in global and regional payment methods by highlighting the innovation, challenges, and developments in the use of the most important payment methods across geographies and verticals.

Payments in the US market continue to multiply; however, few options collect enough user-base to claim market-share. Trends come and go but the main players remain. Most view the card as winner of the US market but there’s a player Visa wants to overtake.

According to the JPMorgan Chase survey “How do you believe you will be accepting/making the majority of your payments 5 years from now?” cash is still strong in the US.

Interestingly, only consumers expect cash to remain as strong as credit cards, while merchants hold hope for credit cards and digital wallets to rule. However, consumers own spending habits.
Looking within the US, cash must be acknowledged as an important payment preference. US ecommerce hasn’t built methods for accepting cash, so cash spending is limited to retail. Why cash, though?

Many retailers have cash-driven points-of-sale. In restaurants and service areas, cash still carries weight as tipping drives wages and revenue. Additionally, Americans use cash as a debt-management tool. There is no better way to ensure you don’t get into debt than to spend only cash.

Mobile wallets cater to younger consumers experimenting with new/trendy payment methods. With every style of wallet conceivable, US consumers are pushed to pick a favourite and make it their preferred purchase mechanism. Many of these options have a strong ‘test’ phase, but don’t stick with the consumer.

The issue with these spikes is multi-pronged. First off, the target market is the younger demographic and they are not as faithful, shifting to the next fad. Brand loyalty may be strong in their tech or social lives but it is not as strong in their financial lives. Senior buyers are faithful to purchase methods but they are not enamoured with newer wallets as current card behaviours work fine.

The higher-trafficking wallets have built partnerships, such as Zelle through online banking, and ApplePay with device reminders for their wallet. The issues are usage. Some consumers view the ease of purchase inversely proportional to convenience of setup. With the high rate of card replacement in the US, re-filling wallets with new cards becomes a chore best ignored. Of course, the P2P apps can be easily bypassed with use of cash to ‘split the bill’. Wallets continue to spike and retreat with small groups of loyal fans making every wallet basically successful yet unable to take the market.

Two large exceptions are PayPal™ and Starbucks™. Neither wallet, when introduced, claimed the ‘nifty’ factor but each resonated with users. When first introduced, PayPal™ called to security-minded buyers and focused on ecommerce sales yet with expansions, processed USD 451B in 2017. Starbucks™ leveraged their loyal customer base in introducing their app and in 2015, 7.5M purchases went through the app weekly. The Starbucks™ wallet was an instant hit and continues to grow.

Why are these wallets successful? Ease of use, ease of enrolment, and fulfilling customer needs – not perceived needs. And they are not slowing down their development. New features are released often with a lot of publicity, keeping users engaged.

Not to be ignored, credit cards have followers across generations and are expanding their reach. As attempts to win over the unbanked and under-banked peaked then fell away, the brands are looking to take specific markets and force buyers into their fold – but there are hurdles.

Years ago, the brands began offering lower rates to markets with growth opportunities. Areas like telco and utilities received discounts and the trend continues today with rent and insurance pay-by-card discounts. The brands are deepening the card’s usefulness within household spend and growing into historically cash markets.

Reducing cash is not this simple, however, as some consumers tried prepaid cards for online purchases and bill payment, but prepaid cards have initial activation and reloading fees that reduce the initial value, not to mention cross-border blocking. With check cashing locations offering money order purchases at lower fees, there is little palate for cards. Household markets are opening to cards but cash transitioning to plastic remains problematic.

Cards are also challenging wallets in the US by building their own convenience factor with one-click checkout APIs. The Brands are so sincere about this convenience play, they are combining to release a One-Click/All-Brands API to increase appeal. Convenience-only, wallets may be losing their differentiating factors.

Behind all of this manoeuvring, rewards cards have unmatched loyalty in the marketplace with miles/points/cash. Meanwhile, debit cards, with little or no loyalty schemes, are growing quietly in the background. With both merchants and consumers viewing debit as a reliable payment mechanism, only a purchase’s placement in the household budget moves it into the world of wallet or credit.

Basically, unless a payment type is convenient and engenders loyalty, it will remain a niche play. Until a new payment type is more universally appealing than cash or charge, for all generations and all buyers, the US market will continue as it is. With so many new payment types, the US will remain entrenched until convenience is redefined.

About Sally Baptiste

Sally Baptiste has 30+ years professional experience with both the largest US eCommerce Acquirer. As a leader at Chase Paymentech, then a Senior Business Manager of payments for AT&T, she was employed as the payments expert for McAfee. With a Master of Business Administration degree and Payment Card Industry Professional certification, she now co-owns her own consulting group of Payment Experts.

About Payment Operations Group

Payment Operations Group is a consultancy of Payment Professionals with over 40 years’ combined experience in the Payments Industry – from acquiring and ISO’s to issuing and merchant perspectives. Our focus is on educating our clients with our end-to-end approach to payment processing, helping them navigate the complex ecosystem, and strengthening their position in their chosen processes.