The evolution of consumer payment behaviors has increased the adoption of new payment technologies and solutions, including account-to-account transfers (A2A), digital wallets, and buy now, pay later (BNPL). In its “2023 Global Payments Report,” Worldpay from FIS examines how alternative payment methods are reshaping global payments and how merchants can be better equipped to meet consumers where they are.
Let’s dive into the six trends that are transforming the payments industry in North America, and the impact they will have on merchants on a broader scale.
A2A Growing in Popularity in Real-Time Payment Rails
Real-time payments offer a convenient way to send and receive funds. Because funds can be instantly transferred between accounts, at a low cost, businesses can pay their suppliers and their vendors quickly and more efficiently. According to Worldpay from FIS, global account-to-account (A2A) transaction value exceeded $525 billion in 2022 and is expected to increase at a compound annual growth rate (CAGR) of 13% through 2026.
FedNow, the Federal Reserve’s instant payment service, will launch in mid-2023 as the third real-time payments system. It will join current solutions Zelle and The Clearing House RTP.
Canada is at the forefront of A2A payments. Canada’s e-commerce transaction value, 8% in 2021, rose to 12% in 2022. This has been supported by Canada’s instant transfer system, Interac Online, which allows users to pay merchants from their bank account all year long.
Credit Cards Are Still Going Strong
While digital wallets and BNPL solutions have seen an increase in adoption, the use of credit cards has not declined. Indeed, credit card spending surpassed $13 trillion across all channels, per the 2023 Global Payments Report. Nearly a third of online transactions and roughly 40% point-of-sale transactions are conducted via a physical credit card.
Discounts and rewards are likely what’s driving continued usage among consumers. According to GlobalData research referenced in the report, consumers in the U.S. and Canada said they like the benefits that credit cards offer.
While credit card usage remains high, WorldPay by FIS expects that credit card’s share of transaction value will drop over the next four years due to economic uncertainty and its impact on consumer spending. And with the increasingly high cost of borrowing, consumers are looking to BNPL as an interest-free option.
Digital Wallet Use is Expanding
There’s no question why digital wallets have gained prominence. With demand for contactless payments on the rise—particularly since the onset of the pandemic—digital wallets have become a convenient way for consumers to store their credit, debit, gift card, and other payment information, in one secure place.
Over the past eight years, digital wallets have taken the reins as the leading online payment method in North America. Over this same time period, their share of e-commerce transaction value has more than doubled, from 14% in 2014 to 32% in 2022. Worldpay from FIS projects that between 2022 and 2026, the share of e-commerce transaction value will continue to increase, reaching 41%. And digital wallet’s share of POS transaction value will also increase from 12% in 2022 to 16% in 2026.
Although credit cards are the preferred form of payment by consumers in Canada, digital wallet usage in the region is expanding. In fact, the share of transaction value has grown from 16% in 2018 to 27% in 2022, making digital wallets the second most preferred form of payment. And by 2026, Worldpay from FIS expects digital wallets will overtake credit cards as the leading e-commerce payment method.
Conversely, digital wallets reign as the leading form of payment in the U.S. What’s driving adoption is the popularity of leading wallets such as Google Pay, Apple Pay, and PayPal. Digital wallets owned by Shopify and Amazon are also driving adoption.
A Cashless Society? Not Quite
Much has been said about the decline of cash use and how many countries are shifting to be more cashless. The pandemic revealed the need for contactless payments, because physical legal tender could have been a receptacle for the virus.
However, the report’s findings revealed that cash hasn’t disappeared, at least not yet. Once the reigning lead in POS commerce, it made up close to 16% of global POS transaction value in 2022, or the equivalent of $7.7 trillion.
That is not to say that cash is on the way up. On the contrary, it is expected to decline below 10% of global POS spending by 2026 or close to $6 trillion. This makes sense; the growth of contactless payments will continue to drive down the use of cash.
BNPL Enters Its Next Phase
BNPL has become one of the most popular ways that consumers can purchase big ticket items without a stringent credit check and without breaking the bank. With the recent economic downturn and runaway inflation, it has become another tool for consumers to afford necessities.
While BNPL has grown in popularity over the past few years, it has also come under a lot of scrutiny, largely due to the lack of regulation in the space, as well as the minimal effort businesses are taking to protect consumers against incurring debilitating debt. With this increasing scrutiny, soaring interest rates, and stiffening competition, the BNPL space has had no choice but to evolve.
Last year, BNPL made up 5% of global e-commerce transaction value, and by 2026, it’s projected to increase to 6%. POS financing, including BNPL, bank financing, and retail financing, represented 2% of POS transaction value in 2022. Worldpay from FIS expects that figure to remain through 2026.
Crypto for P2B Payments
As more consumers become familiar with digital currency and cryptocurrency, adoption and use will continue to rise.
Although cryptocurrencies have been used for consumer purchases, crypto has not reached the level of mainstream payment method. That’s because many consumers are purchasing crypto as an investment. According to the report, 77% of respondents said that they buy cryptocurrency for investment purposes, while far fewer (18%) said they use crypto to purchase goods and services.
Cryptocurrencies as a P2B payment method are expected to increase from $11.6 billion in 2022 to close to $39 billion by 2026. Merchants are seeing the benefits of accepting cryptocurrency as payment because they would be able to tap into a new and growing customer base, with higher transaction values, lower transaction fees, and faster settlement times.
Key Takeaways
With the use of digital wallets expanding, A2A payments growing, and cryptocurrency and BNPL funding high-ticket products, there’s never been a time where consumers have had such a wealth of payment method options.
To remain competitive, merchants should keep their finger on the pulse of this rapidly evolving payments landscape. In particular, they should understand what consumers expect in their preferred payment methods.
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July 12, 2023 at 08:00PM
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Understanding the Rapidly Evolving Payment Landscape to Remain Competitive - PaymentsJournal
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