The world of payments is changing and what was once a preferred way to pay, with a debit or credit card, is being overtaken by the contactless and card-not-present methods. Was the pandemic to blame or is something more?
I recently read the 2020 Debt Issuer Study that was commissioned by Discover Financial Services PULSE debit network and conducted by management consulting company, Oliver Wyman. The study reviewed 55 financial institutions that covered 42% of the nation’s debit market and issue approximately 157 million cards. The study indicated that cardless transactions are pretty much part of the norm now when it comes to payment activities. No big surprise there.
The study also indicated that card-not-present payments spiked 21% in 2019, compared to 2018, and account-to-account transfers with debit cards doubled between 2018 and 2019, enjoying 40% of all debit growth. Also, not a surprise, at least not in my life.
Having a millennial as a son who sometimes lets his account balance hover around $0.58 until he gets paid, I can see how account-to-account transfers could be increasing (and I was probably was responsible for much of that number).
In regards to card-not-present payments, the study indicated that segment grew 10 times more than payments with cards did in 2019. The reason? Consumers began shopping online and paying with apps such as PayPal, Venmo and Zelle. Suddenly, going out to dinner and splitting the bill wasn’t an issue any longer since you could simply “Venmo” over your part of the payment. Having used this method of payment I can assure you, it takes away the fear when the waiter brings the check.
Businesses also started using these apps and everything was going along pretty well and then… the pandemic hit.
And everything that had to do with digital payments and contactless payments which had been showing a nice and steady trajectory upwards, blew the numbers off the charts as online was not just a convenient way to shop, it was the only way a lot of people were comfortable shopping. Safety was paramount so people took to their phones and computers.
Suddenly everyone seemed to be shopping online, whether it was for food, groceries or office materials to work from home. It was apparent in the television advertisements that pushed “order online and pickup at curbside” or offers to bring goods straight to your card and “never have contact.”
Before the pandemic hit, debit card use was growing in digital-commerce channels with over 77.4 billion debit transactions made in the U.S. in 2019, up 6.5% year-over-year.
But now, card payments still represent 73% of all debit transactions, according to the report, but they only showed a 2% increase in 2019, because the growth won’t be in the actual card payments, but in the contactless and card-not-present transactions. The study indicated that by 2021, which isn’t that far off, 87% of debit cards will be contactless.
According to Tom Hayes, a partner at Oliver Wyman and one of the study’s principals, card-not-present transactions already represent 27% of all debit transactions and are growing 10 times faster than card-present transactions. But the true growth will be in what Hayes refers to as the “traditional card-present merchant categories”, such as grocery and restaurants, which is expected to gain in card-not-present remote ordering.
Before the pandemic, at the close of 2019, almost 30% of the respondents were issuing contactless debit cards to some of their cardholders. But by the end of this year, the number could more than double.
The world of payments is changing. Remember to keep us posted on how it affects you and your business.