The digital consumer is at the forefront of change in the payments sector, with financial institutions and payments providers needing to quickly adapt to new methods of payment, changes in preferred experiences, and drivers of usage.
Forty percent of North American consumers have used their smartphones to make a payment at a merchant location, according to an Accenture survey of 4,000 consumers in the U.S. and Canada. This is a 150% increase from the 16% usage reported in a similar survey just two years ago.
Consistent with other payments studies, Millennials and high-income consumers – household income of at least $150,000 – are the most avid adopters, with 52% of millennials and 55% of high-income consumers having used their phones as a mobile payment device at the point of sale.
Digital currency usage is also being driven by Millennials and high-income consumers, with 13% of Millennials and 19% of high-income respondents using digital currencies to make a payment at least weekly currently. 26% of Millennials and 32% of high-income consumers are expecting to use digital currencies by 2020. For this study, digital currencies are defined as a form of currency or medium of exchange that is electronically created and stored.
When looking at overall payment trends, the Accenture survey found that traditional payment instruments will decline slightly as emerging payment instruments become more widely used. Interestingly, emerging payment instruments will be supplements and not substitutions for cash. “By 2020, we anticipate the first decline in credit card usage in more than five decades and in debit card usage since they were introduced,” said Matthew Friend, managing director and head of Accenture Payment Services in North America.
“Moving forward, consumers will make choices about how to pay based on the nature of the transaction just as they always have. The difference is that they will have more payments instruments at their fingertips to choose from – literally.”
Other key findings on the evolution of payments include:
Growth in Mobile Payments
While still very modest compared to traditional forms of payments such as debit cards, credit cards, checks and cash, Accenture finds that consumer awareness and adoption of mobile payments has risen significantly compared to a similar Accenture survey conducted two years ago. Awareness of mobile payments has increased from 73% in 2012 to 84% today, with the overall frequency of use increasing by 25%.
Despite these positive trends there is still significant opportunity for growth. According to the study, “87% of survey respondents regularly use a smartphone, but of those who use one, only 45% use it as a mobile payments device. In addition, 41% of smartphone users do not think their phone is equipped with mobile payments technology.”
It is still unknown what the impact will be for mobile payments as a result of the introduction of Apple Pay™. Given Apple’s track record for creating successful consumer products, the introduction of new security capabilities, and demands of the digital consumer, Apple Pay™ may signal the tipping point for mobile payments.
Apple’s integration of biometrics and tokenization may be of greatest importance, since consumers who have never used their mobile phone as a payment device in a merchant location (60%) state that the two reasons preventing them from doing so were security and privacy concerns.
Non-users are actually more concerned about mobile payments security than they were two years ago. In 2012, 45% said they were concerned about security compared to 57% today. Privacy concerns jumped from 37% to 45% during this same period, most likely as a result of recent credit card data breaches and malware attacks at major retailers.
Digital Currencies Gain Acceptance
As mentioned, Millennials and high-income consumers are expected to drive the use of digital currencies. The primary reasons cited for using digital currencies is for protection of personal identity (46%) and lower transaction costs (43%). Alternatively, a lack of overall understanding remains the number one reason why people today do not use digital currencies, with 38% of consumers not interested in using digital currencies saying they need more information before they will consider use.
“Our survey reveals that customers are increasingly embracing alternative forms of payment,” said Dave Edmondson, senior managing director and head of Accenture’s Banking practice in North America. “As payments technologies continue to evolve, financial institutions will need to upgrade their middle- and back-office legacy systems in order to support customer demand for faster, more real-time digital payments.”
The Importance of the Millennial
Convincing Millennials of the benefits of mobile payments and digital currencies will be the key to future digital payment growth. Because of their first mover status and increasing wealth, this segment is critical for banks, merchants and payment processors.
“Unlocking the unique Millennial mindset – which can be elusive and complex – will be essential to building mobile payments usage among this highly digital demographic,” says the report. “The fundamental thing that payments players must remember is that this group is very different from their parents and grandparents.”
The ‘Accenture 2014 North America Consumer Digital Banking Survey’ showed how distinct Millennial preferences with regards to financial services, digital technology and use of payments instruments. Building payments solutions geared to this demographic segment will drive market share and loyalty.
Ways to Influence Mobile Payment Adoption
Beyond assuaging consumers’ worries about privacy and security and using the millennial segment to build momentum, Accenture found that incentives and offers can drive changes in payment behavior. This is consistent with other recent payment studies. Consumers want discount pricing and coupons based on past purchases (79%) and reward points (77%).
The research also found that 29% of consumers (and 37% of Millennials), are willing to have their location tracked by trusted merchants. In addition, real-time settlement was an important incentive, with just over half of mobile payments users stating that they would increase usage if faster transactions were possible.
Accenture even found some benefits that consumers found valuable enough to pay for. Almost four in ten consumers said they are willing to pay for the ability to scan products with a smartphone and have them placed into an electronic basket with all coupons and loyalty rewards applied. Thirty-four percent were willing to pay for the ability to make payments with just a biometric scan.
Additional incentives that mobile payments users and non-users found valuable included:
‘My Pay. My Way. How Consumer Choice Will Shape the Future of Payments‘ published by Accenture is available for immediate download. Accenture designed and commissioned an online survey of consumers in the United States and Canada to identify current and future payment behaviors, which was conducted in August 2014. The 4,000 respondents included 3,400 from the United States and 600 from Canada, with an equal percentage of men and women.