It’s no secret the Covid-19 pandemic led to the acceleration of all things digital. And the adoption of digital payment alternatives is no exception, further expanding the number of payment types consumers engage with daily. At the same time, small businesses are challenged to determine the best mix of solutions to support to keep up with changing consumer behaviors.
Although credit cards are still the preferred way to pay among U.S. adults, many newer payment methods are gaining traction and rising in popularity. From cash, credit and checks to digital wallets, cryptocurrency and buy now, pay later (BNPL) solutions, consumers have more choices as to how they pay than ever before. But they also have more considerations such as risks, fees and tax implications to wrap their minds around than they did with traditional solutions.
Nearly 80% of Americans use some form of mobile payment app, according to a NerdWallet survey.
And now, new payment methods like BNPL options are popping up everywhere, allowing companies like Apple further into the financial services space.
Every Payment Solution Has Unique Features
In short, there is no absence of choice when it comes to payment options. But every form of payment, provider and platform is unique. So, consumers and businesses need to do their due diligence when evaluating which to use.
Take cryptocurrencies, for instance. Major retailers like Whole Foods, Home Depot, GameStop, Starbucks, AT&T and others are now accepting Bitcoin and other forms of cryptocurrency in their stores and online. And consumers have a growing interest in using crypto as a trusted payment option.
93% of crypto owners say they would consider making purchases with crypto in the future, according to PYMNTS.com. More than half of non-crypto owners say they would do the same.
But for those who don’t own crypto, the biggest inhibitors are that they don’t know how to obtain it, don’t understand its tax implications or feel inhibited by their overall lack of knowledge about crypto.
Consumers and small businesses are still figuring out where to turn for education about the risks and benefits of using crypto to make purchases. It’s important to know that if a person buys a $2,000 TV using Bitcoin, they could owe taxes on the crypto transaction.
Then there are the BNPL arrangements that are becoming increasingly popular among consumers, especially when shopping online for everything from clothing and appliances to travel and event tickets. These short-term loans are being offered by companies like Klarna, Afterpay, PayPal and Affirm. Even Apple is getting on board. And they often come without interest. So, what’s not to love?
43% of Americans have used BNPL to pay for purchases, according to a LendingTree survey, an increase from 31% just one year ago.
While BNPL options can be enticing, they can also be risky. That’s because many consumers see BNPL as a payment plan, not as credit. It’s simple to click a “pay in 4 installments” button to purchase something today and pay for it later. But when done three, four or five times, these purchases can suddenly add up, and a shopper can quickly become overextended.
38% of BNPL users have used the loans five or more times, and 23% have had regrets, according to LendingTree. Another 68% said they overspend when paying with BNPL. Though many BNPL companies don’t charge interest, most charge late fees for missed payments. In the same survey, LendingTree found that 42% of BNPL users have made a late payment on a BNPL loan. And some BNPL lenders report these missed payments to the credit bureaus, which can negatively impact users’ credit.
Some BNPL companies are even encouraging people who are less financially secure, with poor or no credit, to take on debt without fully explaining the associated risks.
So, while BNPL solutions can be a nice option for many consumers, they first need to be aware of how BNPL works and understand its potential risks — just like they would when taking on any other form of debt.
And the consumer side of all these new payment options is only one part of the equation. Small businesses also need to adapt to changing consumer behaviors and determine which mix of payment methods to support. Not long ago, small businesses could get away with only accepting cash, credit cards and checks.
Today, they must provide a variety of options to serve various consumer preferences if they want to keep their customers happy. But with all these new payment methods, they have more factors to consider and a lot more to understand before deciding which ones to support.
Banks’ Big Opportunity to Be Trusted Advisers
Economic volatility makes managing finances, choosing the best payment methods and planning for the future even more challenging. And many consumers and small businesses are still under considerable financial stress. They want support to help build confidence in how they’re spending, saving and investing for the future. They want proactive, personalized guidance and coaching regarding their finances—and they need it now more than ever.
Looking for Help:
According to an NCR survey conducted by The Harris Poll, 60% of U.S. consumers want personalized financial advice on topics such as budgeting and paying off debt.
Especially at times of economic uncertainty, amid the pressure of the highest inflation rates in four decades and rising interest rates, banks and credit unions have a real opportunity to step up. If they want their customers and members to think of them as loyal partners and trusted advisers, they have a responsibility to help them build their financial proficiency and literacy to achieve better financial health. Doing so will lead to long-term benefits for banks and credit unions, especially with the younger generations who have never experienced economic uncertainty quite like this.
Additionally, banks and credit unions play a vital role in encouraging their small business customers and members to transform and modernize their payment offerings. They should encourage them to take advantage of the payment solutions they offer and educate and guide them along the way. They can do this by leaning into the abundance of data and insights they already collect and working to better understand the needs of each business they serve.