In 2022, shoppers have never had more ways to make payments online and offline. From mobile wallets to QR codes and even deferring payments to a later date, this enhanced flexibility has increased customer expectations for faster, smarter payment processing.
The onset of the COVID-19 pandemic has only accelerated the adoption of alternative payment methods. The expansion of ecommerce and the growing unpopularity of cash transactions forced merchants and retailers alike to adapt to newfound customer priorities, namely digital payment options that are accessible and seamless to use.
As we head into 2022, the demand for a plurality of payment options is only going to grow as consumers adjust to the growing digitization of the shopping experience. We’ve outlined the 4 trends in payment processing that merchants should be aware of in the coming year:
Although it seems logical that consumers would take on more debt during an economic crisis to stay afloat, credit card use during the pandemic shows an opposing trend. Surveys show a steady decline throughout 2020 and 2021, with an uptick to normal spending patterns during the 2021 holiday season when consumer confidence increased.
But with the effects of the Omicron variant now looming large over the economy, it remains to be seen whether this spending recovery will continue into 2022.
Credit card companies are also grappling with another, longer-term threat to their dominance; a lack of adoption by Millenial and Gen Z consumers.
The reason for lower credit card use in younger consumers is two-fold. Precarious employment conditions are more common in the Millennial and Gen Z cohorts, thanks to the growing casualization of the workforce after the 2008 recession. This makes it harder for individuals to get approval for credit cards in the first place, making them more reliant on debit-based payment options.
Millennial and Gen Z consumers are also much more averse to debt than earlier generations, with 60% viewing credit cards as ‘too risky’. Where Baby Boomers hold an average of five credit cards each, Millennials and Gen Z only have three. Moreover, Gen Z consumers don’t list credit cards in any of their top three preferred payment methods.
But this doesn’t mean that credit card companies are failing to adapt. Thanks to the growing popularity of Buy Now, Pay Later (BNPL) plans (more on this in the next section) credit card networks are also getting in on the action.
American Express recently took the step of introducing a ‘Pay It Plan It’ option that allows cardholders to avoid interest charges by paying off their balance in installments. We expect to see more initiatives like this in the future as credit card companies try to make up ground with shifting consumer preferences.
A report from Juniper Research estimates that the Buy Now, Pay Later market will reach $995 billion by 2026. The growing popularity of Buy Now, Pay Later (BNPL) is causing a seismic shift not only in how consumers are choosing to pay for their purchases, but in their purchasing behavior overall.
Nearly one-fifth of consumers reported using a BNPL service to pay for all of their holiday gifts in 2021 – double the rate experienced in 2020. Moreover, in a 2021 survey by C + R Research, 59% of respondents said they had used a BNPL service in the past year to purchase an unnecessary item they couldn’t afford to buy otherwise.
This shift to using BNPL services for discretionary spending activities, rather than credit cards, is clearly reflected in the demographics who are most frequently using deferred payment systems. C + R Research also found that 36% of BNPL users in the United States are under the age of 25, while 41% are 26-40 years old.
As the economic impact of the pandemic continues to bite, we should expect to see more reliance on BNPL systems as consumers strive to keep pace with rising inflation and supply chain challenges. With retailers still struggling to avoid stockouts of popular items, it’s very likely that Buy Now, Pay Later will become a more common tool in 2022 to help consumers snap up dwindling items they may not be able to afford to purchase upfront.
According to mobile payment network provider Boku, the usage of mobile wallets in North America is forecast to grow nearly 50% from 2020 to 2025, a significant uptick in growth in a marketplace that has been relatively slow to embrace mobile payments.
Interestingly, studies from a few years ago showed that consumers actually preferred retailer-specific mobile payment apps to general services like PayPal or Apple Pay. In addition to customers having a stronger relationship with individual retailers than payment networks, this is due to many retailers investing in other value-added features. The Starbucks app, for example, enables customers not only to pay for their coffees but also to place orders, track loyalty rewards, and even redeem offers and discounts.
However, closed digital wallets have a major disadvantage, namely that consumers can’t use them to make purchases at other retailers. In the era of COVID-19 and widespread stockouts, consumers have been forced to shop with different brands than they would normally, which has made open mobile wallets a necessity. As a result, studies from 2021 show that 32% of mobile wallet users now have three or more mobile wallets installed on their device, up from just 21% in 2020.
With more consumers now embracing a plurality of digital wallets on their devices, this opens up more opportunities for consumers to offer integrated, closed payment solutions alongside widely-used digital wallets. This enables you to capture both first-time customers and loyal customers who are looking for brand-centric solutions that give them access to other offerings, from loyalty reward programs to exclusive discounts.
If 2021 heralded the year that terms like ‘Bitcoin’ and ‘cryptocurrency’ became familiar to mainstream consumers, 2022 marks the moment where consumers view cryptocurrency as a viable payment method for online purchases.
Although cryptocurrency has existed for over a decade, it’s only in the past few years that the necessary technology has sprung up to make it possible for merchants to easily receive payments. As a result, there’s been an uptick in the number of consumers who own cryptocurrency and wish to use it to buy goods online.
According to a survey by the software and payments company Cantaloupe Inc., more than one-third of respondents between the ages of 18-54 own a form of cryptocurrency, while 67% would consider using it for purchases if it were linked to a mobile wallet.
PayPal has allowed users to buy and sell cryptocurrency since 2020 and is exploring launching its own currency, while Apple Pay is reportedly considering adding cryptocurrencies as a payment option in the near future. Among the small businesses responding to Visa’s survey, 24% said they plan to accept digital currencies including Bitcoin in 2022.
In the meantime, some cryptocurrencies are expanding their value propositions away from just being digital assets. Cryptocurrency XRPayNet announced this month that it will be launching the first Buy Now, Pay Later option in the market to compete with the likes of Afterpay and Klarna, including an interface designed for both online and in-store payments.
As we head into 2022, it’s becoming increasingly difficult to silo payment options the way we have in the past. The growing digitization of the payment landscape has made it possible for hybrid solutions that combine together the strengths of different systems. From American Express embracing Buy Now, Pay Later plans to mobile wallets opting to store cryptocurrency, payment companies are quickly learning that offering flexibility and choice is the key to minimizing customer churn.
For merchants and retailers, the answer is simple: As payment methods proliferate, consumers will expect brands to offer variety in how they can pay for their purchases. By keeping pace with these expectations, you can position your brand to achieve higher levels of customer satisfaction and retention in 2022 and beyond.