By Chirag Patel
Paysafe
How has the skyrocketing cost of living changed customers’ payment preferences? What are their expectations moving forward, and how do they fit with recent payment trends? In April 2022, Paysafe interviewed 11,000 consumers in 10 countries across Europe and the Americas to find out. Here are the five key take-aways from that research.
With most households tightening their belts due to soaring prices, consumers are reconsidering how they pay online. Forty-four percent of respondents have changed their habits, with the majority switching to payment methods that track spending more accurately. Of those who have changed how they pay, debit cards are the most preferred online payment method overall.
Fifty-nine percent of respondents paid with a debit card in the month before our survey—a 5 percent increase over 2021 (www.paysafe.com/gb-en/paysafe-insights/lost-in-transaction-consumer-payment-trends-2021/). Digital wallet use also increased: 41 percent are using them more this year than last; 16 percent of those who changed payment methods are paying with crypto more often.
By contrast, credit-based payments are trending downward, with one notable exception: credit cards. With overall usage standing at 51 percent, credit cards remain the second most popular payment method for online purchases after debit cards. They're also preferred when the purchase is a long-haul flight, holiday, household appliance or other big-ticket item.
While 52 percent of consumers are using it less often, cash is alive and well. Thirty-one percent of in-person transactions are still paid in cash. More importantly, 59 percent of respondents think cash is the most reliable form of payment; 70 percent would be worried if they couldn't access it anymore.
The biggest signal cash is here to stay is its growing prominence as an online payment method. Over the past 12 months, eCash payments—online transactions paid in cash—have increased: 47 percent of respondents would prefer to make online purchases in cash; 44 percent would buy online more often if they could pay in cash.
While our survey did not ask respondents to explain why they desired to pay online in cash, the cost-of-living crisis is likely a factor. Twenty-six percent of those who have changed payment habits due to inflation are using eCash more often. This suggests they may be using it to rein in their online spending.
Consumers are also increasingly aware of online fraud—and far less willing to take chances. eCash can provide an added layer of security by making it possible to pay without sharing sensitive financial details.
For 44 percent of respondents, security is the primary consideration when choosing how to pay online. This evidently needs to be addressed upfront to drive the first transaction. Seventy percent also prefer not to share their financial details; 62 percent would worry if they weren't asked for any security information before completing payment.
But while security is top of mind for most customers, they're not prepared to jump through an infinite number of hoops to make online commerce safer. Forty-four percent are happy with the current balance between security and convenience; 23 percent would accept additional security measures only if the inconvenience were minimal.
Embedded payment technology, which enables non-financial brands to integrate payments into their user journeys, attracted huge interest in 2021 (https://bit.ly/3zDkyXe). But even though many consumers have probably used embedded payment technology, 49 percent haven't heard of the term.
The good news is that 31 percent can envision using embedded payments within the next two years if they learn more about the technology and it becomes more widely available. The 51 percent who have heard of the term also feel positive about embedded payments, with the majority believing they’re safer than traditional payments.
Given consumers' lowering tolerance for risk and unwillingness to accept more friction, embedded payments are a huge opportunity. By educating customers about the technology's benefits—particularly striking a better balance between security and convenience—merchants can boost trust and increase loyalty while building a healthy new revenue stream.
After a challenging period early in the pandemic, neobanks are back on track. App downloads spiked during 2021 (www.paysafe.com/gb-en/paysafe-insights/lost-in-transaction-consumer-payment-trends-2021/). And almost half of the consumers we surveyed—49 percent—are considering switching to a neobank.
Now that the bulk of everyday banking happens online, regardless of whether you use a neobank or an incumbent, it looks like customers increasingly perceive neobanks as being a better value and more attuned to their needs. The most common reasons given for preferring neobanks were that they have lower fees (41 percent); their apps are better (41 percent); and they have features that help you stay in control of your spending (40 percent).
But while neobanks have never been closer to mass adoption, they still have work to do. According to 57 percent of respondents, incumbents have the edge when it comes to customer service. And while being digital-only may no longer be a deal-breaker, consumers remain worried about managing their finances entirely online, handing over personal data, and not being able to deposit cash.
With inflation projected to rise further, customers are likely to become even more selective about how they spend money online. They'll also continue expecting to pay securely with minimal friction. A great, streamlined user experience is table stakes.
From a merchant's perspective, offering a broader mix of payments, including eCash, is a must. Customers want more flexibility and control. Forcing them to use a particular payment method won't cut it.
To build stronger, lasting relationships, merchants must engage and educate customers. While technologies like embedded payments can make payments safer and more convenient—and neobanks can offer better value—concerns and misconceptions won't go away unless they're tackled head on. 
Chirag Patel is CEO of the newly expanded Digital Wallets division at Paysafe, a leading specialized payments platform. He is an international payments executive with over 20 years’ experience gained in a diverse range of roles for well-known, global organizations. Connect with him at www.linkedin.com/in/chiragpatel4/?originalSubdomain=uk.
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