By Patti Murphy
It's been said before, but it bears repeating: old payment methods never die, they just move over to make room for new methods of value exchange. One only need look at the Federal Reserve's recent payments data: despite the spike in contactless and mobile payments during the pandemic, Americans wrote 12 billion checks in 2021.
Many, but not all of those checks were written by businesses, as evidenced by the rising check values. The average value of check payments rose from $1,908 in 2018 to $2,430 in 2021. (As an aside, I recently asked a 40-something to "write me a check." Her response was, "Huh? I don't even know if I still have a checkbook.")
More recently, the Fed's Diary of Consumer Payment Choice found that in 2022, consumers continued to move away from cash and toward credit card payments, a trend that picked up speed during the pandemic. Yet both on-person and store-of-value cash holdings remained above pre-pandemic levels, the Fed said. On-person cash holdings increased by $5 in 2022 to average $73. Store-of-value holdings (for example, cash held at home not for immediate use on purchases) averaged $418.
"The consistency across these cash data points since the start of the pandemic revealed what may be a new normal level of cash payments and holdings," Fed researchers wrote. Still, there is no question that the payments space has changed over the course of my career, and my 20-plus years writing for The Green Sheet.
Back in the 1970s and 1980s, if you wanted a credit card, you began by applying for a merchant card. Sears was a large and popular retailer at the time, and securing one of its store credit cards was the initial step many young consumers took into the world of buying on credit.
The next step was often a regional credit card. (Interstate banking wasn't a thing back then, although some banks could branch into adjacent states.) So, a large banking institution in a state such as Maryland, for example, would offer revolving credit card accounts there and in nearby jurisdictions, like Washington, D.C. From there, you graduated up to the big brands: Visa, Mastercard and American Express. (Discover didn't emerge until the late 1980s, and for many consumers quickly took over the stepping stone role of regional cards.)
Eventually, the regional brands were gobbled up by big banks. The regional card I had, for example, was sold to Citibank, and just became another Visa card.
Debit cards, in the 1980s, were used primarily as cash access cards. Efforts to encourage debit card usage at merchant locales, spearheaded by the regional ATM networks, plodded along until the early 1990s, when the card brands realized there was money to be made on debit interchange. By 2009, debit cards became the payment method most preferred by consumers.
In 2021, consumers made 106 billion debit card payments, according to the Fed's data, far outstripping the 51.1 billion credit card payments consumers made.
Another big change has been the migration to contactless. As Ernest Hemingway once wrote, change happens two ways, gradually and then suddenly. That's how the migration to contactless payments has been occurring.
The number of contactless card payments more than doubled between 2019 and 2020, from 1.6 billion to 3.7 billion, the Atlanta Fed reported. Mastercard reported that in 2021 that 90 percent of in-person transactions, globally, took place at contactless-enabled merchants.
Globally, contactless payments have been charting a combined annual growth rate of 20.6 percent, according to the market research firm Contrive Datum Insights. Globally, merchants accepted $1.2 trillion in contactless payments (by customers using cards, phones and wearables) in 2022; by 2030, the total is expected to reach $5.2 trillion.
Mastercard estimated that more than half of American adults have used some sort of contactless payment. My preference is for card-based contactless, and I consider it an inconvenience when a merchant asks me to insert rather than tap my card.
Using my phone at the POS is a bit beyond my comfort level. But recently I learned about a way to use a mobile to pay that's more in keeping with my skill level: text to pay. After all, who doesn't text? The Pew Research Center found that 97 percent of Americans text at least once a day.
With text to pay, the business sends a payment link by text to their customer, which brings the customer to a secure checkout page to complete the transaction.
"People don't want more apps on their phones," said Kevin Feagan, chief revenue officer at payments company Everyware, during a recent interview on the Merchant Sales Podcast. But they are tuned in to the beep from their smartphones indicating they have a text message, he added.
OpenMarket, an enterprise mobile message platform, estimated that 90 percent of text messages get read within three minutes of receipt.
Feagan said that Everyware has seen substantial interest in its text to pay solution, especially in verticals with high tickets, like automotive and healthcare. Recently, the company added buy now, pay later (BNPL) to its pay-by-text solution in partnership with the POS lending firm Sunbit.
Seamlessly hosted within Everyware's pay-by-text format, BNPL applications take about 30 seconds to complete via the secure checkout, Feagan said. Repayment schedules run from three to 24 months, according to a company press release.
BNPL is a relatively new entrant to the payments space and has attracted a lot of consumer and business interest. The Consumer Financial Protection Bureau reported that between 2019 and 2021, the number of BNPL loans originated by the top five BNPL lenders in the United States grew by 970 percent. The dollars involved grew from $2 billion to $24.2 billion, the CFPB said.
Some folks have told me they don't see the appeal of BNPL. I do, especially interest-free offers. Recently, I paid for extensive auto repairs this way. There was no interest assessed as long as I paid off the loan in six months. I appreciated the breathing space. But I don't kid myself. I understand that these companies make money (in addition to the fees assessed merchants) on the interest folks pay when they don't pay off the loan in the allotted time.
Patti Murphy, self-described payments maven of the fourth estate, is senior editor at the Green Sheet. She co-hosts the Merchant Sales Podcast, and is president of ProScribes Inc. (www.proscribes.net)
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