From BNPL to RTP, The Year In Payments Ends On Digital-First Note

It was a year in which consumers learned about new payment options and adopted them at a dramatic rate.

As the year closes, PYMNTS calls out six payment methods that gained traction and attention, including a take from key executives in each category.

Buy Now, Pay Later

If there was a defining trend for payments in 2020, or a trend that gained the most traction compared to 2019, it was buy now, pay later (BNPL).

Companies like Afterpay, Affirm, Klarna and even the newly combined Rent-A-Center and Acima are participating in the explosion of this trend. Millennials have shown remarkable interest in these solutions, which allow consumers to finance purchases with specific terms when they check out online.

Millennials lead in the early adoption of BNPL, especially older “bridge millennials,” or those aged 32 to 41 who tend to have more purchasing power than their younger counterparts. PYMNTS research shows 11.5 percent of bridge millennials have used BNPL, close to double the average. This group has also increased its usage of BNPL, a 28 percent rise since March — more than any other generation since the onset of the pandemic.

“In 2021 and beyond, we don’t expect this trend to change,” Afterpay Co-CEO Nick Molnar told PYMNTS. “Young shoppers are increasingly wary of credit and loans with interest, fees and revolving debt as demonstrated by spending trends worldwide. The new way to pay with BNPL empowers shoppers to use their own money in a responsible and safe way. Financial wellness and budgeting is and will continue to be the way young people pay for things.”

Contactless

It was the year when no one wanted to touch anything. Contactless payment methods were always in the wings for credit card companies, but the pandemic pushed them front and center.

When PYMNTS and PayPal surveyed approximately 2,400 consumers in September, a majority (57 percent) reported that merchants’ digital payment offerings impacted their willingness to shop in certain stores. That reflects itself in preferences for contactless payment options, with 26 percent of consumers reporting a desire for merchants to accept contactless cards. When PYMNTS asked consumers about what merchants are adding on when it comes to bulking up that digital service offering, 79 percent of those surveyed reported that the merchants they patronize have added or improved their digital-first and touchless experiences during the pandemic. The two main areas of improvement cited were curbside pickup (55 percent) and contactless payments (51 percent).

The trend has been particularly relevant to full-service restaurants and quick-service restaurants (QSRs). According to Steph So, head of Digital Experience at Shake Shack, said the pandemic accelerated the companies use of digital-first innovations, among them contactless payments.

“Since the pandemic began, we have accelerated our digital investment,” she said. “I don’t see that slowing down.”

“We listened to our guests and witnessed the experiences they were having, and we worked flexibly and quickly to provide them with an array of options that gave them the accessibility and comfort they desired,” she added.

Voice Commerce

Consumers now ask Alexa or Google in their connected cars to order ahead — or while in their kitchens to add groceries to their shopping lists for delivery or pickup at the store. Today, nearly one-third of all consumers own a voice-activated device, just four short years after such devices hit the market.

With that increase in ownership of voice-activated devices — and familiarity with how to use them — has come greater usage of voice as an enabler of commerce. Nearly one in 10 consumers (9.6 percent) use voice-activated devices to make a purchase. As a point of comparison, it took Starbucks, the most popular and most used mobile payments app in the U.S., six years to achieve the same level of usage.

Of course, the pandemic has unexpectedly acted as a major boon to the voice commerce ecosystem. Amazon Pay Head of Product Kris Zanuldin told PYMNTS that consumers are seeing the first stage of a new voice technology era, as consumers reform their commerce habits and merchants scramble to catch up with them.

“We’re approaching a future for voice as an enabler,” Zanuldin said. “It’s a complement to a lot of other experiences, not mutually exclusive with them. And in some ways, voice will allow you to do things you just can’t do with other technologies. But when you combine it with them, you have something pretty magical.”

“I think with voice, we are going to find that customers are more and more OK with giving up the nearly infinite selection choice over to Alexa, to narrow it down for them,” he added. “And I think that’s where we envision it in the future. It’s a road to get there — but eventually, just like any trusted friend, you will ask for a recommendation. And more likely than not, you’ll take advantage of that resource.”

Digital Wallets

From contactless to touchless. That was the story and the unique value prop behind mobile wallets in 2020. According to PYMNTS research, 10 percent more consumers are using digital wallets to pay for in-store and online purchases than they did in June, for example, and 11 percent more are buying goods using cards their merchants have stored on file than before.

Fifty-four percent of mid-income consumers report having used digital wallets to pay during the past three months. Bridge millennials are more likely than all others to use touchless payment options like digital wallets and contactless credit and debit cards. PYMNTS research shows that 64.3 percent of bridge millennials already use digital wallets to pay in stores, for example, while 24.1 percent pay in store using contactless debit and credit cards. This compares to 53.1 percent and 18.1 percent of Generation X who do the same, respectively.

Consumers are getting there on digital wallets. According to Royal Cole, executive vice president of FI payment solutions at FIS, it is part of an overall demand for digital payments that banks and retailers will need to step up to.

“You want to be able to choose between which payment instruments you are going to be using at the time of your choosing,” he told PYMNTS. “As the supplier or seller of goods and services, you’re always thinking about the cost of acceptance and the mix of payments that you are taking.”

Real-Time Payments

There are two sides to the real-time payments story for 2020. The first is the continued awareness and adoption from the companies that will use them. PYMNTS research from January found that 66.7 percent of companies surveyed are “very” or “extremely” aware of the new payment system, and 71.9 percent are equally interested in leveraging its capabilities. This interest notably appears to be translating into action as more than 85 percent of firms are either in the process of implementing RTP or expect to do so within the next three years.

Then there’s the consumer side, and there’s still some education necessary there. A November survey from PYMNTS showed that 44.7 percent of consumers report making at least one real-time payment in the month prior to the survey, yet 41 percent of these consumers — 18.2 percent of the whole sample — actually paid via methods that do not use real-time transactions.

Despite this apparent lack of real-time payments knowledge, consumers do express interest in using real-time methods once they truly understand what these options entail. Forty percent of consumers said they would be willing to pay fees for real-time payment capabilities when making tuition payments, while 35 percent said the same about paying contractors, and 25 percent expressed the same sentiment regarding P2P payments. Three out of 10 consumers said access to real-time payments is a key factor when determining which financial institutions (FIs) will win their business, while a sizable 23.5 percent said they would switch to financial services providers that offer these options.

RTP is particularly relevant in the current climate. With over 150 U.S. FIs currently readying real-time solutions, a PYMNTS report in tandem with The Clearing House showed a fivefold increase over the number of banks that reported having access to real-time capabilities in September 2019. With spreading awareness of what RTP can do to ease cashflow strains alone, more small- to medium-sized businesses (SMBs) are looking to tap into expanding real-time capabilities as they try to recoup on a bad year.

“SMB owners can opt to receive their payouts at the end of each day and have access to the funds immediately,” James M. Colassano, senior vice president of Product Development at The Clearing House, told PYMNTS. “It is a great way to get funds to a business just in time, allowing SMB owners to quickly adjust to changing business conditions. During the pandemic, the RTP network has [also] been utilized by FIs to distribute Paycheck Protection Program payments to businesses that needed the funds to meet payroll obligations to employees.”

Biometrics

This was supposed to be the year that biometrics broke through as an identity verification for payments. There were significant developments.

Mastercard, which has tested selfie biometric authentication tools, revealed early in the year that it planned to expand those capabilities to its payment solutions in the U.K. Bank of Montreal rolled out a corporate credit card program that allows employees and executives to authenticate their online purchases by taking a selfie or by scanning their fingerprint. According to the bank, it was the first of its kind for commercial cards. Fifth Third Bank added Touch ID to its banking app for the Apple iPhone in February. The bank’s customers now have the ability to log into the Fifth Third mobile banking app by using their fingerprint or thumbprint rather than being required to enter a password.

By the numbers, biometrics has a way to go. PYMNTS found that almost 30 percent of consumers do not feel comfortable sharing any sensitive personal information when opening accounts, and roughly 70 percent would prefer not to share biometric information. PYMNTS found that 64.1 percent of consumers would be more at ease providing sensitive information if they understood that it would not be shared with third parties, while 63.3 percent would be more comfortable if they understood how their details would be protected. In addition, roughly 30 percent of those who do not understand why FIs need their biometric information would be more comfortable providing it if they simply had more background about the merits of doing so.

According to Mitek Systems CEO Max Carnecchia, biometrics has a post-pandemic role to play. He told PYMNTS 100 years of steady, evolutionary progress on the trust front has been rocked by the global pandemic.

“It’s a seminal moment where the future has basically been grabbed and pulled forward, and what was going to take 10 years now has to happen in two,” he said.

“I don’t think the jury is completely in as to what’s unfolded in the course of the last six or seven months with COVID, but I think there is some anecdotal evidence that getting digital identity right, and doing it the right way, has far-reaching consequences,” he added.