Is Payments Innovation Changing Consumer Behavior?

So much changes. So much stays the same.

That’s the key takeaway from the sixth year of TSYS’ U.S. Consumer Payments Study.

While this year’s findings highlight the strides the industry and consumers have made towards digital payments, they also underscore how existing behaviors and patterns remain very much intact.

There were five findings that Sarah Hartman, Senior Director of Consumer Issuing at TSYS, recently shared with Karen Webster regarding what TSYS found this time around and what they mean for the industry going forward.

Cash Holds Steady

Consumers still love their cash.

Though credit cards may have taken the top spot as the overall preferred way to pay for the first time in TSYS’ U.S. study’s history, replacing debit as the number one choice in years past, cash still held its ground among consumers.

Eleven percent of consumers surveyed selected cash as the preferred payment method, which Hartman said is very consistent with what it’s been the past few years.

“The strength in cash as a preferred method of payment continued to surprise us given the increase in all the different electronic payment methods and, of course, all of the push there’s been over the years to become a cashless society,” she added.

The old-fashioned payment method checks many boxes its newer payment technologies just haven’t been able to achieve quite yet: It’s tangible, everyone knows how to use it, it’s accepted everywhere and there typically isn’t much friction involved when using it.

Cash may not be king in the U.S. anymore, but it’s clear it isn’t going anywhere anytime soon.

Security Takes On Greater Importance

So, here’s a surprise: Consumers would pick a product ranked number one in security over one ranked number one in rewards when selecting a new card.

Fortunately, Hartman commented, consumers don’t have to make that decision in the real world, but roughly 74 percent of consumers opted for security and fraud protection as their top priority, while 26 percent selected rewards.

This finding, Hartman explained, shows just how important security is to consumers in choosing financial products and services. It also can be a wakeup call to payments players to ensure consumers are well-informed about security features and what they need to do to safeguard their finances and data.

“I think it shows that pointing out the security associated with cards is very important,” Hartman added.

Mobile’s On The Move — Sort Of

Mobile continues to offer an immediacy and accessibility that other channels just can’t compete with.

Therefore, it makes sense that this year’s Consumer Payments Study showed an overall growth in the usage of mobile apps for accessing bank information, viewing transactions and transferring funds.

But the mobile growth in payments in physical stores has still not reached the levels projected a couple of years ago.

“We’ve definitely seen an increase in mobile payment usage, but it’s still not as large as the industry was expecting,” Hartman said.

According to the study, when consumers were asked what actions they have taken in the previous year with respect to their mobile devices, the percentage of respondents who said they made a payment at a retail location using their phone went from 7 percent to 13 percent.

“I think we’ll see that continuing to grow, [as] there’s still not a huge number of places where you can actually use your mobile device to make a payment,” Hartman noted. “Until the availability increases, which we expect it will with the EMV rollout, we’re still going to see that number less than what we see for things like mobile apps usage.”

Making Rewards, Rewarding

This year’s study also revealed a clear dichotomy between how consumers value rewards and how they use them — in other words, they don’t always redeem them.

Hartman said that cash-back rewards are both heavily used and redeemed. The overall percentage of consumers who redeem these rewards is at about 82 percent, while events remain one of the lowest redeemed rewards.

“Events is kind of interesting. From a consumer perspective, it sounds very exciting to go to a sporting event or a concert, but those definitely aren’t redeemed as often as cash-back rewards,” Hartman pointed out.

“Perhaps it’s just because of how many points you need to accumulate to get to the event, and then, maybe, it sounds more exciting than the reality of planning how to get there and coordinating everything when you actually get to that point.”

When it comes to rewards points and redeeming them, sometimes, it can be tough for consumers to understand if the points they are actually racking up are actually a good deal. But with cash, it’s something more tangible that they understand the value of immediately.

The Power Of Simplicity

A recent study from TSYS on the payment preferences of Canadian consumers found that many respondents said it was important to use one financial institution for all of their banking needs, which makes sense considering consumers only have a select number of banks to choose from to begin with.

But in the U.S. banking landscape, the options for financial institutions can truly feel endless.

Surprisingly, 47 percent of U.S. consumers were either slightly or very interested in having their accounts with one financial institution. Though it may be easy to assume that this result varied by group — with older consumers leaning toward this preference more than their younger counterparts — Hartman confirmed there actually wasn’t a huge difference across generations.

The fact that almost half of consumers want to deal with one financial institution could reflect the complexity of the market in which consumers are navigating their financial lives — sometimes, too much choice is a bad thing.

Many consumers want to deal with a single point of contact that can help them through a variety of different experiences, which is a finding that issuers may want to figure out how to make happen for their customer base.

Hartman said financial institutions should also pay attention to the resiliency of PayPal, with about 75 percent of consumers indicating they have a PayPal account.

“Consumers do very much value that single view and one institution to talk to, but they also like the convenience factor and some of the other features that some of the alternative payments provide,” she added.

Advice To Issuers

Based on the results of this year’s Consumer Payments Study, Hartman said she would tell issuers to keep up what they’ve been doing but acknowledge that consumers have placed a higher value on both security and control.

“Consumers are very interested in controlling the use of their cards and their payment devices. That’s always very highly valued, so continuing to expand those security and control features is very critical,” Hartman explained.

“But enabling multiple ways to pay and multiple-channel usage options — those are also very critical. There isn’t just one thing to consider — it’s a combination of factors that we think are important to issuers and anyone else in the payments space,” she added.

To download the full 2016 U.S. Consumer Payments Study please click here.