Credit cards, debit cards, cash, and digital wallets are a few of the ways consumers can pay for items in 2022. These are all great options, but which payment option is the most popular payment method in the U.S.?
In this article, we will dig into the different types of payment methods, how the pandemic has changed payment methods, the growth of digital wallets, and if the way we pay for items impacts how much we spend.
Read on for everything you need to know about payment methods in the U.S.
6 Quick Statistics on Payment Methods
- 57% of payments in 2020 were made with payment cards, such as debit, credit, and prepaid cards.
- The adoption of mobile wallets rose to a historic high of 46% in 2020.
- It is estimated that by 2024, 80% of transactions will be electronic.
- $1,476: the average value of payments made electronically in October 2020.
- $1,269: the average value of payments made by payment cards in October 2020.
- 74% of global consumers said they would keep using contactless payment methods beyond the pandemic.
The Most Popular Payment Methods in the U.S.
The COVID-19 pandemic might have accelerated the process of cash being used less within the U.S. and around the world. During the pandemic, cash became another way of spreading germs, and as a result, a lot of retailers stopped accepting cash as a form of payment. Even as the COVID-19 restrictions are being lifted, you still see stores and businesses keeping the “no cash” policy in place.
According to the 2020 Diary of Consumer Payment Choice by the Federal Reserve Bank of Atlanta, in October 2020, U.S. consumers made most of their payments with debit cards, credit cards, and cash. Although cash still comes out as one of the top payment methods, the report also notes that more than half of payments (57%) were made with payment cards, such as debit, credit, and prepaid.
The use of paper payments, such as cash, checks, and money orders, was used for 25% of payments, and electronic methods (bank account number payment and online banking bill payment) for 12%, while “other” methods of payment, such as payment apps like Zelle and Venmo, made up for the remaining 5% of payments.
When the report compared findings with 2019, it found the volume share of cards and electronic payments increased and the volume shares of paper payments declined, stating that only the decline in the share of paper payments is statistically significant.
When looking at the value of payments made electronically vs. the value of payments made by cards, the value of electronic payments exceeds those made by cards — $1,476 compared to $1,269, according to the Federal Reserve Bank of Atlanta. By value, payments made electronically were 34% of the monthly total, compared to 29% for cards and 27% for paper instruments.
The Growth of Digital Wallets
A digital wallet on your smartphone can be used to pay at stores that accept mobile or cashless payments. Digital wallets saw an increase in popularity during the pandemic because they offer a form of contactless payment and remove the need to physically touch a credit card reader.
As a result of the pandemic, the adoption of mobile wallets rose to a historic high of 46% in 2020, up from 40.6% in 2019, and 18.9% in 2018, according to the Global Payments Trends report by ACI Worldwide.
41% of adults reported that they had a mobile wallet and used it in 2020. The report from ACI Worldwide predicts that by the year 2024, over 80% of transactions will be electronic, with only 16.8% being paper-based payments.
A 2020 Mastercard study also found that 74% of global consumers said they would keep using contactless payment methods (mobile wallets) beyond the pandemic.
Preferred Payment Method for Bills
According to a 2021 Consumer Payments survey by Fiserv, when paying bills, consumers like payment options. Having the option to pay bills with credit or debit cards rank high on consumers’ “nice to have” and “must-have” lists.
Younger consumers have higher expectations across the board, with significant majorities of millennial and Gen Z consumers saying debit cards (94%), mobile wallets (82%), and digital payment apps (83%) are “must-have” or “nice to have” for bill payments.
Preferred Payment Method for Online Shopping
The pandemic may have had consumers push cash to the side, but this could have also been due to the fact that with widespread shutdowns in 2020, many Americans shifted from in-person shopping to online shopping. With that came the shift in payment methods, as well.
According to The Global Payments Report by FIS, the historical preference of credit cards showed signs of receding as debit cards, digital wallets, and buy now, pay later (BNPL) services surged in popularity.
The report states that although dropping 7% from 2019, credit cards remained the leading e-commerce payment method among American consumers, accounting for 32% of 2020 payments. Credit cards even maintained a small lead over digital wallets, which made up 30.4% of 2020 online payments.
Buy now, pay later services made the biggest percentage leap in 2020 for online shopping, rising nearly 78% — that’s 1.6% of e-commerce spend. Charge cards, cash on delivery, and prepaid services all fell in 2020 e-commerce payment share.
Does the Way We Pay Impact How Much We Spend?
We all know the spend now, pay later effect that credit cards have, but does the way we pay actually impact how much we spend?
Studies show that shoppers with credit cards are willing to spend more on items, check out with bigger baskets, and focus on and remember more product benefits rather than costs. But what about when paying electronically or with cash?
According to the 2020 Diary of Consumer Payment Choice, the difference between the distribution by volume and by value reflects that consumers tend to use cash and payment cards more often, but for lower-value payments, and they tend to use checks and electronic payments less often, but for relatively higher-value payments. The report says that U.S. consumers, on average, made fewer electronic-instrument payments (4) than cash (7), but they used electronic payments for transactions that were higher in average value than cash. The average electronic payment was $350, compared to $42 with cash. The average value when using payment cards fell between cash and electronic, at $64.
As the U.S. and the rest of the world start to transition into the new normal due to the COVID-19 pandemic, it will be interesting to see how popular payment methods start to change.
As studies already show, the pandemic quickly slowed down the use of cash while speeding up the adoption of mobile wallets and things like Apple Pay and Google Pay. Will cash have a chance at making a comeback in a post-pandemic world, or will the U.S. keep with the ease and cleanliness of digital wallets?