Edited by: Nick Ellis
& Keri Stooksbury
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Credit cards, debit cards, cash, and digital wallets are just a few of the ways consumers can pay for items in 2023. These are all great options, but which payment option is the most popular 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.
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 most of the COVID-19 restrictions have been lifted, you still see stores and businesses keeping the “no cash” policy in place.
According to the 2023 Diary of Consumer Payment Choice by the Federal Reserve Bank of Atlanta, in May 2023, 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 (60%) were made with payment cards, such as debit, credit, and prepaid. This has held steady since 2020.
The use of paper payments, such as cash, checks, and money orders, was used for 27% of payments, and electronic methods (bank account number payment and online banking bill payment) were used for 13%, while “other” methods of payment, such as payment apps like Zelle and Venmo, made up for less than 1% of payments.
When the report compared findings with those from 2020, it found that payment methods were very consistent. For example, it notes that mobile app payments have leveled off, “indicating that consumer use of mobile payments may have reached a peak earlier in the pandemic.”
In addition, the report notes that “93% of consumers do not expect to stop using cash in the near future.” The increased popularity of mobile and credit card options has not necessarily decreased the demand for cash. The report cites economic uncertainties as the primary motivator.
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 51% in 2021, showing that it has been steadily increasing from 46% in 2020, 40.6% in 2019, and 18.9% in 2018, according to the Global Payments Trends report by ACI Worldwide.
According to the report, 49.9% of adults reported that they had a mobile wallet — and used it — in 2022. The report from ACI Worldwide predicts that by 2024, over 91% of transactions will be electronic, with only 8% being paper-based payments.
A 2022 Mastercard study also found that 93% of global consumers said they would keep using contactless payment methods (mobile wallets) in the future.
According to a 2023 Consumer Payments survey by Fiserv, credit cards are the preferred payment option for all age ranges for purchases ranging from unplanned expenses of over $2,500 to trips to the grocery store. The report specifically notes the ability to earn miles and points as a main reason for a credit card preference, in addition to being able to spread out the payments over time.
The report also notes that 70% of consumers use mobile to conduct day-to-day banking transactions, and 52% like the idea of a financial “super-app” that can bring together all their financial accounts to learn about their spending and even offer them tailored advice. These additional benefits point to a preference for credit cards as compared to using cash or paying directly from a bank account.
The pandemic may have led to consumers pushing cash to the side. However, this could also be due in large part to widespread shutdowns in 2020 and 2021, which led many Americans to shift their shopping online. With that came a shift in payment methods, as well.
According to The Global Payments Report by FIS, the historical preference for 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 digital wallets have replaced credit cards as the leading e-commerce payment method among American consumers, accounting for 32% of 2022 payments. Credit cards have fallen slightly behind since 2020, dropping from 32% to 31%.
Buy now, pay later services continue to make big leaps due to online shopping, rising to 5% of e-commerce spend, up from less than 2% since 2020. Debit cards, prepaid cards, and other methods all remained fairly consistent in their share of e-commerce payments in 2022 as compared to 2020.
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 2023 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 (5), but they used electronic payments for transactions that were higher in average value than cash. The average electronic payment was $95, compared to $39 for cash.
As the U.S. and the rest of the world continue to forge ahead in a post-pandemic environment, we’ve seen that there have been limited changes to popular payment methods.
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 the post-pandemic world, or will the U.S. keep with the ease — and cleanliness — of digital wallets?
1. Cubides, Emily, Shaun O’Brien. (2023). 2023 Findings from the Diary of Consumer Payment Choice. The Federal Reserve. https://www.frbsf.org/cash/wp-content/uploads/sites/7/2023-Findings-from-the-Diary-of-Consumer-Payment-Choice.pdf. Retrieved August 16, 2023.
2. GPR 2023 The Global Payments Report. Worldpay from FIS. https://www.fisglobal.com/en/-/media/fisglobal/files/campaigns/global-payments-report/FIS_TheGlobalPaymentsReport2023_May_2023.pdf. Retrieved August 16, 2023.
3. Hyman, Vicki. (June 2, 2022). The new world of payments is all about change (not that kind). Mastercard. https://www.mastercard.com/news/perspectives/2022/digital-payment-landscape-2022/. Retrieved August 16, 2023.
A mobile wallet is a wallet that lives on your phone through platforms such as Apple Pay or Google Pay. A mobile wallet allows you to load your credit card information into your wallet app so you can easily pay with the tap of a phone at retailers that accept mobile payments.
According to SquareUp, mobile payments like Apple Pay and Android Pay are the most secure form of payment. Digital wallets use extremely sophisticated layers of security called tokenization and cryptogram to keep your information on lockdown from fraudsters.
Credit cards are a safe and convenient way to pay for items, but keep in mind that when spending with a credit card, you must pay it off later. It is always good to keep a budget in mind when using your credit card so you don’t overspend and rack up a large end-of-month bill.
There are many types of payment methods, but these are the most widely used:
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