Payments Trends to Watch in 2021

March 24, 2021

Few would disagree that COVID-19 was a catalyst for significant changes in the way that Americans shop and manage their money. In fact, many experts believe years of behavioral transformation occurred over a matter of months and many of these changes will endure even after the pandemic subsides.  

The following are three trends worth watching as community banks navigate this sea of change in customer behavior: 

Preferences for contact-free shopping and payments  

Prior to the pandemic, buy online pick up in store (BOPIS) services were considered a convenience for on-the-go consumers. In the past year, however, three-quarters of consumers have used BOPIS to maintain physical distance, and as many as 90 percent of brick-and-mortar retailers will offer it this year, as reported in Digital Commerce 360.  

Shoppers at physical stores are concerned about hygienic conditions: almost half of consumers believe contactless payment methods are among the most important safety measures retailers can offer, and they will not shop at a store that does not offer a contactless way to pay. In a Visa Back to Business Survey, three-quarters of small businesses expect consumers will prefer contactless payments even after a vaccine is widely available.  

Debit card use for finance management  

Economic uncertainty was a driving factor for more Americans focused on building savings, paring down debt, and shopping smarter. In December 2020, the personal savings rate in the U.S. amounted to 13.7 percent, up from 12.9 percent in November, according to market research firm Statista.

Consumers are also paying down their credit card balances, with total revolving debt outstanding dropping 11 percent in 2020, according to the Federal Reserve. And more cardholders are paying off balances in full every month as well.  

Debit cards are also emerging as a budget management tool. Forty percent of consumers indicated a preference for debit cards for their 2020 holiday purchases, according Logica Research. And retail giant Amazon reported a 70 percent surge in debit card transactions in early February as digital commerce continues its growth trajectory.

Increased use of tap-to-pay digital wallet payments is also a factor contributing to increased debit card transaction volume: About two-thirds of the cards linked to Apple Pay and Google Pay are debit cards, according to Cornerstone Advisors. 

Buy Now Pay Later Plans on the rise 

Buy Now, Pay Later (BNPL) plans (unlike their layaway plan predecessor) allow customers to purchase the product immediately, while spreading the cost across a defined number of payments. More than 40 percent of American shoppers have used a BNPL plan, with the greatest adoption occurring among millennials and Gen Z shoppers.

Some consumers use this option when their credit card balances reach their limit, but others say they are attracted to the convenience and predictability of BNPL. Merchants report sales increases of as much as 33 percent when shoppers use BNPL, according to a CNN Business article.

Critics say BNPL encourages consumers to check out with more items than they had originally intended and use of multiple BNPL installment loans may be harder to manage than credit card purchases. Nearly 40 percent of U.S. consumers who used BNPL have missed more than one payment, and 72 percent of those saw their credit score decline, according to a study by Credit Karma. Two-thirds who missed payments said the reason for falling behind was that they simply lost track of the payments, not because they did not have the money. Unlike credit cards, most BNPL plans do not offer rewards, and credit cards may offer better consumer protections and resolution avenues if purchases are defective.  

Consumers seeking the best of both worlds may want to consider alternatives offered by card networks and some issuers for small-dollar installment payments. 

Deborah Matthews Phillips, AAP is senior vice president, payments and technology policy at ICBA and senior vice president, industry relations at ICBA Bancard.