For the fifth year in a row, PSCU sought to better understand payment method preferences among consumers, and what factors — whether it’s different life stages or economic events — are driving adoption. For its 2022 Eye on Payments study, PSCU surveyed 1,750 credit union members and nonmembers within the U.S. and found that choice and variety are driving consumer payment preferences. Additionally, income levels influence payment methods , particularly when it comes to credit and debit.
“Income level matters,” said Norm Patrick, Vice President of Advisors Plus Consulting at PSCU. “In the survey, 76% of respondents expressed concern about their personal finances within the economy, and that is really driven by the lower-income segments.”
“When you take that information and stratify it by income, 52% of respondents with income under $75,000 said debit was their top choice,” he added. “We expect that to be the case given the need for control and spending within their means. On the other hand, credit card was preferred by 46% of those with an average income being in the higher status.”
Patrick, along with Tom Pierce, Chief Marketing Officer at PSCU, and Brian Riley, Director of Credit at Mercator Advisory Group, dove deeper into the PSCU 2022 Eye on Payments report during a recent PaymentsJournal podcast, where they gave us a glimpse into the key findings that are shaping the current payments landscape.
Digital Payments Are Gaining Ground Among All Demographics
In its study, PSCU found that consumers are turning to digital payment solutions, with 59% of respondents having used a digital payment method occasionally. But with this increased adoption, more than half of respondents are still worried about fraud. “This is a key finding for credit unions, and the need for them to focus on fraud prevention,” said Pierce. “You really need to have a very holistic fraud prevention strategy and leverage data to authenticate members while you’re trying not to negatively impact the experience for those members.”
Frictionless experiences are also a top priority. According to Patrick, from 2019 to 2022, there was a 35% increase in respondents who have been using a mobile wallet solution in the past 60 days to pay for goods and services in a physical store. “Contactless payments [are becoming] very widespread, with those reporting use of a contactless card at least a few times a week,” he said. “It’s increased by 53% since 2020.”
On the topic of frictionless experiences, there’s also a lot of opportunity around digital card issuance. “About one in four respondents indicated that they’ve received a digital version of their card while waiting for the [physical card] to arrive,” said Patrick. “When you’re looking at takeaways from there, card issuance seems to be a very big opportunity for consumers. And as we continue to proliferate with those types of solutions in the market, there needs to be education not only to encourage adoption, but the actual usage is absolutely key.”
Crypto as Another Form of Payment
Crypto adoption worldwide continues to grow, but there’s still a lot of opportunity before it becomes widespread. Roughly 25% of respondents in the PSCU study expressed interest in using this particular form of payment once it’s accepted at the point of sale.
“I’m a banker by trade so I’m very cautious about crypto,” said Riley. “What makes me know that it’s going to come sooner or later is when you start seeing central banks involved in the currency. That adds stability to the whole process. It’s just not the Wild West of Bitcoin. Now you have substance behind this process, and you can see that building into the long-term play of financial services.”
“We think it’s critical to continue to have credit unions educate their members,” added Pierce. “We focus on providing educational materials to credit unions to educate their members. So when they’re ready to get into the space, they know how to safely interact with it.”
Generations Dictate Payment Methods
Emerging payments have touched every demographic segment. Younger consumers have been more open to exploring various payment methods. Meanwhile, their older cohorts have also been curious, and accepting, of new ways to pay for goods.
Boomers
“With Boomers, what we are starting to find is that they’re becoming much more open to emerging payment types ,” said Patrick. “When it comes to their concerns about the economy, it’s even-keeled. They’re a little less sensitive to it than other segments have been. And equally as even-keeled is their approach to debit and credit. We had an equal preference level toward credit and debit, being about 40% for both.”
Gen X
Gen X consumers are also becoming more accepting of emerging payment methods. Roughly two-thirds of respondents are using a wider range of payment methods compared with just a couple of years ago.
Millenials
Meanwhile, older Millennials — the most active users of emerging payment methods — have invested in, or hold, crypto. In fact, 37% of respondents in that age group said that they have. Younger Millennials, on the other hand, are focusing on building credit to grow their financial security. “Some 80% agree that they prefer to use a credit card to build their credit, but we’re still actually seeing them use debit more prolifically,” said Pierce. “They’re also the most significant users of mobile wallet technology. Not surprising on that front.”
“They’re also the most likely to use a buy now, pay later [BNPL] program, so it’s really important for credit unions that offer those types of installment payments to provide education to younger Millennials, so they don’t build up additional debt,” he said.
Despite what older generations may perceive, the younger generations tend to steer clear of credit card usage. “The importance of debit cards is core to the credit union,” said Riley. “Trends show that. Your data illustrates how the take-up of Millennials has been strong on debit. And that area is key to credit union growth.”
When it comes to Gen Z consumers, they’re most concerned about their finances. They prefer to pay with a debit card. And they’re also the highest users of mobile apps for shopping and online food ordering.
“When you want to look at innovation, take a look at what your kids are doing,” said Riley. “[For credit unions] it’s really important to capture this age sector, because that is the foundation for your growth. And when you get in early with them, you can have them for a long time. They could really see that there’s opportunities for their own value that come from using credit unions rather than a large money center bank.”
The Way Forward
Since 2018, cash use has been experiencing a steady decline, paving the way for emerging digital payments. Even with all these shifts toward digital payments, the elephant in the room continues to be security. Credit unions must continue to strive to provide the most secure fraud management solutions. It will ensure the safety of consumer payments.
“We’ve talked about the shift that’s taking place over the past several years. But with security, there has been no shift,” said Patrick. “In fact, it’s still a really big deal. This has been a consistent stat over the past four or five years of this survey. We’ve seen 7 out of 10 consumers saying that security really drives how they conduct their business. If they’re not feeling comfortable with the solution from a security perspective, it’s really going be challenging.”
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