Mobile Wallets May Soon Be the Way to Pay
Corrects headline and first two paragraphs to show that mobile wallets are expected to overtake credit card use online and cash use in person. Also clarifies that credit cards would not necessarily recede in importance as mobile wallets become more popular because credit card accounts are often linked to mobile payment apps. Story was originally published March 2.
Mobile wallets are becoming so popular that they will soon be used more than direct credit card payments when shopping online, and more than cash when paying in person, according to a new analysis of payment trends that also showed buy-now-pay-later options gaining ground.
While the credit card is still king both for in-person and online purchases in North America, mobile wallets will likely eclipse credit card use in online transactions by 2024, market researchers at FIS, a financial technology services company, said in a report released in late February. Cards still have a major role to play in the mobile payment ecosystem, however, since wallets are often linked to credit and debit card accounts.
In 2020, 32% of all online payments and 39% of all in-person, or point-of-sale, payments were made directly with credit cards. By 2024, mobile wallets will crowd out credit cards in online sales, growing their share of transaction volume to 41% from 29% last year and squeezing credit cards down to a 27% share. Meanwhile, in physical locations, the share of all payments made through mobile wallets is expected to grow to 15.5% from 9.6% as cash dwindles to just 8.7% from 11% in 2020.
The COVID-19 pandemic is behind many of these trends, as customers moved to shopping online en masse, driving an estimated 15% growth in U.S. e-commerce sales from 2019 to 2020 and an 8.8% decline in physical transactions, according to the report. Safety concerns led customers to abandon cash, the use of which fell 22% across North America in 2020, in favor of mobile wallets, which surged 60%. Prepaid card use more than doubled for in-person transactions, thanks to their use as a way to disburse pandemic relief payments.
“The pandemic forced significant change in what we bought and sold, how those purchases were made, and how goods and services traveled to their destinations,” market researchers at FIS said. “Pandemic-related disruption propelled e-commerce to the forefront as remote commerce became the lifeline to an economy disrupted by the need for physical distance. Point-of-sale merchants faced unprecedented challenges as commerce began to change overnight.”
The shift away from credit cards was also driven by the pandemic, FIS said, as customers’ fears of recession and unemployment grew. Competition to credit cards came not only from mobile wallets, but also from increasingly popular buy-now-pay-later services. FIS predicts use of those will more than double to 4.5% of online payments by 2024 as customers come to view the service as a safe and interest-free way to spread out payments over time.
This trend is also supported by Federal Reserve data showing that consumers haven’t carried revolving debt levels (which includes credit cards) this low since 2017.