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- The pandemic-driven shift towards digital isn’t slowing down. Cash and checks will see their share of in-store food and retail transaction value drop to 18.5% this fiscal year.
- While debit will continue to be the most popular payment method in the US and it will remain so, credit and prepaid cards are gaining popularity with more people borrowing.
- Are you a member of the Financial Services sector? Gain business insights about the latest technology innovations, market trends and your competition with data-driven research.
The pandemic led to rapid digitization in the payments industry, with 2022 being a turning point in how consumers and businesses make purchases. We analyze key trends and provide insights from the annual Payments Ecosystem Report.
Overview of the payment processing industry
Peer-to–peer (P2P), Business-to–Consumer (B2C), as well as business-to–business (B2B), digitization has been increased since 2020. However, the second year of the pandemic showed that they are here to stay, despite normalizing spending. To help with these payments, all stakeholders, including acquirers, processors, networks and issuers, are racing to keep pace with the changes in how people and companies transact.
An analog payment declined sharply after the pandemic began. This trend will continue this year, as debit, credit and prepaid cards compete for usage. Our forecast shows that cash and checks will continue to decline in 2023 as their share of the value of food and retail transactions in-store.
Merchants must ensure that customers have the ability to pay using their preferred method of payment in response to digitization. This is driving point-of-sale providers (POS) to create multichannel solutions that address both the front-end and back-end requirements. Providers in all areas of the payments industry are trying to find new transactions, reach new consumers and businesses, as well as embrace new technologies and devices.
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Trends in the Payments Industry
In-store payment methods
As shopping habits change, in-store sales will continue to be the largest channel for retail sales. As customers move to ecommerce, the in-store share of retail sales will decrease.
Card payments dominate in-store retail. US debit spending outpaced credit in 2021 for the first time since 16 years. This was because consumers sought to reduce financial risk during the current pandemic–growth which is supposed to stabilize in the year. Our forecasts predict that debit spending will account nearly 40% of all in-store retail and food service dollars. Contactless payments are also becoming more popular, with alternative methods such as Apple Pay, in store buy now, pay later ( BNPL), or click and collect.
Ecommerce growth
The US will surpass $1 trillion in retail ecommerce sales this year. However, growth will not be evenly distributed across channels. Desktop sales will slow through 2025 while mobile purchases will boom and account for 4 out 10 retail ecommerce dollars this year. This is why checkout providers are focused on improving mobile payments and exploring opportunities in Social Commerce.
Gateways are becoming more important in the payments industry due to the increasing demand for brick-and mortar sellers to move online. The industry’s most prominent players are now partnering with gateways to unify their software through both online and in-person channels.
Digital payments
Digitization of payments doesn’t have to be limited to retail. Real-time mobile P2P and digital remittances payments, as well as digital business payments continue to flourish as the ecosystem changes.
Over 75% of smartphone owners by 2025 will use mobile P2P payments. This opens up the possibility to tap two untapped markets: Gen Zers, who are gaining spending power, and security-conscious consumers who avoid digital payments because they fear for their safety.
According to Juniper Research, digital remittances will increase by 45% between 2021-2025 to $428 billion. Remitly and Wise, previously TransferWise, are entrants that have been successful. This is a sign that the market is changing and will put pressure on incumbents to lower their fees.
US B2B payments will see a second consecutive year growth after a dip in 2020. The volume is expected to rise to $28.611 trillion in 2022. Payment providers will increase their efforts in the B2B space to capitalize on this opportunity. They will cater especially to small businesses, which make up a large share of the US B2B payment market.
Credit cards
The pandemic’s onset, credit card spending fell due to financial uncertainty and overall spending declines. Only Q3 2021 saw credit card usage increase again, but these gains are expected to stabilise in 2022, as less-essential purchases, particularly in entertainment and travel, continue to rise.
Consumers’ continued embrace of online shopping will see online credit card usage surpass $500 billion for the first time in this year. Due to the rising preference of debit by consumers, however, the share of card transactions and digital retail transactions that this payment method has will be slightly lower. This will be addressed by new cards that offer rewards and value propositions, such as lower fees and greater payment flexibility.
Explaining the payments industry
- Participants in the Payments Purchase Chain: How key players facilitate transactions–and how their roles are changing
- The Point-of Sale: How hardware and software providers are meeting merchant demands for full-suite products, Omnichannel sales
- Payment Methods and Financing Mechanisms: What Does the Industry’s Shifting Payment Preferences and Habits Look Like?
- Payment Flows & Transaction Types: How lasting digitization is transforming providers growth, revenue, and competitive strategies
Each section will focus on changing market dynamics and their impact on stakeholders. It will also identify top trends in 2022, based upon our proprietary forecasts and third-party data.
Click Here to Learn More About Financial Services Content, such as the Payments Ecosystem report.
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