Digital Wallets Are Now the Most Popular Payment Method in the World.
By Lyle Daly The Ascent
Every year, FIS, a financial services company that performs retail analytics, documents payment trends around the world in its Global Payments Report. This report gives us an idea of the newest changes and what to expect in the future. The big news this year was a surge in digital wallet spending, which became the most popular payment method for e-commerce and point-of-sale (POS) transactions. Considering that the COVID-19 pandemic had a massive impact on the world, it's no surprise its impact extended to payment trends. Lockdowns led to much more e-commerce spending, and wariness about exchanging cash resulted in consumers turning to alternatives, including contactless credit cards and digital wallets. Read on for the highlights from the Global Payments Report, along with how these trends could change the way you shop.
What are digital wallets? Digital wallets are systems in which you store payment credentials, such as your credit and debit cards. You can use them to pay for purchases online and in stores that accept them without having your physical card. There are also mobile wallets, a type of digital wallet for mobile devices.
Digital wallets rise while cash goes into a free fall Going into 2020, digital wallets were on their way up and cash was becoming less popular. But the COVID-19 pandemic massively accelerated those trends. The table below shows how much POS spending ("point of sale," meaning online or in-person transactions) the most common payment methods accounted for worldwide. Note that since only the most popular methods are included, the numbers don't add up to 100%.
Cash is no longer king, and FIS expects it to stay that way. It projects that cash will account for only 12.7% of POS spending by 2024 and that digital wallets will be responsible for 33.4%.
Digital wallets dominate e-commerce as well, accounting for 44.5% of spending there. That's projected to grow to 51.7% by 2024. The only other payment method projected to grow is buy now, pay later, which is expected to double from 2.1% to 4.2% of e-commerce spending.
The National Retail Federation (NRF) also found that the pandemic led to consumers using digital wallets and contactless payments more. This was in part due to safety concerns, even though there's no clear evidence cash or credit cards transfer the COVID-19 virus. Regardless, both digital wallets and contactless payments are set to continue growing.
Credit cards are still on top in the United States The United States has often lagged when it comes to certain payment trends. It adopted EMV chip technology in credit and debit cards much later than many European countries did. That's also been the case with digital wallets and contactless payments. Despite increasing usage of both, U.S. consumers still prefer credit cards and, to a lesser extent, debit cards.
In the U.S. e-commerce market, it's a different story. Digital wallets are poised to take the lead there. They accounted for 30% of spending in 2020, up from 24% in 2019. Credit cards also accounted for 30% of spending last year, down from 33% in 2019.
E-commerce spending skyrockets 2020 was practically tailor made for a big jump in e-commerce spending: Consumers were largely stuck at home. Many brick-and-mortar stores had to shut down or limit the number of shoppers. Most of us did plenty of online shopping for essentials, entertainment, or both.
Even with economic uncertainty, global e-commerce spending went up by 19% from 2019 to 2020. That kind of increase usually takes two to three years. Overall, $4.6 trillion was spent in e-commerce transactions. By 2024, it's expected to grow to $7.3 trillion.
A large chunk of e-commerce spending comes from the United States, which was responsible for $1.1 trillion in 2020. That was a substantial increase from 2019's total of $944 billion. POS spending in the United States, on the other hand, dipped from $9.4 trillion in 2019 to $8.6 trillion in 2020.
The shift to cashless payments If there's one trend that stands out the most, it's the transition away from cash. Some areas are certainly closer to going cashless than others. FIS expects Denmark, Norway, and Sweden to be nearly cashless within five years. Countries in the Middle East and Africa are on the opposite end of the spectrum, still largely reliant on cash. But worldwide, there's a clear shift toward digital payment methods and away from cash.
For consumers, there are positive and negative aspects to this shift. A rapidly growing number of retailers accept a variety of payment methods. It's likely you'll have more places where you can shop using digital wallets and contactless credit cards. These types of payments tend to be quicker and more convenient than paying in cash. Convenience can come at a cost, though.
Studies show that mobile wallets could cause more spending, and that consumers spend less when paying in cash. So as e-commerce grows and digital wallets provide a fast, easy way to make purchases, it's more important than ever to follow responsible spending habits.
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