Andrew “AG” is GM, North America for GoCardless, the global leader in recurring payments. He is an expert in fintech.
Covid-19 has rapidly accelerated the mainstream adoption of digital payment methods. Consumers want an efficient and enjoyable user experience, as well as easy, automatic and widely accepted new payment methods. Businesses that are adapting to this shift are experiencing increased conversion, improved customer loyalty and reduced churn. On the other hand, companies that have ignored their customers’ new payment preferences have introduced friction into the buying journey and made their competitors a more viable alternative.
Here is how you can get ahead of the trends:
Global Payment Trends
The shift away from credit cards had been happening prior to the pandemic, but, like many things, Covid-19 accelerated the timeline.
There is a clear pattern that young generations have fewer credit cards and use them less often for spending. Data for U.S. consumers reveals that the Baby Boomer generation holds an average of five credit cards, whereas Millennials and Gen Z have three. Data also reveals that, on average, members of Gen Z do not even list credit cards as one of their top three preferred payment methods. They do not want to make the mistake of previous generations by becoming trapped in never-ending debt. As they start to look for payment options beyond credit cards, bank debit becomes attractive, allowing them to have more control and ownership of their finances.
Subscription-based services are a main driver of this shift away from credit cards. Whether it is video streaming or a digital gym membership, the ubiquity and convenience of subscription-based models have been a perfect fit for the unique needs of consumers during the pandemic. As these services have taken off, consumers are similarly finding that there are a number of drawbacks to using credit cards to pay for them and are increasingly turning to bank debit as their preferred option.
It is actually quite intuitive, as losing a credit card or maxing it out means you need to sign back into all of the accounts that are using that credit card and manually change the information. Bank debit allows the money to come straight out of your account, without the fuss.
On the whole, bank debit has grown during the pandemic. However, many enterprises have not capitalized on this trend, and instead have kept their payment methods largely the same. In fact, of the top 44 global business-to-consumer (B2C) companies, only one (Amazon Germany) offers bank debit as the first payment option offered, which is likely a response to the preferences of many Germans.
Implications And Impact
While this data is compelling, many enterprises have concerns about changing their payment options. It is important to emphasize that adding payment options such as bank debit offers consumers greater options and choices that they may prefer. This optionality pays dividends down the road in higher conversion rates and, ultimately, faster growth — especially if you have international expansion plans. Not only that, but the fees associated with account-to-account payments such as bank debit and open banking payments are less than those associated with credit cards or other legacy payment options, so these options save money, too.
Ultimately, there is a trend toward automating and using digital payment methods. You can already spot the ubiquity of this technology; how often do you see someone paying for goods on their watch or phone? Smart enterprises will recognize that they have a competitive advantage in this arena by offering consumers multiple choices in their payment methods, particularly with increasingly popular options such as bank debit. Not only do consumers appreciate the flexibility, but enterprises can also experience significant benefits, including accelerated growth, less churn, increased conversion and lower costs.