This article is part of a larger series on Payments.
The retail environment is constantly evolving, and that evolution has taken on increased speed amid the COVID-19 pandemic and related societal changes. To compete, businesses need to offer flexible and fast buying options that meet the needs of every kind of shopper—whether online or in person. After reviewing data from top payment process sources, we identify payment trends that small businesses will want to follow in 2022—and beyond—to stay in the game.
1. COVID Buying Habit Shifts Here to Stay
In 2020, payment processing technology adoption rates, customer expectations, and shopper preferences accelerated dramatically. Adoption rates of payment technologies that were available but not widely used jumped significantly. These changes are here to stay.
This year’s research shows that just shy of 70% of consumers have changed the way they pay forever due to the pandemic—and most prefer the conveniences of things like curbside pickup and contactless pay, with little interest in returning to their previous shopping habits.
2. Retailers Jump to Online & Contactless Payments
Due to consumer demand, retailers pivoted to online payments in 2020. This jump to offering online payments was a huge win for dominant payment processors like Square. Currently, Square retail businesses that sell products and accept payments online earn as much as 51% of their revenue from online sales.
US GPV Increase
In the third quarter of 2021, online gross payment volume (GPV) had a year-over-year jump of more than 40%.
Contactless payments for in-store purchases also emerged as a convenient and safe way to pay for transactions during the pandemic. In 2019, contactless payments only accounted for 0.25% of debit card POS transactions. By 2020, that number grew to 1.6%.
Plus, by 2021, two-thirds of retailers offered contactless payments. One contactless payment option is NFC payments via credit or debit card—the shopper taps or waves their card past the reader. As many as 58% of retailers offered this in 2020 compared to 40% in 2019; digital wallet payments via mobile phones saw comparable growth (56% in 2020 compared to 44% in 2019).
Other statistics illustrating the growth of online and contactless payments include:
- The global contactless payments market is expected to record a compound annual growth rate of 11% through 2026, hitting revenue of just over $20 billion that year.
- According to 2020 data, about half of Gen Z and Millennial consumers have used a digital wallet (up from 40% and 47% in 2019, respectively)—compared to just 31% of Gen X and 13% of Boomers.
- Analysis by Square shows that US sellers taking 95% or more in card payments grew from 8% to 31% just between March and April 2020. This number was analyzed from 70,000 Square sellers nationwide.
- Shopify reports that the number of merchants accepting contactless payments through their software increased by 122% during the pandemic.
Did You Know?
Interestingly, credit card use declined during the 2021 holiday season—with more consumers paying via mobile wallet and consumer financing options than ever before.
Saving Time & Money With Digital Payments
Many retailers are enjoying the time-saving benefits of online payments. Small businesses surveyed by Square stated it took them 542 hours to process 100,000 in non-digital payments. This is compared to only 189 hours to process digital payments.
Consumers also save time with digital payments. They can pay online and pick up later, not having to wait in lines or crowded areas. It will be difficult for businesses without a merchant account with online and contactless options.
3. Cash Is On the Decline
As little as 11% of POS transactions are paid for in cash, not surprising given the growing popularity of noncash payment methods. A 2021 study from the Federal Reserve Bank of San Francisco found that 75% of consumers prefer cashless payment.
Credit and debit card users also spend more than cash buyers. In fact, the average debit card transaction is 50% more than the average cash transaction, and businesses stand to increase revenue by 17% just by offering cashless payment options—not to mention cash payments cost 28% more to process.
4. Convenience Powers One-click Checkout Growth
Since Amazon’s patent on one-click checkout expired several years ago, ecommerce businesses have been racing to develop, implement, and perfect the technology to streamline the checkout process and boost conversions.
Battle of the Branded One-click Checkouts
Many of the established, widely adopted online store platforms (Shopify, Square, ToastTab for restaurants) are developing their own payment processing solutions—after all, that’s where the money is.
For example, in Q3 of 2021, Square’s gross revenue from transactions was $1.3 billion compared to gross revenue from subscriptions and services of $695 million. The same is true for Shopify, which earned $787.5 million from merchant solutions in Q3 2021, compared to $336.2 million from subscription services.
According to Shopify, conversion rates increase by more than 50% when using Shopify Payments; it also results in winning 45% more chargeback disputes.
PayPal checkout boosts conversions by 28%, increases unplanned purchases by 19%, and increases repeat purchases by 13%.
It will be an uphill battle for newcomers and third parties like Fast to get widespread adoption, because for ecommerce giants like Shopify, that would mean giving up market share and revenue. It would take enormous consumer/merchant pressure for this to happen.
However, in one sign of smaller providers making inroads, Bolt checkout partnered with Authentic Brands Group in November 2020 to offer one-click checkouts to their more than 50 consumer product companies.
5. Consumer Usage of Buy Now, Pay Later (BNPL) Rises
BNPL was on the rise before the jump to buying online. However, once the pandemic hit, US adoption rates of BNPL technology, both by retailers and shoppers, skyrocketed. In fact, BNPL payments increased by 29% in 2021 over 2020 and made up 8% of all online purchases (6% in 2020). Mercury Advisor Group forecasts the amount of BNPL lending in the US to hit $114 billion in 2024.
Businesses should be aware that BNPL increases average order value (AOV) and draws consumer loyalty and repeat purchases. But it hasn’t come without its investigations and headaches. In the UK, regulators banned an advertising campaign by international payment solution Klarna for causing irresponsible spending, particularly among young consumers.
Furthermore, the Federal Reserve reports American credit card debt increased by $52 billion in Q4 2021. This could push consumers toward BNPL even more if they don’t have room on cards for purchases or want to avoid continued credit card interest. In fact, a Motley Fool study found that 38% of consumers use BNPL to avoid credit card interest and use it for purchases they can’t afford in their budget. More than one in 10 (14%) say when credit is maxed out they turn to BNPL.
In the News
Equifax if formalizing the inclusion of buy now pay later accounts on consumer credit reports. Until now, BNPL only impacted consumer credit if late payments were reported.
BNPL Market Moves
- Klarna raised $650 million at a $10.65 Billion valuation in September 2020. With over 12 million active monthly users and 55,000 daily downloads, Klarna signals to the retail industry that BNPL is here to stay.
- Afterpay reported 1.9 million active US customers in June 2019. That number jumped 219% to 5.6 million active customers in June 2020.
- In October 2020 Afterpay announced its BNPL service was being offered by retailers such as Forever 21, Finish Line, JD Sports, Levi’s, Skechers, Fresh, APL and Solstice Sunglasses, and some DSW locations.
- In 2020, PayPal released a new Buy Now, Pay Later program as an installment solution.
- The number of Shopify merchants offering BNPL has increased by 60% since the start of the pandemic.
6. QR Codes Are Coming Back
Is it 2010? Because QR codes are cool again. About a third of consumers like using QR codes. And just over 44% of restaurants have started using QR codes for payment. In addition to being contactless, they’re also convenient and more sustainable and allow businesses to make changes on the fly.
Venmo now has business profiles with scannable codes for sole proprietors. PayPal also launched QR codes for businesses. Popular payment processors like Square have deployed QR code payment options. Shopify’s Shop code QR code feature has existed since 2017.
While PayPal and Venmo have long been popular options for online checkout, QR code popularity has also made PayPal and Venmo popular payment methods for in-person purchases. CVS has integrated PayPal and Venmo QR codes into store checkouts.
The US has fallen behind the rest of the world in terms of payment processing technology but is just now starting to play catchup. WeChat QR codes have been a popular payment method in China for years. We expect this trend to continue and grow.
7. Self-checkouts Gain Momentum
Self-checkout, whether through a traditional grocery store checkout aisle, standalone kiosks, or mobile option, are gaining popularity due to speed, convenience, and reduced interpersonal contact.
Two-thirds of shoppers would like the option to do self-checkout from their mobile device, and 79% of customers are using or increasing usage of self-checkout opportunities in stores. Millennials and Gen Z continue to be the biggest adopters of self-checkout and contactless options.
Before the pandemic, grocery chain Fairway Market had a 10% adoption rate of their mobile checkout. After the pandemic hit, the adoption rate jumped to 30%, according to CNBC. And specialty retailers, such as American Eagle, are taking self-checkout to the next level using geofencing technology, which allows shoppers to complete in-store transactions using their own cellphones.
Though self-checkouts have been on the rise for years, the pandemic accelerated customer use and retailers pushed to implement new technology at shorter timelines.
8. Payments by Voice Command Gain Traction
Voice command and voice search technology continues to improve, thus encouraging more people to adopt it. According to Voicebot.ai, some 35% of American adults own a smart speaker.
Voice command has also emerged as a commerce “channel” and gained traction as of late. Essentially, people can make payments using voice commands. As many as 43% of consumers would like “voice-activated solutions” for shopping.
Some forecasts estimate voice payments market value to surpass $40 billion by 2028 (representing a compound annual growth rate of about 10%). In 2018, just 3.6% of US consumers had made a purchase using voice command—that figure jumped to 6.7% in 2020. Smart speakers and technology like Siri and Google Voice have made this possible.
In almost any buying situation, the checkout transaction can make or break the experience and the sale. Shoppers want convenience and simplified checkout—both online and in store.
If you aren’t taking the steps to offer seamless transactions through one-click online payments, BNPL, QR code payments, and voice command payments, among other services, you’re likely missing out on sales.