In a new report, Default payment methods, by Deloitte, it notes how consumers pay for things has always kept pace with new technologies. But the recent growth of digital commerce is transforming consumer payments like never before.
In particular, a consumer behavior dynamic called “default payments”—payments made with credit card, debit card, and bank account details that have been stored for ongoing and future transactions—is taking root in unexpected ways.
Although it only accounts for 8% of retail sales today, e-commerce is growing at a faster clip than other channels, and is expected to reach $0.5 trillion by 2018.
The growth of mobile commerce is even more impressive, forecast to almost double by 2020, reaching $242 billion.
This growth in digital commerce, along with the shift to digital payments, is influencing how consumers pay for what they buy.
Deloitte believe this trend can have a significant impact on card issuers and retailers alike. To better understand this default payment behavior, the Deloitte Center for Financial Services conducted a novel study that drew results from two primary research efforts.
First, it deployed a “mobile diary” that tracked nearly 31,000 payment transactions over a one-month period, followed by a 3,000-respondent survey, which queried respondents on their perceptions, decision making, and future payment behaviors.
With the results of our mobile diary and survey, it answered three fundamental questions:
- Where are consumers most likely to use default payment options—and are there ways in which
issuers can participate in these marketplaces? - Which type of default payment option is preferred, and what causes this preference to shift?
- Who is most likely to embrace default payments, and why?
Broadly, the study confirmed that default payments are already the dominant mode of payment in digital transactions, used extensively in online shopping, with mobile apps, and with mobile wallets at the physical point-of-sale (PoS) terminal.
Mobile diary participants made 84%of their digital payments using default payment options. Deloitte consider default payments behavior as both an opportunity and a threat to incumbent payment providers.
Not every card that a consumer holds is destined to be a default payment choice. The default payment users in our survey confirmed this, as they reported owning an average of 2.8 credit cards, but used only one credit card on average as their default payment option on online marketplace websites.
Hence, the opportunity for card issuers is that once they establish their cards as default payments in a “digital wallet,” they compete with a smaller pool of cards, and their cards have a higher probability of being used.
Of course, those who are left out of these “digital wallets” may lose market share; however, the study also reveals that, at least in the foreseeable future, there are still opportunities to acquire customers for default payments.
As such, Deloitte expect heated competition to win the top of customers’ digital wallet position. If customers end up paying with one default payment instrument more often than others, the implications on payment provider incumbents may be significant.
Thus, not only must incumbents secure a default payment position, but they must also compete to be the customers’ preferred payment choice. To win the top-of-digital-wallet position, card issuers will likely have to employ creative strategies to influence consumer behavior.
In particular, partnerships between card issuers and retailers will likely increase, and new value exchanges among all transactional parties may have to be forged.
Download the REPORT here
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