How Do Consumers Pay for Goods?

Posted by Andrea Baker on

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Just as fashion trends go in and out of style throughout the years, the same is true for the payment methods that consumers prefer to use when making both everyday purchases and sporadic, larger purchases. While cash may used to have been king, such is no longer the case, with more and more consumers preferring credit and debit cards, or alternative payment methods like PayPal and virtual wallets.

The Current State

As of 2016, debit cards are the most popular method of payment for in-store purchases, followed by credit cards, cash, and alternative methods, in that order. For online purchases, credit cards take the lead, followed by debit cards and PayPal. Alternative methods can include online accounts like PayPal, prepaid cards, gift cards and mobile payments, like Apple Pay, Android Pay and Google Wallet.

Debit Cards

Debit cards are by far the most used payment method for everyday purchases made in brick and mortar retailers, with 43 percent of consumers studied citing this as their preferred method. Many users like using their debit cards thanks to the security and identity theft protection most popular banks provide. Furthermore, consumers prefer debit cards because the money comes directly out of their bank accounts, without the potential risk of racking up debt like they would with using a credit card.

With the addition of EMV chips to many debit cards, consumers feel safer using these cards rather than experimenting with alternative payment methods. Debit card use has been on the rise over the last decade, replacing checks, which were the preferred payment method in 2003. This trend is likely due to the inconvenience of carrying around a checkbook, and the ease of use and wide acceptance of debit cards. It is likely that debit cards will continue to retain their popularity in the coming years.

Debit cards are still the most widely used payment form

Debit cards are still the most widely used payment form.

Credit Cards

Credit card use has shown a slight, yet noticeable decline in recent years. It is likely that much of this decrease has to do with the 2008 recession, which made consumers much more reluctant to go into debt for their everyday purchases. However, when it comes to making large purchases, like furniture and appliances, consumers still typically use credit cards, as they can pay off the balance over time for items that they could not normally afford to purchase right away.

On the contrary, for vacations and leisure spending, consumers prefer to save up the money and use their debit cards or cash. Overall, about 35 percent of consumers identify credit cards as their payment method of choice, and credit cards will likely retain much of their popularity going forward.


The use of cash has been steadily declining in recent years, with only 14 percent of consumers using cash for everyday purchases. However, this trend does not extend to fast food restaurants and coffee shops, with cash still maintaining the top spot in these specific locations. A major factor in the decline of cash usage is the cost of obtaining it. On top of the hefty fees that many ATMs charge, and the additional fees from your bank for using outside ATMs, there is also the cost of traveling to the ATM in the form of time, gasoline, and extra wear on the car. Add on the inconvenience factor, and it is easy to see why this traditional payment method has fallen out of fashion.

Wireless Payments

When wireless payments, like Apple Pay and Android Pay, first hit the market, it was predicted that they would rapidly take over the marketplace as consumers' preferred method of payment. However, such has not been the case, with only about 3 percent calling mobile payments their favorite method. Although more than half of the U.S. population is aware of and familiar with mobile payments, only about 18 percent actually use it.

As consumers become increasingly concerned with data security in the wake of hacking attacks on major retailers, many are reluctant to try this new method out of concern for the safety of their identity and financial information. More recent innovations, like Apple's Touch ID, which requires users to enter their fingerprint to use the payment function, have drastically increased the level of security, so it is likely that wireless payment usage will begin to rise in the near future. Although this type of payment method has started to become more popular amongst Millennials when compared to other segments of the population, its overall usage still remains low.

What This Means for Retailers

As consumer preferences continue to change and evolve, so too must brick and mortar retailers. If a particular store does not accept a customer's preferred method of payment, it is very likely that that customer will take his or her business elsewhere, likely to a competitor's establishment. Although changing payment methods can have an initial cost to the retailer, the long term benefits are worth that upfront investment.

Wireless payments

Wireless options are removing the need for physical cash on hand.

EMV Chip Card Readers

As it stands right now, this is one of the most critical upgrades that retailers need to make. Many smaller retailers have balked at the initial investment to purchase the machine that can read these cards, but the added security of this method outweighs the startup funds needed.

Because of the increased security of these cards, many credit card issuers are no longer giving customers refunds for fraudulent purchases. Instead, the responsibility for refunding customers' money falls to the retailer, because they did not upgrade their security capabilities. Over the long term, this can end up costing the retailer significantly more than it would have for them to simply purchase an EMV reader. As identity theft continues to become a growing concern in the United States, more and more customers will make the shift to only shopping at retailers who offer this type of protection.

Mobile Payments

Although mobile payments were expected to rise in popularity rapidly after they were introduced, such has not been the case. One likely cause of this is the lag time in retailers adopting the capability to process these payments. From the retailers' perspective, why spend the money to upgrade their systems when their customers are not using these payments? Similarly, from the consumers' perspective, why start using a payment method that most retailers do not accept?

The overall cycle results in the lack of adoption of this new technology all around. However, some retailers, like Starbucks, have seen huge increases in mobile payments, likely as a result of their integration of a rewards program for customers who use this new method. Through the mobile app, Starbucks can also send its customers coupons to use the next time they come into the shop.

Rewards integration seems to be the wave of the future for mobile payments, with more retailers beginning to jump on this trend. There needs to be some incentive to using mobile payments in order for consumers to make the switch. Otherwise, they are likely to stick with their old standbys of debit and credit cards. Indeed, it does require an initial outlay of funds to develop a mobile app and upgrade or replace existing hardware to accept mobile payments, but this initial effort will pay off in the long run. The mobile experience is not going away anytime soon, so even though mobile payments have gotten off to a slow start, they will likely continue to rise in popularity going forward.

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Increasing mobile capabilities and offering updated security features will go a long way towards gaining consumers' trust and building brand loyalty. Particularly for smaller businesses who rely so heavily on maintaining their customer base, investing in these new technologies is not just advisable, but necessary. Consumers are becoming increasingly tech-savvy, and retailers who cannot or choose not to keep up with this trend will see their revenues start to decline as their customers migrate to their competitors who have made these changes.

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