What Drives Consumer Payment Preferences?

For a long time, payments weren’t something merchants had to put much thought into. Today that isn’t the case. 

The payments industry, along with consumer preferences, is constantly fluctuating. To meet evolving expectations, payment providers and merchants must understand consumer needs and behaviors. They must also consider what drives consumers toward one payment option or another and, by extension, one merchant or another. 

Knowing what drives consumer payment preferences will help you and your merchants set the stage for long-term success. 

The Four Forces Driving the Shift in Consumer Preference

The evolution of payments is a self-accelerating cycle. Evolving consumer preferences encourage payment companies to improve their payment rails and technology. Those innovations then push consumer preference even further, and the cycle continues.

NMI CEO Vijay Sondhi identified four forces driving this cycle, “Convenience, choice, flexibility and rewards. Those are the four things defining and changing consumer preference, and that’s where payments are going. Each is interrelated to an extent, and all are important to staying relevant in the payments space both today and tomorrow,” Sondhi explains.

Convenience

Convenience is the most important factor to consumers. In a 2022 study conducted by NMI, 84% of respondents said they chose their preferred payment method because it was the most convenient. These consumers define convenience in terms of speed, portability and safety.

Cash was once considered the most convenient payment because it was accepted everywhere. However, today, its use is rapidly declining. So, how can payment providers and merchants make payments more convenient?

• Speed: Speedy payments are redefining the space. Counting out money and waiting to be handed your change is not fast. However, tapping a credit card, using a mobile wallet or buying online with a single click are nearly instantaneous and, therefore, preferred options 
• Portability: Carrying cash (especially change) is a burden. Today, even debit and credit cards are inconvenient. Consumers are beginning to streamline their wallets by carrying little to no cash and just one or two cards. In some cases, digital wallets have replaced physical cards entirely; they offer consumers a way to store dozens of payment and rewards cards on their smartphones or mobile devices
• Safety: From a health/cleanliness perspective, consumers want to be safe. For merchants, offering debit and credit is no longer enough if customers must touch the payment pad and enter their PIN. Contactless payments are now table stakes, and merchants must offer tap terminals compliant with Europay, MasterCard and Visa (EMV) to ensure they are protecting their customers

Choice

Consumers have several payment options—debit and credit cards, digital wallets, peer-to-peer payments (P2P), buy now, pay later (BNPL) and beyond. More importantly, they use them all. 

The Federal Reserve found that in 2022, consumers preferred credit, with credit cards accounting for 31% of total U.S. payments, while debit cards accounted for 29%. Meanwhile, direct Automated Clearing House (ACH) payments were the second fastest-growing option. Surprisingly, cash made up only 18% of payments. 

According to McKinsey, over 66% of consumers expect to have at least one digital wallet by 2024. P2P is also expected to grow in the wake of the new FedNow system launched in the summer of 2023.

In short, consumers want choice. A merchant only accepting cash or card payments risks alienating a significant segment of their customers who would prefer other payment options. In such a competitive environment (especially online), ignoring customer choices could send them straight to a competitor.

Flexibility

Flexibility refers to a consumer’s ability to choose when and how they pay. In-app payments, self-checkout kiosks and text-to-pay are just a few solutions that offer customers the flexibility to pay how they choose. 

BNPL programs are an ideal example of how businesses can offer customers more flexibility. BNPL allows customers to defer their spending and make larger purchases in a way that charges them less than a credit card might. According to McKinsey, 28% of consumers in the U.S. in 2022. used BNPL—proof that there is an appetite for flexible payment options.

Point of Sale (POS) financing is another option many merchants offer customers to maximize flexibility. POS lending offers customers a short-term loan—often at low or no interest for a set time—that they can apply for at checkout. The process is swift and generally involves much less scrutiny than a bank loan.

Rewards

For decades, rewards have been a strategy brands use to build customer loyalty. Credit card networks entice consumers with the best travel or cash-back rewards programs, and merchants launch loyalty programs to incentivize customers to shop in one place. Customer reward programs used to be a novelty, but today, they’re expected. 

Consumers are accustomed to seeing rewards nearly everywhere. Even the one thing that previously drove customers away from rewards—the hassle of carrying multiple cards—has been eliminated by digital wallets. Most large companies have customer reward and loyalty programs; small- and medium-sized businesses (SMBs) must do the same.

For merchants, the pressure to offer customers rewards is mounting. Fortunately, modern payment systems make it easy to integrate rewards, ranging from digitized stamp cards to more complex points-based offerings. Referrizer, Boomerangme and Fivestars are all loyalty management systems designed to help SMBs reward their customers.

How Payment Providers Can Meet Consumer Expectations

Merchants must meet their consumers’ ever-evolving expectations. Fortunately, these changes are primarily technology-driven, which means technology can also solve the problem.

In a complex and ever-evolving space like payments, you must ensure your merchants’ tech stacks align with consumer habits and expectations. The best way to do this is by centralizing payment operations through a partner. The best partner will single-handedly provide everything you need to offer a convenient, flexible, modern payments experience. 

Partnering shifts the responsibility of adapting to consumer trends away from yourself and your merchants. The partner acts not only as a source of payment processing, hardware and value-added services but also as a trusted advisor who will keep your business successful.

Choosing a Frictionless, Modular, Omnichannel Payments Partner

NMI’s omnichannel payments platform offers everything your business needs to make payments easy while staying competitive and relevant. Our modular platform lets merchants choose which features to use to meet their business needs.

Partnering with NMI allows you to offer merchants the easiest, most frictionless and innovative one-stop payments solution available. To learn more about how NMI can keep your payment offerings at the cutting edge of evolving consumer demands, reach out to our team today.