Inflation Increasing Consumer, Merchant Use of Digital Payments

“Belt tightening is something we are seeing across the economy, and everyone is trying to squeeze more out of the payment process.”

That’s what Tom Donovan, principal solution consultant at ACI Worldwide, told PYMNTS in an interview, adding the preference for digital payments in a period of macro uncertainty has had some positive impact for consumers, banks and merchant. The evolution of payments technologies has improved security for users — and cash flow for the firms they do business with. Additionally, he said, the pandemic has driven the adoption of alternative payment methods.

“Many people that were not all that familiar with contactless payments, especially with in-person retail situations, became much more familiar with those options,” said Donovan.

As a result, contactless card payments and mobile wallets moved more visibly to the forefront of everyday commerce. Apple Pay, Google Pay and wearables have all seen a surge in use by consumers, said Donovan.

Banks’ mobile initiatives have benefited as a result. Preference for payment via a biller’s or bank’s mobile app or wallet saw increases of more than 3% in the last six months alone. The shift to self-service models was a natural evolution as visiting a teller in person, going to the store or post office, and grappling with paper checks became real challenges.

The Other Side of the Coin

There’s still room for improvement — for financial institutions (FIs) and merchants to fill the gaps between the technological advances that are expected, and what is actually on offer. ACI and PYMNTS research found that 94% of executives said digital billing capabilities are essential for growth, and 89% said having digital payment capabilities is important.

But generally speaking, people are resistant to change, Donovan said.

“Even executives are resistant to change,” he added, across the C-suite, and even including chief information officers and chief technology officers worried about spending in such a volatile environment.

Rising inflation has had some ripple effects on the other side of the transaction, too. Donovan noted that an increasing number of merchants have been pivoting to present consumers with a range of less-expensive payment options in a bid to preserve margins.

Lower interchange fees boost impact on margins, and so it shouldn’t be a surprise that retailers and even utilities have been trying to push debit payments a bit harder, Donovan said, as well as automated clearing house (ACH), which is still one of the cheapest payment options.

But, said Donovan, “I think that when we can make a good case to these executives that ‘you will have higher revenue, you [gain] more transactions and you will sell more products or get more payments, simply by enabling additional channels,’” that helps executives get on board.

And in positing a roadmap for those digital efforts and development, Donovan said companies should strive to craft payments offerings and experiences that consumers can use like a toothbrush — several times a day. Digital wallets fit the bill here, he said, but the onus is on the enterprises to make sure that the consumer crosses the proverbial Rubicon and actually tries a new payment option, such as Apple Pay, to name but one example that can be offered up by billers. Eventually, what is novel and new becomes tried and true.

“Consumers are much more likely to use these alternative, digital offers because it’s convenient and there is no additional cost,” said Donovan.