The pandemic fueled an unprecedented increase in debit spending in 2020, according to a study. Closures, stay-at-home mandates and reduced store hours led consumers to shop less frequently. Still, they made larger purchases when they did — and because of economic uncertainty, debit was the highly preferred payment method over credit for these purchases.
The simultaneous need to migrate from physical to digital commerce also meant that card-not-present (CNP) transactions — including account-to-account (A2A) money transfers — surged, increasing 23% year over year, making up more than one-third of all debit transactions last year.
A2A money transfers using debit are soaring, with A2A transactions — including those made via peer-to-peer (P2P) wallets — per active debit card per month leaping nearly 60% in 2020, following 100% growth in 2019. Consumers are increasingly turning to these solutions to send or accept funds, not just quickly but instantly. One study predicted that approximately 20% of Americans will be using Zelle by the end of the year, for example, and nearly 30% will be using Venmo.
Support for speedier payment methods is growing critical for consumer payments and B2B transactions as instant payment tools become the preferred way for individuals to send and receive payments. The following Deep Dive examines debit’s role in the rise of A2A transfers, especially through the growth in use of mobile wallets, such as Zelle and Venmo, and how both consumer-facing and B2B merchants can take advantage of such trends.
The Dawn of A2A and Debit’s Role
A2A transfers are swiftly overtaking more traditional payment methods, such as cash or plastic cards, at the physical and digital point of sale (POS) globally. One study found that A2A payments currently account for 13% of all checkouts in Europe and nearly 6% of all checkouts in the U.S., for example. Seizing the A2A opportunity requires merchants to understand how, and most importantly, why A2A payments are rising to prominence among consumers and businesses.
The main factor driving the boom in A2A transfers is the growing popularity of contactless payment methods, including mobile apps that support instant payments. One report found that the U.S.’s top digital or money transfer apps experienced a record 35 million downloads in the second quarter of 2020 alone — a 53% increase over Q2 2019. Consumers are also unlikely to put aside their mobile payment apps now that many retailers are reopening their physical locations. Another study predicted that U.S. customers will send nearly $1.2 trillion via mobile wallets by 2023, including Square’s Cash App, Venmo and bank-owned Zelle.
Many consumers were adopting mobile-optimized payment methods before the health crisis, naturally, but touchless payments are rapidly replacing other payment tools at the POS. This is especially the case among younger consumers, such as millennials and members of Generation Z. PYMNTS data showed that more than 64% of bridge millennials — those 33 to 43 years old — use digital wallets to pay at physical stores, while 24% have used contactless credit and debit cards to make such purchases. The pandemic boosted debit spending, but members of younger generations, especially those belonging to Gen Z, are increasingly eschewing credit in favor of debit when making purchases. One study found this generation would even prefer to make payments in cash than use credit cards.
This indicates that younger consumers are likely to maintain both their use of touchless payments and their preference for debit as the underpinning payment rail of their favored mobile and P2P wallets, thus fueling A2A’s growth. The draw of instant payment tools also influences the B2B payments space, making it critical for companies to carefully examine how A2A payments may play a role in their B2B processes.