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Lost in Transaction 2022: 5 key findings from our latest research on consumer payment habits

How has the skyrocketing cost of living changed customers’ payment preferences? What are their expectations moving forward, and how do they fit with the payment trends we've been observing over the past few years? In April this year, we interviewed 11,000 consumers in 10 countries across Europe and the Americas to find out.

Here are the five key take-aways from that research.

1. Customers want more control over their spending

With most households tightening their belts due to soaring prices, consumers are reconsidering how they pay online. 44% of respondents have changed their habits, with the majority switching to payment methods that track spending more accurately.

Of those who have changed the way they’re paying, debit cards are the most preferred online payment method overall. 59% of respondents paid with a debit card in the month prior to taking our survey — a 5% increase over 2021. Digital wallet use has also increased, two fifths (41%) are using them more than they did a year ago. 16% of those who changed their payment methods are paying with crypto more often. 

By contrast, credit-based payment methods are trending downwards, with one notable exception: credit cards. With overall usage standing at 51%, credit cards remain the second most popular payment method for online purchases after debit cards. They're also the preferred way to pay when the purchase is a long-haul flight, holiday, household appliance, or other big-ticket item.

2. Cash is going digital

While a majority of consumers (52%) are using it less often, cash is alive and well.

31% of in-person transactions are still paid in cash. More importantly, 59% of respondents think cash is the most reliable form of payment. And 70% would be worried if they couldn't access it anymore.

But the biggest signal cash is here to stay is its growing prominence as an online payment method.

Over the past 12 months, eCash payments — online transactions paid in cash — have increased. More to the point, 47% of respondents would prefer to make online purchases in cash, and 44% would buy online more often if they could pay in cash.

While our survey stopped short of asking respondents to explain the reasons for their desire to pay online in cash, the cost-of-living crisis is likely a factor.

26% of those who have changed their payment habits due to inflation are using eCash more often. This suggests they may be using it to rein in their online spending.

Consumers are also more aware of online fraud than ever, and far less willing to take chances. eCash can provide an added layer of security by making it possible to pay without sharing any sensitive financial details.

3. Online safety comes first, but not if it entails more friction

For 44% of respondents, security is the primary consideration when choosing how to pay online. This evidently needs to be addressed upfront in order to drive the first transaction. 70% also prefer not to share their financial details, and 62% would worry if they weren't asked for any security information before completing payment.

But while security is undoubtedly top of mind for most customers, that's not to say they're prepared to jump through an infinite number of hoops if this made online commerce safer. 

44% are happy with the current balance between security and convenience, and 23% would accept additional security measures only if the inconvenience were minimal.

4. Embedded payments' potential is still largely untapped

Embedded payment technology, which enables non-financial brands to integrate  payments into their user journeys, has attracted huge levels of interest in 2021.

Our research confirms its incredible potential, but even though many consumers have probably used embedded payment technology, 49% haven't heard of the term.

The good news is that 31% can see themselves using embedded payments within the next two years if they learn more about the technology and it becomes more widely available. The 51% who have heard of the term also feel positive about embedded payments, with the majority believing they’re safer than traditional payments.

Given consumers' lowering tolerance for risk and their unwillingness to accept more friction, embedded payments are a huge opportunity. By educating their customers about the technology's benefits — particularly how it can strike a better balance between security and convenience — merchants can boost trust and increase loyalty while building a healthy new revenue stream.

5. Neobank adoption has reached a tipping point

After a challenging period in the early stages of the pandemic, neobanks are back on track. App downloads spiked during 2021. And around half of the consumers we surveyed— 49% — are considering switching to a neobank.

Now that the bulk of everyday banking happens online, regardless of whether you use a neobank or an incumbent, it looks like customers increasingly perceive neobanks as being better value and more attuned to their needs. The most common reasons given for preferring neobanks to incumbents were that they have lower fees (41%); their apps are better (41%); and they have features that help you stay in control of your spending (40%).

But while neobanks have never been closer to mass adoption, they still have work to do. According to 57% of respondents, incumbents still have the edge when it comes to customer service. And while being digital-only may no longer be a deal-breaker, consumers are still worried about managing their finances entirely online, handing over their personal data, and not being able to deposit cash.

What’s next?

With inflation projected to rise further, customers are likely to become even more selective about how they spend their money online. At the same time, they'll also continue expecting to pay securely with minimal friction. A great, streamlined user experience is table stakes.

From a merchant's perspective, it's clear offering a broader mix of payments, including eCash, is a must. Customers want more flexibility and control. And forcing them to use a particular payment method simply won't cut it.

Crucially, to build stronger, lasting relationships, merchants have to engage and educate customers. While technologies like embedded payments can make payments safer and more convenient — and neobanks can offer better value — concerns and misconceptions won't go away unless they're tackled head on.

Want more in-depth insights on consumers' shifting attitudes to payments and how you can meet their expectations in the months and years ahead?

Read the full Lost In Transaction report: Consumer payment trends 2022: Navigating online payments in the age of uncertainty.

This article was originally published by Finance Derivative