Mobile Wallet Usage Is Growing at The Expense of Cash And Credit Cards, Says FIS

Cash purchases fell to historic lows in 2020 as consumers shifted their payment preferences to contactless technologies such as mobile wallets, according to the 2021 Global Payments Report by Worldpay from FIS Inc.

Cash transactions represented just 20.5% of global point-of-sale volume in 2020, down from 30.2% 2019, according to the FIS report. In North America, cash transactions totaled 11.4% of transactions at the point of sale in 2020, down from 14.6% in 2019. The decline in the use of cash is expected to continue. By 2024, cash transactions at the point-of-sale in North America are expected total just 8.7%, according to the report.

Mobile wallets and prepaid cards were the primary beneficiaries of cash’s decline. The use of mobile wallets at the point of sale totaled 9.6% of POS transactions in 2020, up from 6% in 2019, a 60% increase. In 2024, use of mobile wallets is projected to hit 15.5% of POS transactions. 

Prepaid cards more than doubled as a percentage of POS transactions, accounting for a 3.9% share in 2020 compared to 1.9% in 2019. The growth is largely attributable to use of prepaid cards as a way to disburse Covid-19 pandemic relief funds. “The ongoing use of open-loop prepaid cards for public entitlements and increasing use for corporate expenses and real-time gig-economy payments will result in continued strength in prepaid card segments,” the report says.

The explosion in e-commerce sales during the pandemic also benefited mobile wallets. Mobile wallets accounted for 29.3% of e-commerce transactions in North America, up from 23.7% in 2019. That share is projected to hit 40.5% in 2024. 

“Mobile wallets have reached a tipping point in the e-commerce landscape thanks to the growing presence of such wallet providers as PayPal, Apple Pay and Google,” says Jason Pavona, general manager for North America at Jacksonville, Fla.-based FIS. “Use of mobile wallets will continue to expand, especially as they are tied into other parts of consumer’s financial world, such as banking.”  

When it comes to e-commerce, the increased use of debit cards also is taking a bite out of credit card transactions. Credit cards, which are the primary payment method for e-commerce purchases, accounted for 32% of these transactions in 2020, down from 34.4% in 2019. On the other hand, debit cards accounted for a 20.1% share in 2020, compared to 17.6% in 2019. 

Credit cards are projected to drop further, accounting for 26.7% of e-commerce transactions by 2024, with debit cards taking a 19.5% share. “What we saw in 2020 is that a lot of younger [people] that prefer to pay with a debit make e-commerce transactions,” Pavona says. 

Buy now, pay later is another fast-growing payment option. In 2020, BNPL options accounted for 1.6% of e-commerce transactions, compared to 0.9% in 2019, and are expected to total 4.5% in 2024.

“Buy now, pay later is a good way for people without access to credit, such as the underbanked, to access and manage credit,” Pavona says. 

POS financing, which is instant financing offered through merchants that consumers can obtain at the point-of-sale, was another option that experienced rapid growth. POS financing, which was not tracked by FIS in 2019, accounted for 3.9% of POS transactions in 2020. 

“This is another mechanism for merchants to build out and deepen relationships with consumers, which helps recover the cost of the customer acquisition,” Pavona says.

Looking ahead, Pavona says merchants are expected to find new ways for consumers to spend loyalty points when making a purchase. “This helps offset the cost of the purchase for the consumer, which usually increases their spend,” says Pavona. “Merchants are also finding that consumers want to leverage loyalty points across all sales channels. Loyalty points have value to consumers, but if they can’t spend them when and how they want, they lose value.”