How customer payment method preferences have changed and what you should do about it.
Customer payment preferences have changed as we adapt to a new financial reality. In the latest Carat Insights finding we analyzed over $3 trillion in payments data, combined with a consumer survey of 2,200 Americans to understand how and why payment methods have changed, from the start of the pandemic in Q1 2020 to today in Q3 2021.
#1 online payment method is debit and continues its lead against credit. Online sales volume for debit grew by 74%, whereas credit only increased by 33% when comparing the start of the pandemic to today.
59% of Millennials and Gen Z are driving the use of debit cards online because they prefer control, whereas 62% of Seniors prefer credit cards because they prefer benefits.
30% of Americans have used Buy Now Pay Later (BNPL) installment payments in Q3 2021, up from 23% in Q2 2021. It is popular across all demographics, signaling a strong alternative to credit
We examined three essential questions to understand customer behavior, describe the key takeaways, and detail the actions merchants can take to improve their business.
What are the customer preferences?
The pandemic has shifted the way customers pay. Our data reveals that debit continues to widen its lead as the #1 online payment method.
#1 customer preference for online purchases is debit and it continues to widen its lead against credit
Customer preference for debit increased by 3% to 48%, credit decreased by 3% to 36%, and digital wallet stayed the same at 11% for online purchases
Online customer usage of debit continues to grow and outpace credit
Online sales volume for debit grew by 74%, whereas credit only increased by 33% compared to the start of the pandemic to today
Debit is the customer’s favorite within digital wallets and driving their rapid growth
Of the 658% increase usage of digital wallets in online sales volume since the start of the pandemic, 51% of customers use debit, 29% use credit, and 17% use stored value in their digital wallets
How do demographics play in payment options?
Analyzing a large range of customers, from Gen Z to baby boomers, reveals that demographics are key to understanding why certain segments prefer debit or credit.
Customers who are younger, unemployed, with lower income, are driving the use of debit for online purchases. Customers who prefer debit name their main reason as the need to control and budget their finances closely.
Customers who are older, with higher education, higher income prefer credit for online purchases. Customers who prefer credit cite their top reason as receiving benefits for making transactions
What’s next for customers?
Customers now have a variety of options when paying for goods and services. We deep dive into why customers are choosing Buy Now Pay Later (BNPL) installment options as a strong alternative to debit and credit.
BNPL usage during the pandemic has continued to increase and is expected to grow
BNPL usage increased from 23% in Q2 2021 to 30% in Q3 2021
BNPL is popular across all demographics for different reasons
The younger generation, who are driving the growth of BNPL, cite the need to control their finances closely, and they use installments as a substitute for credit
Customers with higher income and access to credit are using BNPL because they prefer the flexibility of installment plans
What should merchants do next?
To adapt to changing customer preferences and payment options, merchants can take the following actions:
Since payment method preferences are strongly linked to demographics, merchants should engage specific segments of their customers in different ways:
The younger generation prefers debit because they are focused on budgeting their finances. Merchants can engage with these customers by leveraging social platforms to attract this cohort and sending targeted promotions with an emphasis on cost reduction