Dear Diary – The Secrets of US Consumer Payment Choice

Glen Sarvady July 23rd, 2018

The Federal Reserve remains the go-to source for authoritative data on the US payments system. In most cases – such as with the Payments Study the Fed issues every three years – the data is gathered from financial institutions. Add some behavioral data collected directly from consumers into the mix, though, and things get really interesting.

That’s what the Fed does with its Survey of Consumer Payment Choice and Diary of Consumer Payment Choice studies. A panel of randomly selected consumers catalogs their spending events for three days, along with associated info on usage and attitudes of various instruments. This combination of the quantitative and qualitative paints a compelling picture of the current state of US consumer payments.

Deluxe recently spoke with Claire Greene, who works on these projects for the Federal Reserve Bank of Atlanta and shared some of the latest insights; check out our webinar, Consumers’ Role in the Payments Transformation, to learn more. Some of the findings confirm commonly held beliefs, while others serve to shatter myths. Here are a few examples:

We’re very good at launching new payment options, but not at retiring old ones

The number of payment instruments available to consumers continues to increase. Claire documents fifteen of them, up from ten as recently as the 1980’s and note this doesn’t even include the spiraling number of credit and prepaid cards in the average wallet.

Yet not one single payment instrument has gone away to even the scales (in case you were wondering, yes, traveler’s checks still exist). Part of the reason is that consumers are making more payments per person than ever and spreading them across all of these alternatives.

Neither cash nor checks are going away anytime soon

Although checks are the one instrument showing a distinct downward trend in number of absolute consumer payments, the rate of decline has slowed meaningfully, and the fact remains that nearly 80 percent of Americans still include checks in their payments arsenal. Interestingly, despite anecdotal tales of cash’s demise, Fed data shows that nearly 100 percent of consumers still have cash on hand or use cash in the course of a year and that the number of overall cash transactions has essentially remained stable over the past seven years, within rounding error.

Similarly, the e-commerce phenomenon must be kept in perspective

In percentage terms, the growth in online sales is remarkable. Viewed through another lens, however, nearly 90 percent of US goods and services continue to be purchased in person. There’s a big change going on that must be addressed, but it would be folly to ignore nine-tenths of the market in the process.

High- and low-income individuals make quite different payment decisions

This fact may be at the root of cash misperceptions. American consumers making less than $25,000 a year conduct 44% of their transactions with cash more than double the rate of those making $100K plus. On the other hand, that high-income demographic uses credit cards at more than four times the rate of the least wealthy cohort.

Despite numerous high-profile data breaches, the concept of “security” has only moderate impact on consumer behavior

The notion of security can carry several different meanings. According to the Fed’s research, only threats to one’s financial wealth (as opposed to exposure of personal information, for instance) has an impact on payment instrument decisions.

Perhaps the overriding message is “old habits die hard.” Payment patterns are undeniably changing, continually shifting toward digital channels. It’s simply not happening nearly as quickly as the prevailing narrative tends to imply- probably because “slow and steady” makes for a lousy headline.

Claire and I discuss these and other topics in greater detail on Deluxe’s recent webinar, Consumers’ Role in the Payments Transformation, along with bank strategies to address these changing behaviors.

This content is accurate at the time of publication and may not be updated.