If you have been following financial news over the last ten years, both paper money and the credit card have been predicted to die multiple times since the early days of The Great Recession. It seems reports of those deaths have been somewhat exaggerated. As anyone in a checkout line knows, people still carry out transactions with both. However, usage of these traditional methods of payment are down, and some exciting cashless options are becoming more mainstream. This a trend that retailers should keep a close eye on in 2017 and beyond.
What’s In A Millennial’s Billfold? (Hint: Not Cash)
Traditional paper money hasn’t gone anywhere, but prevailing attitudes about cash are shifting, just much slower than predicted a few years ago. Baby Boomers and Generation X-ers are still hanging on to cash, typically opting not to use a credit or debit card for any purchase under $10.
Younger adults, however, are a different story. A 2015 survey of Millennials indicated that 40% of respondents said they would prefer to forego the use of cash completely.They prefer to use debit cards for purchases and as mobile pay and other cashless transaction options become more mainstream, odds are that the number of Millennials and people across all generations will see less use for cash. Currently, nearly 50% of all transactions involve non-cash payment including credit cards and mobile pay options.
Young Americans Are Snubbing Plastic Credit Cards, Too
Despite their lack of interest in carrying cash, Millennials are not necessarily replacing paper notes with plastic credit cards. The use of credit cards declined sharply during the Great Recession across all generations of consumers, for obvious reasons. Younger Americans, in particular, became turned off by credit during this time, and they haven’t warmed up to the idea since. Around 67% of Millennials do not own a single credit card. Finance gurus believe this is because they came of age in a harsh economic climate, and as they graduate college with staggering debt, they don’t want to dig themselves further into a hole.
If young adults don’t want plastic credit cards and they don’t like cash, how, exactly do they want to pay for goods and service? The answer may lie in mobile payment technology.
The Technology Poised To Replace Cash and Plastic
Mobile payments have been around for some time now. Google Wallet launched in 2011, with Apple Pay, Android Pay and Samsung Pay rolling out by 2015. While these mobile-app based cashless methods have been slow to catch on and hit the mainstream, innovators have seen the opportunity available and have noted the Millennial writing on the wall, finding new ways to provide easy, secure cashless transactions including:
- clearXchange: This partnership between JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co and U.S. Bancorp allows customers to transfer money from person to person across member banks, making it simple to pay at checkout and split bills between friends and family.
- Venmo: Owned by PayPal, Venmo is the forefather to clearXchange, but it allows users to transfer money between people, regardless of banking institution.
- Google Hands Free: A mobile payment application that allows the user to pay at the register without removing their phone from their pocket or bag.
- Wearable tech: Wearable tech like Apple Watch, Samsung watches, Lyle & Scott’s contactless payment jacket, Disney’s MagicBand and a Visa ring allow customers to pay just by proximity.
- Amazon: The pilot Amazon Go store program allows shoppers to enter a store, pick up what they want, and get billed automatically when they walk out the door with no checkout station required.
- Social payments: Users can buy products directly from Social media platforms, without having to exit the site.
Globally, mobile payments are taking off. In 2016, 57% of all transactions in Canada were mobile, 59% of all transactions in Sweden and France were mobile, and 60% of transactions in The Netherlands and Singapore were mobile. The United States isn’t too far behind, logging a 45% cashless transaction rate in 2016. As the technology becomes more reliable and mainstream, cashless payments will become nearly as common as debit card transactions. In 2015, mobile payment revenues fell over $4560 billion, and projections by 2018 are in the ballpark of $1 trillion.
The death of the plastic credit card will continue to drag out, but tides are shifting thanks to Millennial attitudes about debt and cash as well as their desire for convenience and speed. Retailers should keep a close eye on this trend, as offering mobile payment options could help solidify relationships with Millennials, who are expected to spend more than $200 billion this year and more than $10 trillion in their lifetime. Retailers who are late to the mobile pay party will stand to leave significant dollars on the table, and may find themselves struggling to remain competitive.