Overview:

Businesses routinely seek to appeal to consumers by understanding which goods or services they want to buy. But understanding how shoppers prefer to buy—that is, which forms of payments they favor, and why—is also critically important. Marketers, retailers, card associations and other product and service providers hope to make transactions easy and convenient for consumers, but they must also balance these requirements against their own needs. Meanwhile, in the post-recession U.S. marketplace the world of payments keeps evolving as consumers back away from credit cards, debit cards move toward saturation, online payment options proliferate, and contactless payments and mobile payments move closer on the horizon.

This all-new report from Packaged Facts examines consumer payment forms of all kinds, including credit cards, debit cards, gift/prepaid cards, cash, checks, online payment and emerging forms, with a focus on how consumer preferences have changed during the past five years and vis-à-vis the economic downturn and recovery. It includes:

• Analysis of how Americans’ financial outlook influences their spending and payment preferences.

• Demographic and psychographic profiling by payment form and consumer age, gender, race, geographic region, income, educational level, etc.

• Focus chapter on cash, whose straightforwardness and immediacy makes it the payment choice of more than half of U.S. adults.

• Focus chapter on checks, which despite declining usage remain popular for bill paying and are getting new legs via “digital reinvention.”

• Focus chapter on credit cards, which have reached saturation and face other challenges including more restrictive legislation and declining usage among consumers looking to reduce their debt.

• Focus chapter on debit cards, which continue to win followers but whose rise may be diverted by laws restricting overdraft fees.

• Coverage of gift cards and other prepaid debit cards, which are creating a fast-growing “second-tier” banking system for those without access to traditional banks.

• Focus chapter on new payment methods, including contactless, cell phone and Internet-based, all of which are jockeying for position in the next wave of payment forms.

Myriad data sources include primary data compiled by Experian Simmons and cross-tabulated by Packaged Facts to create customized profiles of those consumers shaping the U.S. payments industry now and into the future.

Consumer Payment Trends in the U.S.

Chapter 1: Executive Summary

Scope of Report

Methodology

Check Remains Most Popular Form of Bill Payment

Table 1-1: Mode of Bill Payment, 2009 (percent of U.S. adults and number in millions)

Debit Cards Lead in Non-Cash Transactions

Electronic Payment Share at 63%

Government Study Confirms Market Directions

Cash: Still Preferred by Over Half of Adults Making Purchases

Checks: Also Still in Use by Over Half of Americans

Credit Cards: Over Half of Americans Are Regular Users

Debit Cards: Popularity Still Rising, But at Slower Rate

Gift Cards, Prepaid Debit Cards, and Money Orders

Online Payments

Figure 1-1: Percentage of U.S. Adults Who Used Online Banking in Last 30 Days, 2004-2009

Spending Attitudes and Economic Sentiment

A Stuttering Recovery

Economic Downturn Dampens Americans’ Sense of Financial Security

Table 1-2: Percentage of U.S. Adults Who Agree or Disagree with the Statement: “I Feel Secure Financially,” 2004-2009

Attitudes Toward Economy and Individual Financial Situation

Financially Secure Big on Credit, Checks

Figure 1-2: Payment Preferences Among the Financially Secure, 2009 (index)

Financially Insecure Lean Toward Money Orders, Debit
 

Chapter 2: Market Overview

Introduction

Scope of Report

Methodology

Payment Trend Overview

Check Remains Most Popular Form of Bill Payment

Table 2-1: Payment Preferences in the U.S., 2009 (percent of U.S. adults and number in millions)

Table 2-2: Mode of Bill Payment, 2009 (percent of U.S. adults and number in millions)

Debit Cards Lead in Non-Cash Transactions

Figure 2-1: Percentage of U.S. Non-Cash Payment Transactions: By Type, 2009

BAI/Hitachi Study Places Electronic Payment Share at 63%

Government Study Confirms Market Directions

Figure 2-2: Percentage Share of Non-Cash Payments: By Type, 2003 vs. 2006

Cash: Still Preferred by Over Half of Adults Making Purchases

Table 2-3: Percentage of U.S. Adults Who Agree with the Statement: “I Often Prefer to Pay Cash for the Things I Buy,” 2004-2009

Checks: Also Still in Use by Over Half of Americans

Figure 2-3: Percentage of U.S. Adults Who Have a Checking (Interest or Non-Interest) or Check Guarantee Card, 2004-2009

Credit Cards: Over Half of Americans Are Regular Users

Table 2-4: Credit Card Ownership and Usage: By Frequency, 2004- 2009 (percent)

Debit Cards: Popularity Still Rising, But at Slower Rate

Table 2-5: Debit Card Ownership and Usage, 2004-2009 (percent)

Gift Cards, Prepaid Debit Cards, and Money Orders

Figure 2-4: Percentage of Debit Card Users: Banked vs. Unbanked, 2009

Figure 2-5: Percentage of U.S. Adults Who Have Sent Money Within

the U.S. in the Last 12 Months, 2004-2009

Online Payments

Figure 2-6: Percentage of U.S. Adults Who Used Online Banking in Last 30 Days, 2004-2009

Spending Attitudes and Economic Sentiment

The Villains of the Crisis

A Stuttering Recovery

Economic Downturn Dampens Americans’ Sense of Financial Security

Table 2-6: Percentage of U.S. Adults Who Agree or Disagree with the Statement: “I Feel Secure Financially,” 2004-2009

Figure 2-7: Percentage of U.S. Adults Who Agree with the Statement: “I Don’t Like the Idea of Being in Debt,” 2004-2009

Attitudes Toward Economy and Individual Financial Situation

Figure 2-8: Expected Forms of Consumer Payment During Holiday Season, 2009 (percent)

Financial Situation Sentiments by Demographics

Figure 2-9: Percentage of U.S. Adults Who Feel Better or Worse Off

Financially Compared with 12 Months Ago, 2009

Age

Race

Income Levels

Education

Geographic Region

Marital Status and Children in Household

Impulse Shoppers and Informed Consumers

Consumer Financial Outlook Impact on Payment Preferences

Financially Secure Big on Credit, Checks

Figure 2-10: Payment Preferences Among the Financially Secure, 2009 (index)

Financially Insecure Lean Toward Money Orders, Debit

Figure 2-11: Payment Preferences Among the Financially Insecure, 2009 (index)

Responsible Spenders

Figure 2-12: Payment Preferences Among Responsible Spenders, 2009 (index)

Poor Savers and Careless Spenders

Figure 2-13: Payment Preferences Among Careless Spenders, 2009 (index)

Confident Consumers

Table 2-7: Payment Forms by Level of Consumer Confidence: Low vs. High, 2009 (index)

Payment Preferences by Demographics

Age

Table 2-8: Likelihood of Preferring Payment Forms: By Type and Age Group, 2009

Young Adults and Teens Picking Up Plastic

Gender

Race

Table 2-9: Likelihood of Preferring Payment Forms: By Type and Race/Ethnicity, 2009

Geography

Education

Table 2-10: Likelihood of Preferring Payment Forms: By Type and Level of Educational Attainment, 2009

Income

Table 2-11: Likelihood of Preferring Payment Forms: By Type and Household Annual Income, 2009
 

Chapter 3: Cash

Introduction

Cash Is Elemental

Almost $800 Billion of U.S. Cash in Circulation

Older and Less Wealthy Americans Prefer Cash

Table 3-1: Cash Usage for Purchases or Bill Payment by Demographic, 2009 (index)

Cash Preferred by Both Financially Secure and Insecure

Table 3-2: Cash Usage for Purchases or Bill Payment by Level of

Financial Security, 2009 (index)

Cash’s Popularity Difficult to Gauge

ATM Transactions Declining

Figure 3-1: Monthly Number of ATM Transactions Per ATM in the U.S., 1996-2008

Figure 3-2: Total Number of U.S. ATM Transactions, 1996-2008 (in billions)

Figure 3-3: Number of ATM Machines in the U.S., 1996-2008

Blame It on Debit Cards

Traveling Away from Cash

“Cash Only” Signs and Cash Discounts

A Second Coming of Cash

Turning to Cash in Hard Times

Calls to Redesign the Dollar
 

Chapter 4: Checks

Paper Checks Holding Out in Digital Age

Table 4-1: Number and Value of Checks Collected by Federal Reserve Banks, 1920-2003 (in millions of dollars and numbers)

The Fed’s Role in Check Processing

Figure 4-1: Number of Checks Paid in the United States: 2001, 2003 and 2006 (number in billions)

Electronic Checking Through ACH

Table 4-2: Percentage Share Distribution of Non-Cash Payments: By Type, 2003 vs. 2006

The Demographics of Check Writers

Table 4-3: Check Usage by Demographic, 2009 (index)

Responsible Spenders Use Checks

Table 4-4: Likelihood of Check Usage by Financial Attitudes, 2009 (index)

Checks Rare in the Retail Environment

Figure 4-2: Checks’ Share of Consumers’ Holiday Payment Methods, 2007-2009 (percent)

Overdrawn Checking Accounts a Cash Cow for Banks

Figure 4-3: Growth in Average NSF Charges, Fall 1998-Fall 2009

The Unbanked Rely on Check-Cashing Outlets

Looking Ahead: Digitalizing Deposits
 

Chapter 5: Credit Cards

The Rise of the Credit Card

Figure 5-1: Share of U.S. General-Purpose Debit, Credit and Charge Card Purchase Volume, 2008 (percent)

Figure 5-2: Share of U.S. General-Purpose Credit and Charge Card Purchase Volume, 2008 (percent)

Plastic Is Prevalent

Cards Cram the Wallet

Credit Cards for Everyone

Top Credit Card Demographics

One-Quarter of Americans Use Credit Cards for Bill Paying

Table 5-1: Credit Card Ownership, Usage in Past 30 Days, and Usage for Bill Payment: By Demographic, 2009 (index)

Cardholders Consider Themselves Financially Astute

Table 5-2: Likelihood of Credit Card Usage by Financial Attitudes, 2009 (index)

Carrying a Balance

Figure 5-3: Consumer Credit Card Balances: Paid-Off Monthly vs. Balance Carried, 2009 (percent)

Credit Trumps Debit for Pricey Items

Table 5-3: Preferred Payment Form by Spending Category: Credit Card vs. Debit Card, 2009 (percent)

Table 5-4: Purchasing and Spending Expectations Among Credit Card Owners: Overall and Users in Past 30 Days, 2009 (index)

Reward Cards Approaching 100%

Figure 5-4: Percentage Share of Credit Card Market: U.S. Rewards- Based Cards vs. General-Purpose Cards Without Rewards, 2003, 2007 and 2011

But Rewards Less Rewarding for Issuers and Consumers

The Shift Away from Credit

Table 5-5: Percentage Share Distribution of Non-Cash Payments: By Type, 2003 vs. 2006

Table 5-6: Revolving Consumer Debt: 2004-2009 (in billions of dollars)

Behind the Disenchantment with Credit

“Evil, Thieving Bastards”

Punctured Profitability

Table 5-7: Return on Assets: Large U.S. Credit Card Banks, 1986- 2008 (percent)

New Legislation Will Restrict Credit Card Industry

Table 5-8: Key Provisions of the Credit Card: Accountability, Responsibility and Disclosure (CARD) Act of 2009

Income from Interchange

Table 5-9: Changes in Visa and MasterCard Domestic Credit Card Interchange Fee Rates, Numbers, and Average Rates, 1991-2009

Interchange Under Attack

Security a Concern

Looking Ahead

End of Excess

Returning to Charge Roots

Shifting Fees, Diluted Rewards
 

Chapter 6: Debit Cards, Gift Cards and Prepaid Debit Cards

Debit Cards

Debit Cards Push Out in Front

Table 6-1: Percentage Share Distribution of Non-Cash Payments: By Type, 2003 vs. 2006

Recession Driving Even More Americans to Debit

Visa Dominates Debit

Debit Disadvantages for Consumers

Rise in Debit Card Ownership

Table 6-2: ATM/Debit Card Ownership and Frequency of Usage, 2004-2009 (percent)

Debit Card Demographics

Table 6-3: Likelihood of Debit Card Usage by Demographic, 2009 (index)

Heavy Debit Users Feel Financially Insecure

Table 6-4: Likelihood of ATM/Debit Card Ownership and Usage by Financial Attitudes, 2009 (index)

Rewards Programs Expected to Grow

The Tug-of-War Between PIN and Signature Debit

Consumers’ Stance on PIN and Signature Debit

Figure 6-1: Ranking of Payment Methods When Making a Purchase at a Grocery Store, 2008 (On a scale of 1 to 7, 1 being most preferred)

Cascading Overdraft Fees

Table 6-5: Percentage of Consumers Preferring That Debit Card Be Declined If Account Overdrawn: By Transaction Amount, 2008

Clamping Down on Overdraft

Gift Cards

Growth of the Gift Card

Size of Gift Card Market

Gift Cards Have Fallen from Their High

Table 6-6: Gift Card Purchasing in Last 12 Months: Overall and by Type and Brand, 2009 (percent)

But Gift Cards Still Advancing

Figure 6-2: Percentage of U.S. Shoppers Hoping to Receive Gift Cards During the Holiday Season, 2004-2009

Gift Card Drawbacks

Overspending or Not Spending at All

Prepaid Debit Cards

Prepaid Lifts Off

Table 6-7: Prepaid Card (Not Gift Card) Purchasing in Last 12 Months: Overall and by Brand, 2009 (percent)

The Plusses of Prepaid

Table 6-8: Very Important Reasons Consumers Choose Prepaid Debit, 2009 (percent)

The Prepaid Population

Figure 6-3: Ownership and Awareness of Prepaid Cards Among Check-Cashing Store Customers, 2009 (percent)

Funded by Fees

Secondary Banking System

Prepaid in the Public and Private Sectors

Payroll Cards

Looking Ahead

Debit on a Roll

Prepaid Well-Positioned

Decoupled Debit Looking for Traction
 

Chapter 7: Online, Alternative and Emerging Payment Forms

Online and Alternative Payments

Introduction

Online Bill Pay Catches on Quickly

Demographics of Online Bill Pay Users

Table 7-1: Online Bill Pay Usage by Demographic, 2009 (index and number in millions)

Alternative Payments Butt Heads with Cards

Table 7-2: Percentage of Transaction Volume: By Internet Payment Vehicle, 2005 vs. 2008 (in billions of dollars and percentage of transaction volume)

PayPal

Google Checkout

Amazon Payments

Bill Me Later

eBillMe

Zong, Boku, and Kwedit

RevolutionCard

Contactless Cards and Mobile Payments

Payments Without Contact

Contactless Not Connecting

Trends in Mobile Payments

Security Worries

Growing Interest

Awaiting a Breakthrough

Mobility Versatility

Peer-to-Peer Payments Going After Cash

Obopay

Eyes on the iPhone