McKinsey’s 2019 US Digital Payments Survey confirmed that digital wallets have moved well beyond the “fad” stage and into the mainstream. More than three-quarters of US consumers surveyed made a mobile digital payment of some type—online, in store, or in-app—in the past twelve months. Overall penetration of digital payments has exceeded 70 percent in each of the survey’s past four years, suggesting adoption may be starting to plateau. And the number of consumers using two or more forms of digital payments reached 45 percent in 2019 (Exhibit 1). The survey, conducted annually since 2015, tracks data from over 1,800 US respondents on current and future digital payments behaviors.
Alternative digital payments, while further back in the adoption curve, have also shown a meaningful uptick in both usage and consideration (Exhibit 2). Thirty-eight percent of survey respondents reported using an alternative payment vehicle in 2019, up from 25 percent a year earlier. Moreover, the number of consumers expressing interest in these solutions also grew, indicating ample room for further adoption. The most common of these services—and also fastest growing—is digital point-of-sale (POS) loans. A variety of POS-loan business models are emerging; one example, Afterpay, does not charge interest but imposes penalty fees for late payments. Another, Affirm, applies a more conventional interest-based installment structure, although many of its loan rates are subsidized by the merchant. The real-time availability of such funding has seen early success in areas like home improvement, furniture, appliances, medical bills, and travel.
Another growing alternative payments channel in the US is related to the ongoing adoption of “smart home” devices (e.g., Amazon Alexa, Google Home). An increasing number of consumers appear to be comfortable with this method. Twenty-eight percent of the consumers we surveyed own a smart device (up from 21 percent in 2018); of that group, 39 percent have used their device to purchase goods or services (up from one-third in 2018). This adds up to 11 percent of consumers using smart devices as a payments vehicle/channel. Among non-adopters, the most frequently cited barrier was security/trust, although more than a third pointed to the lack of additional incentives as a reason for not using the “smart device” channel for payments, suggesting an opportunity for marketing programs to increase growth.
Trust and rewards are recurring themes in consumer engagement with digital payments. As detailed in our previous article, US digital consumers’ trust in tech companies has essentially reached parity with banks. Among ioS users the ratings of Apple and banks are within sampling error. Interestingly, banks retain a lead over Google with Android users, but both trail PayPal. Nonetheless, the majority of consumers continue to view their bank as the preferred provider of their digital wallet.
US consumers are starting to use their digital wallets the way they use their traditional leather counterparts; roughly two-thirds of those we surveyed toggle between digital cards to select the one most fitting to the transaction at hand. For card providers, the effort to gain digital wallet space remains worthwhile, however—the average number of cards loaded remains just below two across all digital wallet brands. Interestingly, while conventional wisdom would say that younger consumers tend to be more tech-savvy and likely to manage their wallets more actively, our research indicates that Millennials, Baby Boomers, and Gen Xers don’t behave that differently.
The path to further adoption, regardless of wallet provider, runs through rewards. A majority of US consumers we surveyed cite deals and offers as the primary motivator for wallet use, even ahead of specific debit or credit card capabilities. The ideal consumer-centric wallet—based on our survey—would be a deal-centered solution combining a simple payment experience and financial management tools with automatic loading of merchant coupons and the ability to both earn and pay with accumulated points.
Despite the significant media attention afforded to cryptocurrencies, they remain the least-used alternative payments methods we measured with only 6 percent currently owning or using them. Our survey was conducted in August 2019, as coverage of the Libra[1] coalition was first building. (On the other hand, it was before the most familiar payments-oriented names—Visa, Mastercard, PayPal—withdrew from the coalition). Regardless, it appears Libra has further work ahead to build awareness as well as enthusiasm. The 32 percent of consumers surveyed who had heard of Libra were evenly split between interest and lack of interest in using it. The desire for a single global currency (52 percent) and lower transaction costs (47 percent) were the most common reasons for interest in Libra. On the other side of the ledger, lack of trust in the currency (74 percent) and privacy concerns (52 percent) were the primary objections.
McKinsey will conduct its sixth US Digital Payments Survey in the second half of 2020, at which point we’ll learn how far these additional digital payments products and services have progressed along the adoption curve.
[1] Libra is Facebook’s global cryptocurrency built on blockchain and governed by the Libra Association, an independent Swiss not-for-profit organization.