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How do different service providers get paid?
Hello! Thanks for your question about payments methods for different service providers. The short version is that, between 2012 and 2015, Debit card payments grew by 23% in numbers to 69.5 billion transactions while transaction values increased by 22% to $2.56 trillion. Credit card payments grew by 26% in numbers to 33.8 billion transactions while transaction values increased by 24% to $3.16 trillion. Consumers prefer to use ACH transfers for making payments for utilities and financial services while cards are preferred for discretionary spending such as on entertainment, e-commerce stores and digital media. Below you will find a deep dive of my findings.
METHODOLOGY
To complete this request, I reviewed the following information sources: Corporate websites, Industry reports, and Trusted media sites. A study by the Federal Reserve on payment patterns in the US was the main source for most of the inferences made in the report. The report by the Federal Reserve is based on payment trends in the U.S. market in 2015. It was the latest available data. Similarly, Deloitte's overview of Default payments: Credit card, Debit card and bank account payment methods, was the main resource in providing data on the use of diverse non-cash payment methods across different products or industries.
While I was unable to find data on the number of businesses that only accept ACH and checks, I found data on payments channels that merchants will accept over the next five years.
FINDINGS
The report provides an overview of the broad trends in the payment industry in the U.S. followed by payment methods in different products or industries.
OVERVIEW OF PAYMENT INDUSTRY
The Federal Reserve study provides on overview of non-cash payment methods in 2015 with a comparison to a similar study of payment trends in 2012. Over the 5 years, the number of non-cash transactions has increased by 17% to 144 billion while their value has surged by 11% to $178 trillion. Annually, total non-cash payments have increased at an annual rate of at a rate of 5.3% by number and 3.4% by value. On the non-cash items, the payment methods in the U.S. payment industry between 2012 and changed as follows:
- Debit card payments grew by 23% in numbers to 69.5 billion transactions while transaction values increased by 22% to $2.56 trillion.
- Credit card payments grew by 26% in numbers to 33.8 billion transactions while transaction values increased by 24% to $3.16 trillion.
- Total ACH payments grew by 15% in numbers to 23.5 billion transactions while transaction values increased by 13% to $145.30 trillion.
- Check payments fell by 17% in numbers to 17.3 billion transactions while transaction values increased by 1.5% to $26.83 trillion.
The data shows the highest growth is in credit cards and debit cards both by value and number of transactions. Of the 3 payment methods with positive growth over the five years, ACH payments have the lowest growth indicating a preference for the other two channels. Check payments is the only payment method that registered a decline in the number of transactions and transaction value. Increased use of digital payments is likely to further weigh down on the use of checks in favor of debit and credit cards.
CONSUMER TRENDS IN USE OF DIGITAL PAYMENTS
Consumers use of cards takes precedence over use of ACH transfers and checks. In 2015, a review of the number of transactions per household per month revealed that Debit cards accounted for 57%, 45 transactions, while Credit cards totaled 24%, 19.3 transactions, of the total number of non-cash household transactions. Both ACH transfers and checks accounted for 7.1 transactions, representing 9% of the total.
Deloitte's survey shows that consumer payment methods vary by the type of merchant or category of service provider. For regular payments that a fixed item on a consumers budget, most people prefer the use of ACH transfers. Specifically, consumers utilize the payment method to pay for mortgages, insurance premiums, rent and other utility transactions. However, in regard to cards, consumers prefer to use them for discretionary spending such as on entertainment, e-commerce stores and digital media.
Deloitte highlighted 18 product categories and identified the patterns of consumer payments when paying for the products. Out of the list, ACH is the most preferred channel for payment of financial services (85%), rent (66%), automotive (60%), utility (63%), gas station (46%) and cable (41%). On credit cards, consumers prefer them as the top payment methods for transportation (53%), electronics (51%), e-commerce retailers (44%), digital media (43%) and hobbies (41%). Most consumers use their debit cards to shop for groceries/supermarkets (29%), Cable payment (25%), electronic appliances (24%) and clothing (23%).
BUSINESS MERCHANTS TRENDS IN USE OF DIGITAL PAYMENTS
JP Morgan initiated a survey on merchants seeking, among other things, to get their views on the payment methods that they will be accepting over the next five years. Based merchant responses, the order of preference by merchants on the non-cash payment methods is as follows: digital wallet (69%), credit card (69%), debit card (54%), cash (37%) and ACH transfers (27%). This speaks to their preference over diverse payment channels. Notably, the use of checks is not featured, implying that its use is likely to continue declining.
Businesses used ACH more frequently as compared to consumers. The preference emerges from the direct control and relatively lower risk afforded to users. By value, in 2015, businesses made 9.6 million ACH credit transfer and another 1.2 million ACH debit transfer transactions. The use of checks came in second with 8.7 million transactions. The two payment methods offer cost advantages over cards for processing of large business transaction hence their preference by most businesses in making payments to suppliers. Additionally, businesses prefer checks due to ease of record keeping while their choice for cards is partly motivated by the rewards they earn on purchases.
CONCLUSION
To wrap it up, between 2012 and 2015, Debit card payments grew by 23% in numbers to 69.5 billion transactions while transaction values increased by 22% to $2.56 trillion. Credit card payments grew by 26% in numbers to 33.8 billion transactions while transaction values increased by 24% to $3.16 trillion. Consumers prefer to use ACH transfers for making payments for utilities and financial services while cards are preferred for discretionary spending such as on entertainment, e-commerce stores and digital media.