When was the last time you cashed a physical check at a bank? Or counted out change at the register to buy groceries?
The way we make purchases, send money and receive payments is rapidly changing. Digital transactions are taking over, with worldwide digital payment amounts for 2019 expected to top $4.1 trillion. And that number is growing at an eye-popping rate of 12.8 percent each year.1
So what does this shift mean for your money? And how can you harness the power of digital payments to improve the safety and ease of your financial transactions?
Even if you don’t consider yourself particularly tech savvy, odds are digital payment methods have already found their way into your life. You bypassed the paper check and signed up for direct deposit of your weekly pay. You sent an e-payment to the IRS to cover your tax bill. Or you gave your gas company the go-ahead to auto-draft your monthly balance.
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From P2P to mobile wallet: 5 types of digital payments
Many financial institutions offer services through apps or online, supplementing their brick-and-mortar branches.
Online banking is efficient and free, enabling customers to make transfers, deposit checks and monitor their account while on the go.
Digital bill pay simplifies the payment process by displaying charges in one place, without the need to keep track of paper statements or visit multiple websites.
Users can set up one-time or recurring online payments, making it easy to view and organize different bills.
This secure and convenient tap-to-pay option simplifies checkout at 80 percent of the top 100 U.S. merchants.2 It’s easy and super-quick – up to 10 times faster than chip card transactions. 3
Peer-to-peer payment apps like Zelle® let users pay friends and family on the app electronically, eliminating the need for cash or a check. Zelle safely pulls funds from users’ bank accounts, encrypting financial information.
Rather than carrying cards and cash in a traditional wallet, mobile wallets replace this completely by storing all payment information on a smartphone, smartwatch or tablet.
Users simply open the app and choose the appropriate card when making a purchase.
If you’re haunted by recurring news coverage of customer data breaches, you’re probably wondering how safe your digital details are.
Brian Koehler, SVP of innovation product development at U.S. Bank, points to a shift in the way data privacy is handled. “The evolution of online and digital payments is really undergoing a massive change,” he says. “What’s happening now, particularly in the mobile wallet space, is true digital security being layered in with the actual payment itself.”
Arif Ahmed, SVP of emerging payments and technologies at U.S. Bank, agrees. “The mobile wallet actually encompasses a lot of new technology,” he says, pointing to the use of tokenization in particular. With tokenization, a consumer’s sensitive account information is replaced with a “token” that’s used to complete a transaction.
“If your card at a particular entity is breached, your card at other locations is still safe,” Ahmed shares. With account details hidden by a token, there’s no need to worry about fraud or hassles of replacing a card.
Heavy encryption is paramount in giving all types of digital payment methods airtight security and preventing fraud. Plus, you need to prove you’re really you to access accounts. That might mean entering a username and password, remembering a PIN, passing biometric verification or completing multi-factor authentication.
And you can take steps to protect yourself further. On your own devices, keep yourself safe with a firewall, antivirus software and malware protection. And make sure the sites you visit use secure servers to process transactions. (Look for the tell-tale “https” in your browser’s address bar.)
Ahmed says, beyond increasing security, convenience is a major reason people turn to digital payments. Access funds easily through your computer, phone or mobile device. Make secure payments electronically, or pay at a store with a quick phone tap and PIN or fingerprint scan. Ahmed notes that mobile wallet payments are increasingly used in physical stores, for in-app purchases and even on public transportation.
And merchants love the speed of transaction. Instead of waiting for your check to clear, they get their funds faster when you pay electronically.
But speed can still be an issue when it comes to in-store purchases, notes Koehler. “Today, a digital payment is slower at point of sale, because customers are conditioned to pull their card out in advance of the transaction.” They’re still getting used to the idea of pulling up an app for digital payment before they reach the register.
“The actual transaction is probably faster,” Ahmed says, adding that expediting the checkout from start to finish is just a matter of building muscle memory in consumers who use digital payment in stores.
The experts agree – when it comes to choosing a digital payment, there often isn’t a single good choice. “Most people choose a payment for a certain reason,” Koehler says. “Oftentimes, that’s a card payment because they earn rewards.” He adds you get the same rewards and card benefits whether the transaction is with a physical card or a digital payment.
Ahmed adds the prospect of purchase rewards often trumps the convenience of one payment option over another. Koehler points to customers who bypass the simplicity of their banks’ bill pay systems in favor of racking up rewards by paying directly with credit cards. “They’ll actually take on more friction just to go get their reward,” he says.
But Ahmed notes the limits of inefficiencies that customers are willing to endure. A frequent consumer pain point he’s seen pops up often with purchases made on your phone. “As soon as you find a new merchant, you have to enter like 400 fields!” he says. Buyers give up in frustration, abandoning their e-carts at checkout and leaving merchants with a lost sale.
However, Koehler notes savvy retailers are already solving the problem for site visitors by offering mobile wallet options. Instead of entering credentials from scratch, simply tap the option for mobile wallet payment, log in and pay in seconds.
So the next time you’re ready to buy, take a look at your options for making a digital payment. You might find a new way to make managing your money successfully even better.
Technology can make payments easier. Transfer and receive money on the go easily with P2P payments.