Are you one of the estimated 90 percent of Americans who have shopped online over the past year? According to the most recent data published by the Federal Reserve Payment Study, remote payments grew faster than in-person payments by both volume and value. For example, from 2015 to 2016, remote general-purpose credit card payments grew at the rate of 16.6 percent, compared to 7.9 percent for in-person credit card payments. (See the chart.) Remote spending drove almost all of the growth of the general-purpose prepaid card during 2015–16, according to the study. If we had any doubts before, this growth shows us clearly that we're in the digital age, a time in history when digital technology has become ubiquitous.
The shift from in-person payment to remote payment is certainly telling a story that will affect our future conversations and research. We need to take into consideration that as remote payments grow, they will become less and less connected to a physical card. Eventually, consumers may stop considering them to be card payments at all. They will likely start thinking first of their ability to make a payment with a digital account, with subsequent transactions eligible to ride a number of different payment rails, like ledger transfers, ACH, or other faster payments models.
The U.S. Census Bureau estimated that total ecommerce sales for 2017 were about $453.5 billion, an increase of 16 percent from the year before and accounting for 8.9 percent of total sales in 2017. Last year the Department of Commerce reported ecommerce sales have been growing nine times faster than traditional in-store sales since 1998. And remote payments will continue to accelerate. Consider the top retail trends of the year, according to research from the National Retail Federation:
- Online purchase, store pickup: Stores are adding lockers for easier pickup.
- Talking tech: Virtual assistants are rapidly growing in popularity and are ready and able to help customers make purchases.
- Showrooms without inventory: Stores offer browsing, testing, and fitting, with the customer subsequently making the purchase online. This approach helps showrooms reduce their overhead and give consumers customized options.
- Membership clubs: Stores collect customers' money upfront (sort of like prepaid) and send merchandise later, depending on what analytics have taught them about their customers and consultative sales touchpoints.
Future Federal Reserve Payment Studies will continue to track shifts in payments. However, we may need to adapt the ways we discuss these types of payments as the digital-first age leads to innovative transaction accounts with subsequent remote payments untethered from plastic cards.
By Jessica Washington, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed