Payment method statistics

Whoever said cash was king didn't have a good grasp of how consumers choose to pay.

When asked their preferred payment type, 43 percent of Americans chose debit cards compared with 35 percent who preferred credit cards and just 9 percent who preferred cash, according to a 2014 TSYS online survey of 1,000 consumers who owned both a debit card and a credit card. 1

According to TSYS, credit cards remained the preferred payment method for the same percentage of people in 2014 and in 2013, but the percentage favoring debit cards fell from 49 percent in 2013 to 43 percent in 2014.

Plastic is also Americans' top choice for online shopping, with 48 percent in 2014 preferring to use credit cards, 30 percent using debit cards and 12 percent using PayPal. 1

Source: TSYS 2014 Consumer Payments Study

Besides online spending, credit is the preferred payment for the most people at department stores, while debit rules at the supermarket and discount stores. Both are equally popular at gas stations and dine-in restaurants. 1

FUN FACT:

Currency is still considered best for quick purchases. In 2014, consumers preferred to use cash at fast food restaurants and coffee shops. 1

Source: TSYS 2014 Consumer Payments Study

Costs of cash

One reason could be that it comes with a cost. According to a 2013 study by Tufts University, Americans spend $200 billion per year to use cash, which averages out to $1,739 per household. The cost is attributed to such factors as ATM fees, theft, and time spent traveling to get cash. Unbanked Americans pay on average $3.66 per month more than banked consumers to get cash, according to the study. 2

FUN FACT:

The average American spent 28 minutes per month traveling to get cash in 2013. 2

Americans' reliance on plastic for noncash payments has been growing over the years. In 2012, 67 percent of consumer and business payments were made with payment cards, up from 43 percent in 2003, according to the 2013 Federal Reserve Payments Study. Credit card transactions accounted for 21 percent of the total number of noncash transactions in 2012, debit cards accounted for 38 percent, ACH 18 percent, checks 15 percent and prepaid cards 7 percent. 3

Among all noncash payments, consumers and businesses spend the most when they use ACH payments or checks, which makes sense since those methods tend to be used for bills, payroll and other larger-value transactions. When it comes to cards, consumers and businesses spend more when they use credit cards. The average value of general-purpose credit card transactions in 2012 was larger ($94) than the average value of debit card transactions ($39) or prepaid card payments ($24). 4

Source: The 2013 Federal Reserve Payments Study.

The rise of prepaid cards

One alternative to cash that is gaining popularity is the prepaid card. A 2014 survey by Mercator Advisory Group found that 56 percent of U.S. adults had bought a prepaid card in the previous year, up from 53 percent in 2013 and 47 percent in 2012. 5

Prepaid cards have particularly appealed to the younger set. In 2014, 69 percent of adults between the ages of 18 and 24 had bought a prepaid card in the prior year. That's up from 59 percent of adults in that age group the year before. 5

Source: Mercator Advisory Group CustomerMonitor Survey Series, Payments, 2013, 2014

*Statistically significant difference 2013-2014 at the 95% level.

One type of prepaid card is the general purpose reloadable (GPR) card, typically used to pay bills, access cash and make purchases. Approximately $65 billion was loaded onto GPR cards in 2012 -- more than double the amount loaded in 2009. 6

GPR cards were at one time largely targeted at low-income and underbanked consumers. In fact, 48 percent of the underbanked community reported owning a GPR card in 2013. 7

However, the greatest growth in card ownership has been among higher income Americans. Between August 2012 and August 2013:

• Ownership of a GPR card in households that made more than $100,000 per year increased by 9 percent. 7
• Ownership of a GPR card in households earning between $25,000 and $49,900 dropped 1 percent. 7
• Ownership of a GPR card in households earning less than $25,000 increased by 2 percent. 7

Source: Federal Reserve Bank of Philadelphia, September 2014

While GPR use has risen among all age groups, younger groups have seen the most growth. There was an 11 percent increase in ownership of GPR cards among millennials between August 2012 and August 2013. 7 Among Generation Xers GPR card ownership increased by 8 percent. 7 Ownership by baby boomers increased by 2 percent and consumers 68 and over saw their GPR card ownership stay the same at 4 percent. 7

Among users of GPR cards, 59 percent reloaded their cards at least once a month, and the average amount put on the card was $80. 7 Millennials used their cards most frequently, averaging 7.7 times per month and spending $134. 7

Fifty-nine percent of Americans said the cards help them "manage money better" and "spend less" and 62 percent in 2013 said they helped them avoid overdraft fees. 7

A growing subset of the prepaid card market is the payroll card. In 2014, there were 6 million payroll card holders compared to 7.8 million U.S. employees receiving paper checks. By 2019, Aite Group projects that there will be 12.2 million payroll cardholders compared to 2.2 million U.S. employees receiving paper checks. 8

A cashless future?

Is a cashless future in the cards? A 2013 MasterCard report found that in 2011, cashless payments made up 66 percent of global spending. 9 Consumers in Belgium, France and Canada used cash the least in 2011, as cashless payments made up 93 percent, 92 percent and 90 percent of payments respectively. In the United States, 80 percent of payments were cashless in 2011. 9

Consumers expect to make fewer cash payments in the future, while also cutting back on credit and debit card use in favor of other forms of payments. In an Accenture survey, 66 percent of North Americans said they used cash daily or weekly in 2014 while only 54 percent expected to do so by 2020. 10

Approximately 55 percent of consumers said they used credit cards at least weekly in 2014, but only 52 percent expect to use them that often in 2020. Likewise, 59 percent of consumers said they used debit cards at least weekly in 2014, but only 53 percent expect to use them that often in 2020. 10

Meanwhile use of digital currency, prepaid gift cards and PayPal are expected rise.

Millennials are most likely to use digital currencies. Thirteen percent used them in 2014 while 26 percent expect to use them in 2020. High income consumers are also more open to using digital currencies than those in lower income brackets. 10 Nineteen percent of high income consumers used digital currencies in 2014, and 32 percent expect to use them by 2020. 10

Sources

1. TSYS 2014 Consumer Payments Study
2. The Cost of Cash in the United States by the Fletcher School at Tufts University
3. 2013 Federal Reserve Payments Study Summary Report
4. 2013 Federal Reserve Payments Study Detailed Report, (released July 2014)
5. Mercator Advisory Group's Consumers and Prepaid: Rising Use, Especially by Mobile
6. Why Americans Use Prepaid Cards by The Pew Charitable Trusts
7. Millennials with Money: A New Look at Who Uses GPR Prepaid Cards by the Federal Reserve Bank of Philadelphia
8. Aite Group , April 2015
9. MasterCard's Cashless Journey Report
10. Accenture's 2014 North America Consumer Payments Survey

See related:Credit card market share statistics , Mobile payment statistics , Credit card delinquency statistics

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.