With so many options to consider, are customer payment preferences elastic or inelastic? How do customers choose a payment method and what factors do they consider? Read this in-depth Macropay review to discover the answers to these questions and more.
Digitalization has affected everything including our relationship with money. Coupled with the COVID-19 pandemic, customers have become more particular about their payment preferences. Lockdowns fueled the need for alternative payment methods (APMs). At the same time, the need to social distance led to new payment options like cardless or contactless methods.
Types of payment methods
Customer payment methods include cash, cheques, bank transfers, credit cards, debit cards, prepaid cards, e-wallets, cryptocurrency and more. With so many options, customers have become savvier making it essential for businesses to understand their customer preferences to increase their sales.
In 2020, 44.5% of ecommerce payments globally were made using digital payment methods like e-wallets. Also, analysts predict that e-wallet payments will grow to be the leading payment method preferred by customers globally. In 2021, the global digital payment volume rose by over 40% and surpassed US$6.6 trillion. According to Oberlo, by 2024 about 50% of online purchases will be made using digital and mobile wallets. Meanwhile, credit card payments are predicted to be 35% and debit payments 32% of online payments.
Top online global payment methods
|Payment method||Percentage (%)|
|Cash on delivery||3.3|
|Charge & deferred debit card||3.3|
|Buy now pay later||2.1|
How payment preferences affect customer retention
For new businesses, it takes time to build trust. One of the things that can accelerate this is by offering local payment methods that customers are familiar with and trust. In this way, your business can leverage the existing trust between customers and the payment methods. Beyond first time purchases payment methods also affect customer retention. This is important because it costs 5 to 6 times more to acquire a new customer as compared to retaining an existing customer.
After the first purchase, about 20% of first-time customers will make a second purchase. The second purchase is the hardest hurdle to cross after which customers are likely to make higher purchases on average with increasing frequency.
For ecommerce, specifically, a good return customer rate is about 25-30% according to Facebook Growth VP Alex Schultz, “If you can get 20-30% of customers coming back every month and making a purchase from your store, you should do pretty well.”
However, studies show that customers will abandon a purchase if their preferred payment method is not available. In particular, a survey conducted in USA revealed that 42% of US customers would abandon a purchase if their preferred payment method is not available. Further, 26% of respondents stated they would prefer to stick to a known or familiar payment method than trying a new one.
At the same time, 43% of US customers indicated that they would avoid platforms that require them the enter their payment details more than once with 50% citing complicated payment methods as a reason to stop a purchase. As such, this survey revealed that customers are not only attached to their preferred payment method, but ease of use could reduce your bounce rate.
Customer payment preferences based on generations
Customer payment trends across generations reveal some interesting patterns. It seems that millennials (1980-1993) value ease of use. On the other hand, Gen Z (1994-2001) prefer efficiency, for example, platforms that store their payment details. Lastly, Baby Boomers (1946-1964) and their proceeding generation (before 1964) prefer one click payment processes. Thus, these trends mean businesses need a good understanding of their client persona in order to integrate the ideal payment method.
In addition, younger generations are shifting away from traditional payment methods. Where Baby Boomers in USA held an average of 5 credit cards, in comparison, millennials only hold 3. Gen Z take it a step further by indicating that credit cards are not in their top 3 preferred payment methods. This shift is giving rise to the need for alternative payment methods like giroPay, iDeal, MULTIBANCO, eps, Bancontact, and Przelewy24.
These alternative payment options offer varied features that appeal to different users. While it may be difficult for a business to integrate multiple payment methods, however, payment gateways like Macropay enable businesses to easily access several payment methods at the same time.
Growth of Alternative Payment Methods
Another shift in customer payment preferences has been a marked rise in subscription-based services. According to Forbes, more customers are finding it more convenient to pay a once-off or monthly subscription for services like gym memberships, consumables, streaming and so on. It seems this payment method offers customers a greater sense of control compared to traditional payment methods. Forbes further states that this trend is in line with the shift away from debt and more towards conservative spending patterns.
Another customer payment preference trend has been the shift from physical to digital payments. A report by the American Bankers Association, ranked payment methods based on customer preference. Debit cards ranked as the most preferred and cheques as the least preferred payment method.
Unfortunately, this shift is accompanied by a growing fear of online fraud and scams. Customers enjoy the convenience of online payment methods but fear its risks. As such, businesses need to inspire confidence in customers by offering payment methods that are secure.
Most alternative payment methods offer some security features like double authentication. Not enough options include features like data encryption and fraud insurance. This weakness can be overcome by using a payment gateway like Macropay. Macropay offers the latest cutting-edge security solutions and tailor-made financial technology to protect customers. In addition, Macropay helps to make payment processes shorter and easier through its intuitive integrated dashboard.
Also, the payment gateway makes it easier for customers to process payments through safe data storage. Data storage allows customers to make payments without re-entering their payment details. Finally, Macropay gives your customers options through its multiple payment integration.
To learn more about Macropay services and alternative payment methods, visit www.macropay.net.