Two Factors Driving Digital Payment Adoption
Digital payments are quickly becoming the norm. The Federal Reserve announced that ACH transfers exceeded check payments for the first time in 2018. Since then, the adoption of digital payments has grown. Here are two factors driving the switch to digital payments.
Factor #1: COVID-19 and Online Shopping
The pandemic kept many people at home, but they still needed to buy things. As a result, digital shopping surged, and digital payments surged with it. In one example, Reuters reports that PayPal reported its strongest quarter on record and beat profit estimates, and the coronavirus-driven shift to digital transactions appeared to be a primary factor.
But what will happen when the pandemic ends and life returns to normal? Don’t expect people to give up digital payments. According to PwC, “Even before COVID-19, these ways of paying for goods and services were evidence of a steady shift to digital payments – a shift that might ultimately lead to a cashless global society.” The report says that 89% of a respondents believe the shift toward e-commerce will continue to increase, and that significant investment in online payment solutions is required.
Factor #2: Millennial and Gen Z Expectations
While older generations might be used to, and therefore comfortable with, paper checks, Millennials and Generation Z members have grown up with technology, and they expect speed and convenience. Digital payments can provide this. McKinsey & Company says that 93% of 18 to 34-year-olds use digital payment channels.
According to Payments Journal, Generation Z in particular is leading the way in alternative payment adoption. About one in three Generation Z consumers have used a mobile wallet, and more than half prefer contactless payments to cash. In-app payments are also popular among this generation: 40% of Generation Z consumers have used in-app payment options, and 15% do so on a regular basis.
Insurers Must Adapt
Digitization is changing the insurance industry, and digital payments are a part of that.
According to Insurance Business, the Insurance Digital Maturity Study found that fewer than one in three of the world’s largest insurers have succeeded in truly digitizing the value chain. As digitization progresses, those insurers that fail to adapt will fall further and further behind.
This will be especially true as Generation Z members come into power. The oldest members of this generation were born in 1997. They’re now in their twenties. They’re purchasing insurance, and they have shown a strong preference for digital payment options – a preference that the pandemic has strengthened. Insurers that don’t offer digital payments might not be able to win this generation’s business.
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