- The coronavirus pandemic accelerated payments industry digitization by two to three years.
- And online retail sales surged to $794.50 billion, a record-breaking 14.4% of total US retail in 2020.
- Do you work in the Financial Services industry? Get business insights on the latest tech innovations, market trends, and your competitors with data-driven research.
The pandemic accelerated the payments industry’s shift towards digital—merchants began to rely on ecommerce, more consumers took to contactless payments, and technology providers developed new tools to meet this change in behavior.
Insider Intelligence examines the payments ecosystem today, including the pandemic’s impact on the industry’s growth drivers. We break down key terms relevant to the payment processing industry, and share insights on how consumers will be paying for goods and services moving forward.
Here are some key payment processing stats to know:
What is a payment processor?
A payment processor, or payment facilitator acts as a mediator between a merchant and a financial institution, authorizing transactions and facilitating the transfer of funds. Some options for providers include Shopify, Square, Paysafe.
Online Payment Processing
Online payment processing links a brand website with a payment processor to connect a merchant account to credit and debit card issuers. Merchants can set up recurring payments, accept or decline transactions based on pre-set parameters, and process payments made with foreign currencies.
The pandemic has encouraged greater use of online payment processing, as more businesses begin to offer online and mobile transaction options. US mobile P2P apps like Venmo and Square Cash have grown in popularity, with volume projected to reach $797.43 by 2024.
Credit Card Payment Processing
Credit card payment processing is a system through which the data from a customer’s credit card is transmitted to approve a dollar transaction from their accounts to the merchant’s account.
While we saw a decline in in-store credit card transaction value during the pandemic, Insider intelligence forecasts that the value will go back to pre-pandemic levels, reaching $2,107.94 this year and then growing to $2,113.43 in 2022.
ACH Payment Processing
Automated Clearing House (ACH) transactions route payments between banks. There are two types of ACH transactions: credit transactions, which push funds to a recipient—like a direct deposit payout—and debit transactions, which pull funds from the party making a request, such as a bill or mortgage payment.
They have gained popularity as a relatively inexpensive payment option, costing less than $1 in fees. ACH was designed as a way for banks to process paper check payments digitally, but it has since become more heavily digital-based, with online ACH comprising 27.9% of all transactions by volume in Q3 2020, per the National Automated Clearing House Association (NACHA). ACH is growing, not only in historically check-based segments like bill pay, disbursements, and direct deposit, but also for digital P2P transactions and online transfers.
Mobile Payment Processing
Mobile payment processing allows merchants to sell products and accept card payments from their preferred mobile device. Mobile point-of-sale (POS) solutions like Square offer businesses a payment acceptance option that’s more affordable and portable than traditional offerings.
The pandemic accelerated the adoption of mobile POS platforms, as Americans sought out retailers offering contactless services, causing an acceleration of user and transaction value growth. In-store mobile payment app use will hit a milestone in 2021, reaching 101.2 million among Americans ages 14 and older. This comes after 29.0% year-over-year (YoY) growth in 2020. Usage is now on track to surpass half of all smartphone users by 2025.
Echeck Payment Processing
An eCheck is a digital version of a paper check that can be used to make a payment online. The information that the online payment processing center receives is then processed via the ACH network. To use an echeck, consumers need to provide a checking account number, routing number, and the name on the account.
Checks, which were already growing less in popularity, saw a further downturn during the pandemic as users replaced paper with digital apps and businesses shifted toward digital accounting platforms, payroll cards, and ACH payments.
Merchant Payment Processing
Merchant payment providers allow merchants to accept credit cards, debit cards and other forms of payment from consumers. While merchant acquirers enable payment transactions, merchant processors, like Fiserv and Global Payments, are responsible for securely transmitting data associated with those transactions, in addition to providing various degrees of back-office support.
The pandemic helped accelerate PayPal’s growth as merchants relied on the firm to facilitate transactions amid a shift toward ecommerce and the adoption of digital and contactless payments. In Q1 2021, PayPal’s total payment volume (TPV) surged 46% year over year (YoY) on a constant currency basis to hit $285 billion—up from 19% YoY in Q1 2020.
PayPal says it plans to change some of the fees it charges US merchants for its payment services. Increasing merchant fees can help PayPal fund proprietary products and further drive revenues, and lowering other fees may make PayPal more competitive with companies like Square and Visa, which offer their own payment processing services.
As of August 2021, PayPal is changing its fee structure, so that merchants will pay $3.98 in fees for a $100 transaction, compared with $3.20 before. Increasing these merchant fees can help PayPal fund proprietary products and further drive revenues, which grew 29% YoY. While it’s possible that this change will cause merchants to leave PayPal, the payment and retail solutions that it offers will likely outweigh the risks
Contactless Payment Processing
Contactless payment processing is when credit cards, debit cards, key fobs, smart cards, or mobile devices use radio-frequency identification (RFID) or near-field communication (NFC) to make secure payments.
Contactless payment has been around since the 1990s, but only a handful of merchants and retailers used the technology at that time. Since then, it has expanded to include many banks, credit card companies, merchants, and retailers around the world.
The use of contactless payments has been especially popular amid the pandemic, as employees and customers aim to avoid unnecessary physical interaction. Roughly 60% of US merchants now accept contactless payments, which not only gives consumers more options on how they pay for goods and services, but also can help drive up adoption.
Electronic Payment Processing
Electronic payment processing, or an electronic funds transfer (EFT), is the process of transferring money from one bank account to another without any exchange by hand. Businesses must have access to a payment platform such as venmo or paypal to accept payments online.
Since payments hardware manufacturers and software providers don’t process payments themselves, the shift toward electronic payments coupled with technological innovation continues to blur the lines between hardware and software. This is forcing stakeholders to reevaluate their strategies and their role in the payment processing ecosystem.
Ecommerce Payment Processing
Ecommerce credit card processing refers to any purchase made online. Payment gateways like Adyen and Stripe act as the portal through which ecommerce merchants connect to acquirers and serve a similar function as terminals do for payments made in-store.
Over the past year, ecommerce sales have surged. Specifically, online retail sales grew to $794.50 billion in 2020 as spending on smartphones increased amid the pandemic. While in-store shopping will recoup some of its share when the pandemic subsides, the events of 2020 accelerated the shift to ecommerce by two or three years.
Payment Processing Industry
The payments industry has seen a shift as businesses and consumers move away from using cash and checks and focus more on digital payments. Cards are still dominating in brick-and-mortar retail, but the use of mobile wallets like Apple Pay have increased.
Digital peer-to-peer (P2P) apps like Venmo have become an integral part of the day-to-day lives of users of various generations. Even providers in bigger industries that have historically been dominated by cash and check, are diversifying to find new volume.
Insider Intelligence’s Payments Ecosystem Report highlights how surging fraud, a revenue crunch, and rising demand for white-labeled payments features from unconventional players could generate change in the coming years.