The postpandemic payment landscape is rapidly evolving, with new payment technologies gaining traction. The US has lagged behind a number of European and Asian countries in digital payments adoption, but a recent survey by The Conference Board of 2,000 multicultural consumers in the US shows a significant evolution in the payments landscape is well underway.

Insights for What’s Ahead

• Inflation and the exhaustion of savings from pandemic support payments have likely driven higher credit card use and alternate forms of payment. Twenty-eight percent of respondents—and even more in the Hispanic, younger, and higher-income segments—report using their credit cards more in the last six months, a possible sign of increased financial stress.
• Compared to other consumer segments, younger consumers (under the age of 35) have increased their use of credit cards, which potentially has negative implications for their household balance sheets in a rising interest rate environment.
• Our survey respondents’ use of person-to-person (P2P) payment apps (such as Zelle, Venmo, or Cash App) has grown over the last six months, with 26 percent saying they have increased their use. In a nation with 307 million smartphone users, the trend is toward digital payments in the years ahead.
• Buy Now Pay Later (BNPL) services, an alternative form of credit, have been gaining popularity. While BNPL is on the rise, another payment form is fading from relevance: the layaway.
• In a sign of increased financial stress, 77 percent of survey respondents were not able to maintain sufficient emergency funds. Just 23 percent of respondents were able to increase their emergency funds over the last six months.

Increased Credit Use Points to Signs of Strain on Consumer Finances

Twenty-eight percent of survey respondents say they have increased their credit card use in the last six months, while 41 percent say their use has remained steady. According to data from the Federal Reserve Bank of New York, credit card balances increased by $61 billion to reach $986 billion, surpassing the prepandemic high of $927 billion. The share of current debt transitioning into delinquency has increased for nearly all debt types.

Small businesses are also heavy users of credit cards, whether for financing expansion or funding operational expenses. In the last five years, as bank lending standards have tightened, more small businesses have turned to credit cards, which have grown to account for 29 percent of the credit products they use, up from 27 percent in 2017, according to data from the Federal Reserve’s Small Business Credit Survey.

In our data, younger consumers have increased their use of credit cards the most. With credit card interest rates up, following increases to the Federal Reserve’s key rate, greater credit card use may pose challenges to personal balance sheets and future spending. On the other side of the coin, only 16 percent of respondents report that they don’t use credit cards.

The risk associated with these cards is that consumers will spend more freely than they should, racking up debt that will take time to pay down and reducing future consumption. So far, data on charge-offs for nonperforming credit card loans was 1.82 percent at the end of February 2023, which is lower than the previous year’s figure, indicating that, at least for now, consumers are still using cards responsibly. Small businesses will also want to be careful about their use of credit cards in today’s rising rate environment.

Use of P2P on the Rise

Our survey respondents’ use of P2P payment apps such as Zelle, Venmo, and Cash App has grown over the last six months, with 26 percent saying they have increased their use.

Consumers who identify as Asian or Hispanic show the biggest increases in use. P2P technologies have also helped the unbanked and those with lower credit scores get involved in the cashless economy. Many of these solutions grew from initial success in the developing markets of Africa. Across all races, younger consumers have embraced this trend the most, with 39 percent reporting steady P2P use over the last six months, while 39 percent say they have increased their use of the payment method, as shown in the figure below. Familiarity with technology is a factor here.

In the over-55 group, 30 percent report consistent use, and only 10 percent have used P2P more often in the last six months. P2P can also be an important lifeline for younger people who may not have credit access, and to those with lower credit ratings.

Hello BNPL, and Farewell the Layaway

BNPL services act as an alternative form of credit and have been gaining popularity in recent years. Affirm, Afterpay, Klarna, and Zip are four of the largest providers of financed purchases. Fifteen percent of all retail sales in the US go to non-store retailers, such as the big e-commerce players, and their share of the total has grown steadily since 2015, rising above that of general merchandise stores in late 2018. The COVID-19 pandemic has only accelerated the shift from bricks to clicks.

In a BNPL transaction, once the consumer selects an item, financiers pay merchants on behalf of the consumers. The customer then pays a portion, generally 25 percent of the purchase price, to the BNPL company. The rest of the money due is spread among a number of fixed bi-weekly payments until the item has been paid off. Bigger-ticket items can be broken into 36 payments, but you can’t miss or delay payments without accruing costly fees. Large retailers, including Amazon and Walmart, currently offer BNPL services, whether through partnerships or self-administered plans.

BNPL use can affect a consumer’s credit score and expose them to debt collectors if they miss payments. There are also data privacy issues with BNPL companies, which may collect and sell customer data.

While BNPL is on the rise, another payment form is fading from relevance: the layaway. Popular in the years before credit cards entered the market, some of the biggest names in retail are now terminating their layaway programs in favor of BNPL offers. Walmart, for example, ended layaways in 2021, partnering with Affirm to offer BNPL programs instead.

The key difference between layaways and BNPL is that the former generally don’t charge fees, while BNPL companies do for merchants and consumers. Critics note that BNPL is another form of credit, and one that makes it easier for consumers to tip into debt. Store cards, which are yet another type of credit, can be easier to apply for and get approved compared to traditional credit cards. They may also offer exclusive discounts and special promotions. However, most store cards can only be used at those specific retailers and often charge higher interest rates than bank-issued credit cards.

Investing Suffers in an Inflationary Environment

Nearly every asset class performed poorly in 2022, and we can see in our data a softening of commitment to stocks, bonds, real estate and cryptocurrencies. (Please see the central row in the figure above.)

Of those who do invest in property, 26 percent report maintaining the same levels of investment, while 14 percent have put more money into real estate.

Cryptocurrencies also shared in the turbulence of 2022, with increased volatility and big price declines, but 12 percent of our survey population say they are investing more into this asset class. There is an age gradient at work here: while only 2 percent of respondents over the age of 55 have put money into cryptocurrencies, this rises to 22 percent for those under 35 years of age.

Some 38 percent of our respondents say they never invest in the stock market. Our data shows 33 percent have stuck with their bonds and similar investments, while 16 percent have increased their investments in yield instruments in the last six months.

The State of the “Emergency Fund”

With persistent inflation wearing on budgets and consumers’ shopping patterns, 77 percent of survey respondents report being unable to maintain sufficient emergency funds, a sign of financial fragility. Meanwhile, just 23 percent of respondents have increased their emergency funds over the last six months.

African American and Asian households, as well as higher-income and the under-35 age groups, all tend to maintain emergency funds, with higher-than-average participation levels. These groups also had enough job security and income to keep up with building such an account.

More broadly, our survey data points to a decline in financial health across all age groups and income brackets (see the figure above) since the start of the COVID-19 pandemic. Those above the age of 55 are the worst-affected age group, with 36 percent reporting that their financial health has deteriorated, compared to 18 percent who say it has improved. In terms of income, those earning less than $35,000 annually were hit hardest, with 43 percent stating they are worse off than they were in March 2020.

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The data on emergency funds also points to overall stress in consumer finance, which will become more obvious if the US slips into recession. Our survey data suggest there is some fragility in consumer finances at this time, from the lack of emergency funds to high credit balances and the increasing prevalence of BNPL services. All of these may affect consumer spending as we move into the second half of 2023.

Lessons for Marketers

Marketers should be prepared to adjust strategy to take advantage of emerging trends:

• Young people are changing the way they pay for things, and technology is making it easier to spend money while making these consumers less dependent on traditional financial health measures such as credit scores.
• BNPL technology, driven primarily through online shopping channels, has gained popularity and replaced traditional layaway plans.
• Marketers have opportunities to rethink impulse purchases online, to structure their inventories and cashflow planning to meet these needs, and to explore how these new payment tools might open up innovations in products, services, and markets.
• Marketers should consider how P2P payment options can bring their business closer to the individual consumer. For localized, smaller businesses, this might engender loyalty and engagement. For larger businesses, this might provide access to new consumer segments.