Backpack will work fine. If it's hot or you have a long commute you may have a very sweaty back. Panniers are a bit more complicated as you will need a rack and then the panniers, and yes, more expensive as well. I use a backpack, but I don't mind the sweat as I have a shower at work. I also have panniers for those days when I need to haul a lot of supplies to and from work. A backpack is much more convenient if you have to do any walking or carrying the bike up/down stairs, or on a bus or subway.