Are mobile payments gaining momentum or stuck at a standstill? We look at what the future holds for mobile payments in the US.
The modern payments ecosystem is a winding web of participants, including merchants, consumers, card networks, banks, payment processors, and more. Payments continue to shift from physical to digital and smart devices—including mobile phones—are changing the way consumers pay. This shift is also impacting the way payments are facilitated and secured.
Juniper Research projects that OEM (Original Equipment Manufacturers) Pay wallet users will hit 450 million globally this year. OEM Pay includes the likes of Apple Pay, Google Pay, and Samsung Pay, to name a few. Global users are predicted to spend more than $300 billion using mobile devices. Mobile contactless transactions at the POS are expected to tally up to over $1 trillion globally and $115 in the US this year.
While the growth of mobile payment volume is actually slowing, mobile transactions in the US are still expected to grow 36.6% year over year through 2022. Apple continues to play a key role in mobile payments, accounting for one in two digital payment users around the world.
On the surface, it appears as though mobile payments are healthy; however, digging deeper reveals an alternative perspective. While 36% YoY growth may seem substantial, it pales in comparison to the 42% growth from 2017 to 2018 or the 50.6% growth from 2016 to 2017. Overall, the rate of growth is declining. While mobile payments claim to offer added convenience, the follow-up question tends to be “how much.” For consumers that have established deep and routine payment habits, the answer seems to be “not enough.”
A better value proposition is one of the obstacles standing in the way of greater adoption of mobile payments. At the time being, it appears consumers are more comfortable reaching for physical cards. While contactless wallets might be slightly faster than EMV transactions, debit and credit card payments are not “broken”. Consumers have little incentive to change their behavior away from traditional card payments.
On top of a lag in consumer interest, merchants are also not investing in value-added services that enable features like single-tap loyalty and reward points redemption. These services offered by the Apple Pays and Google Pays of the world are not enticing enough for merchants because they see that contactless usage is low among their customers. A survey conducted by 451 Research revealed that only one in three non-digital-wallet users will adopt contactless mobile payments to gain the ability to 'receive discounted offers on products/services'. Contactless mobile payment acceptance is growing (largely due to the EMV migration), with 80% of Visa’s top 100 merchants in the US offering ‘tap to pay’ options to customers at checkout. Even so, the lag in customer interest has made merchants disinterested, too.
Security confusion continues to be a drag on adoption as well. According to 451 Research’s findings, security concerns have continuously topped the charts when it comes to factors that stifle adoption. Only a quarter of consumers believe that digital wallet transactions are very secure; just over one in three believe these transactions are more secure than traditional card payments. In a Pew survey, 38% of respondents claimed that mobile payments are “poorly protected.” In truth, digital wallets like Apple Pay harness the power of biometrics and tokenization to take security to the next level—beyond what plastic cards can offer. Yet consumers continue to have misconceptions around security, making it essential that the entire ecosystem take ownership of the need to educate consumers on the truth about mobile wallet security.
In order to reach a tipping point with mobile payments, each player in the ecosystem must address some of the top consumer concerns. In addition to creating and promoting a winning value proposition that is powerful enough to change consumer behavior, the major perceived drawbacks need to be addressed.
Security Concerns - Pew survey respondents were more likely to view mobile payments as poorly protected than prepaid, debit, or credit cards. That perception was maintained even for mobile transactions tied to a credit card. Consumers must be educated on the security benefits of mobile payments.
Inconvenience Concerns - While those in the payments industry may see nothing but added convenience via mobile payments, consumers are doubtful. At least 15% of consumers reported experiencing an issue with a payment method of any kind in the last year, including disputes, fraud, and overpayment. These consumers reportedly had a harder time resolving mobile payment issues, with 39% reporting issues were difficult to resolve vs.20% of debit, credit, or prepaid card users.
Perception is perhaps the greatest barrier to wider mobile payments adoption, and this is not an issue that can be resolved overnight. Consumer reservations about mobile payments must be addressed through education and by offering compelling value in mobile payment offerings.