Has mobile money finally come into its own? Big moves by Google and Ericsson are the most recent indications that it has.
Mobile payments—the ability to purchase goods and services using a mobile phone/digital wallet solution—are starting to gain mass appeal, after years toiling in the early adopter arena. While challenges remain, a combination of widespread app deployment and greater trust in the security of such transactions has spurred increasing usage—which in turn opens up business opportunities for the whole ecosystem.
Merchants can make checkouts more convenient and reduce time-to-pay; and customers are happier. Meanwhile, behind the scenes, network operators can reuse existing assets and bundle telecom offerings with financial services to create a complete merchant solution for m-commerce and m-pay needs. Banks see card usage go up; and apps providers have new paths to monetization via revenue shares.
Mobile Payments Get Large
On the mobile payments front, some 91 percent of U.S. adult smartphone owners have at least heard of a mobile payment service, like PayPal (85 percent), Google Wallet/Android Pay (51 percent) and Apple Pay (45 percent). And out of those, almost six in 10 currently use at least one, according to recent survey results from YouGov.
Many of those that use digital wallets have just used them to make a purchase online (50 percent of users; 27 percent of smartphone owners overall); but a healthy 39 percent of users (21 percent of smartphone owners) have also used them to buy something at point of sale, say, to pay for a taxi.
It helps that some market impediments are falling by the wayside. The ecosystem has worked hard to drag mobile payments into the mainstreamby making mobile payments a default value. For instance, Apple worked with MasterCard, Visa and American Express to integrate the Apple Pay system securely with existing credit card networks—a blueprint that others have followed.
Apple also pre-installs Apple Pay on all new iPhones—again, offering no-hassle access to the capability. Similarly, Google recently revamped its Google Wallet service and re-launched it as Android Pay, and has secured commitments from AT&T, Verizon and T-Mobile to pre-install it on their phones as well.
The former head of Google Wallet, Osama Bedier (now with payments startup Poynt), said that the pre-installed apps are a critical turning point for the technology.
“That’s the headline here,” Bedir told Wired. “You have to have the wallet on board the phone. Otherwise, people have to download an app—and getting them to do that is much, much harder.”
The fact that Android Pay is working with multiple carriers is a big aspect of note as well. “The prevalent business models for NFC have been unattractive to banks and left them dependent on multiple network operators, each of which may have its own approach to mobile wallet management,” Juniper Research noted.
At the same time, fragmentation among platforms has been one particularly big barrier to entry. But near-field communication (NFC) platforms have become more standardized, so that multiple money apps can use the same terminal to tap-and-pay. Accordingly, Google said Android Pay will be accepted by more than 700,000 physical stores and over 1,000 m-commerce entities.
Forrester Research says that mobile payments account for about $50 billion in sales right now, which, while that’s a figure involving three commas, is still chump change compared to total credit card payments, estimated at $2.7 trillion. But consumption trends are changing.
Emerging markets will be one area of growth to watch, as for many, mobile phones are the only access that citizens have to the Internet and to banking. Looking to tap this, Ericsson this week announced a partnership with VeriFone Mobile Money, which provides mobile payment solutions for merchant PoS. The VeriFone Mobile Money Retail Enablement software suite will be integrated with Ericsson Wallet Platform to expand payment options, with a range of contactless NFC and tap-and-pay services. And it’s particularly targeted to emerging markets.
“This partnership will enable Ericsson’s customers to realize the economic benefits of increased volumes of payment transactions, wider mobile money adoption and an improved consumer experience,” said Chris Jones, CEO at VeriFone Mobile Money. “NFC and contactless payments drive wallet adoption transactions at the merchant, and cashless economies. We are excited about the partnership and look forward to a long-term relationship.”
Despite the groundswell of deployments, major impediments remain in the market, and there’s plenty of room to improve the rate of tap-to-pay usage going forward.
Overall, slightly fewer than one in 10 (9 percent of) adult smartphone owners in the survey said they have used a mobile payment service to make an in-store purchase, with this being more common among men (12 percent) than women (6 percent). Retail purchases are also more common among Hispanics (13 percent) than Caucasian (8 percent) or Black (9 percent) respondents.
One of the biggest hurdles for m-pay is a security perception issue. In the YouGov survey, of those who don’t use mobile wallets, 81 percent cited security as a main concern; and 35 percent simply said that they “wouldn’t trust the Internet” with their money. In fact this was the No. 2 response, right after “having no need for them” (59 percent).
Headlines don’t help. For instance, in March, it was revealed that U.S. criminal gangs were able to compromise the Apple Pay mobile payment platform. The fraudsters simply bought up stolen card-not-present (CNP) data (widely available in Dark Web criminal forums) and provisioned them to the service. Some banks only request social security numbers for identification, which themselves are easy for criminals to obtain. From there, they can use Apple Pay to buy things.
Mobile Banking, Mobile Ticketing: The Gateways?
Despite lingering concerns about digital wallets, Americans are banking and shopping in mobile environments in droves, and behaviors like mobile ticketing (think boarding passes on a smartphone) are on the rise. These behaviors could open the doorway to digital wallet usage by familiarizing consumers with mobile financial transactions in general.
In an online survey conducted by Harris Poll, 77 percent agree that doing transactions at a physical bank is safer than online or mobile, but over half (55 percent) prefer doing their banking online or via mobile nonetheless.
This is largely about convenience. Mobile banking is also seeping into the very fabric of life. Harris found that nearly one-half (46 percent) of smartphone bankers are banking from their mobile phones in the bedroom. Additional findings show nearly one-third (30 percent) bank while in the bathroom and 13 percent while driving. Among online smartphone shoppers, 4 percent of them are shopping on their mobile phones while crossing the street or standing in line (18 percent).
And overall, 57 percent go to their bank’s branch significantly less than they did two years ago.
Meanwhile, Juniper Research found that purchases of physical goods via mobile devices will continue to rise. Already, average transaction sizes over tablets are exceeding those via desktop PCs in many markets. It also observed that while spending via smartphones was increasing sharply, their primary function in retail was as search and discovery—with the final purchase being made on the tablet.
Meanwhile, it argued that the scale of digital transactions was receiving a significant boost through the adoption of mobile ticketing applications, with metro and transit authorities in Europe and North America that have already deployed services, experiencing high levels of adoption.
Notably, Harris found that although data breaches have been prevalent over the last year, for 77 percent, it hasn’t changed their mobile shopping behavior.
Overall, comfort levels with mobile transactions are on the rise, and, technology barriers are slowly coming down for mobile payments. Marketing will need to do the rest.
"An overwhelming majority of consumers acknowledge the presence of digital wallets, however a minority have actually used them despite fewer shoppers carrying cash today," said Jason Peaslee, managing partner at Thrive Analytics. "This paradox presents a vast opportunity for both digital wallet providers and retailers to educate consumers on the unique benefits of the digital wallet shopping experience. The key to increasing consumer and overall market adoption is understanding and operationalizing critical demographic usage profiles and purchase patterns."
As a case in point, YouGov found that usage in the U.S. varies by demographic group. For example, men were more likely than women to send money to a friend or family member using a mobile app (41 percent vs. 34 percent), while women were more apt to make a purchase online (55 percent vs. 46 percent). And while 35-54-year-olds were less likely than 18-34-year-olds to be mobile payment users, those who are, were more apt to say they had used one to make a purchase in a physical store (23 percent vs. 15 percent).
Edited by Dominick Sorrentino