Why Haven’t Mobile Payments Taken Off (Yet)?

people using cellphoneImage: people using cellphone

October 17, 2016

We’re approaching a decade since Apple launched the first iPhone in 2007, a massive leap in the evolution of smartphones that led to handheld, internet-connected computers ending up in the pockets of more than 200 million Americans.

After the launch of the iPhone, the promise of smartphones as a mobile wallet was widely predicted along with the conventional wisdom that smartphones would eventually replace everything else in our pockets. The promise of seamless mobile payments has seen dozens of companies, from heavyweights like Apple and Wal-Mart to startups like Square and Venmo, vying for consumer attention in this space.

Consumer adoption of mobile payments has been slow, but steady. Only a third of smartphone owners use mobile wallets according to the Blackhawk Network. The overall dent mobile payments have made on the market might be small, but the portion of consumers who could eventually make use of this technology is growing fast. According to projections by eMarketer, the total value of U.S. mobile payments could more than triple this year to more than $27 billion, and then potentially grow as high as $210 billion in 2019.

Here are three reasons that mobile payments haven’t hit the mainstream yet – and why experts believe they won’t stand in the way for much longer.

1.There are too many competing systems. In addition to the big tech players (Apple Pay, Samsung Pay and Google Wallet), banks (Chase, Mastercard’s MasterPass) and retailers (Starbucks, KFC) offer mobile payment options. That means early adopting consumers often have to download multiple apps in order to ensure that they’ll be able to use one at checkout at any given time. Early adopters may still face uncertainty over whether the cashier would be able to quickly complete the transaction at the point of sale.

What’s changing: As the market matures, a few big brand name players could edge out – or acquire – smaller competitors. Such consolidation may make it easier for shoppers and retailers as they know which apps to support, predicts eMarketer.

2.There’s little incentive for consumers. It is often comparatively much easier to make purchases via cash or credit card, so consumers are less motivated to research apps, download them, and connect them to financial institutions.

What’s changing: In addition to broader acceptance of mobile payments, retailers are starting to connect them to their loyalty programs, offering exclusive coupons or rebates to customers who use them. Consumers who use their Kohl’s Charge card via ApplePay at Kohl’s stores, for example, will be able to earn rewards and use their Kohl’s cash via the app. Similarly, customers at Dunkin’ Donuts can earn and redeem DD Perks points, via the store’s payment app. This could prove to be a serious motivator for consumers. In a recent survey by Accenture, nearly 8 in 10 mobile wallet users said that they’d use the technology more if they received a discount for doing so. With more people managing their credit from their pocket (more than 60 million to date using the Credit Karma platform alone), consumers are getting more comfortable using their phone for real-world financial transactions.

3.Security concerns remain as 40% of consumers surveyed by Deloitte cited security as the main reason they don’t use mobile payments. With ID theft and retail hacks frequently making big news, these concerns may not go away any time soon.

What’s changing: Most high-profile mobile payment apps, such as Apple Pay and Google Wallet use tokenization, so they don’t store consumer’s actual credit card info, and this technology is considered by some analysts to be even more secure than the EMV chip and pin technology recently adopted by credit card companies. Phones that require two-factor authentication or biometric identification via fingerprint or retina scan can offer further assurances.

Over the next decade, consumers prioritizing ease-of-use, incentives and security will vote on the best solutions with their financial actions.