By Justin Grensing
While mobile payment solutions are popular in many developing countries, the U.S. reception has been lukewarm, with less than 10 percent of consumers regularly using them to pay in store.1 Analysts say minimal perceived convenience and usefulness, and concerns over security, are key reasons for the slow adoption.2
Nevertheless, growth does continue. And given certain advantages mobile payment solutions offer to merchants—such as the increased size and frequency of sales, which appears to be the case among mobile payment users—SMEs may wish to pursue strategies that increase adoption among their customers.
At the beginning of this decade, when mobile payment solutions first started to emerge, the Pew Internet Project and Elon University’s Imagining the Internet Center invited experts and other Internet stakeholders to predict the future of mobile payments. Their April 2012 report found that, "Overall, a majority of these respondents supported the scenario that by 2020 most people will have embraced and fully adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards."3 About two-thirds of those surveyed agreed with this premise, while the remaining third forecasted a much slower rate of adoption. Their tempered expectations were primarily based on concerns over the safety of their money and fear of providing more personal information to tech companies.
Now, an April 2019 report from the Federal Reserve Bank of Boston has vindicated the more cautious third. According to the report, less than 32 percent of U.S. consumers used a mobile device to pay in store between 2015 and 2017, mobile wallets were used by less than 20 percent of smartphone users during that time, and nearly 40 percent of consumers don’t see the value of using a mobile wallet in place of traditional payment methods.4 Further, Axios reports that more Americans still write checks than use mobile payment solutions.5
Internationally, however, the mobile payment solutions picture is quite different, particularly in developing countries. In India, for example, the number of payments made via mobile wallets increased by 75.5 percent in 2016 alone.6 In China, consumers show a strong preference for mobile wallets, which account for almost two-thirds of e-commerce transactions and lead payments at point-of-sale, as well.7 Roughly three quarters of millennials in each country have used a mobile wallet at the point of sale, more than double the proportion of youth in the U.S. and U.K.8
Still, eMarketer estimates that 61.6 million people in the U.S. will use mobile payment solutions in 2019—just over 20 percent of the population—compared to 55 million in 2018 and 48.1 million in 2017.9
A key reason for the stark contrast between the U.S. and the developing world is that the U.S.’s well-established cashless payment infrastructure long predates the arrival of mobile payments, eMarketer notes. Mobile payment solutions might significantly boost convenience in developing economies previously reliant on cash, but the increase in the U.S. is more marginal compared to swiping a credit or debit card.
Security is also a primary concern for those considering mobile payment solutions. Industry observers point to the need to balance the benefits of immediacy and convenience with strong fraud and security controls.10 New technologies such as e-wallets, for example, can offer extra layers of protection through encryption, tokenization, and device authentication.11 The Boston Fed report notes that biometrics and other advanced authentication tools are helping to minimize the tradeoff between security and convenience for mobile payment solutions.12
It turns out that customer convenience can be a benefit to merchants as well as their customers. Paying for goods and services is typically the least-enjoyable part of customer experience, not only because customers must part with money but also because they often have to wait in line and otherwise spend time completing the transaction.13 Mobile payment solutions can improve that customer experience for merchants. In addition, mobile payment tools require minimal technical infrastructure and make taking payment easy for point-of-sale staff.14 The flexibility of mobile payment solutions can allow staff to take payment anywhere in the store. Further, they could allow an SME to set up temporary or mobile stores for special events, such as farmers markets, concerts, and festivals.
Perhaps the biggest potential advantage of mobile payment solutions for merchants, however, is how they impact consumer spending patterns. Researchers at the University of Illinois studying data from Alipay, China’s largest mobile payment solution platform, found that total transaction amounts increased by 2.4 percent for merchants after adoption of a mobile payment solution, while transaction frequency increased by over 23 percent.15
Mobile payment solutions have become globally popular in the last decade, even though U.S. consumers haven’t warmed up to them as much. Research suggests there is opportunity for U.S. businesses that are able to convince customers to utilize mobile payments, and that demonstrating solid security along with customer benefits beyond mere convenience could be key elements that encourage greater mobile payment adoption.
Justin Grensing is a freelance writer, MBA and attorney who covers topics ranging from finance, marketing, human resources, legal/compliance, and general business.
1. “Health of Cash 2018,” CardTronics; https://landing.cardtronics.com/hubfs/Cardtronics/Docs/Health_Of_Cash_Study_2018.pdf
2. “Mobile Payments In US To Reach $3 Trillion Within Two Years,” Payment Week; https://paymentweek.com/2018-2-26-mobile-payments-us-reach-3-trillion-within-two-years/
3.“The Future of Money in a Mobile Age,” Pew Research Center; https://www.pewinternet.org/2012/04/17/the-future-of-money-in-a-mobile-age/
4. “Innovation Across Mobile Payments,” Federal Reserve Bank of Boston; https://www.bostonfed.org/publications/mobile-payments-industry-workgroup/innovation-across-mobile-payments.aspx
5. “The U.S. is out of step with the rest of the world on mobile payments,” Axios; https://www.axios.com/americans-use-mobile-payments-less-than-checks-2cc91db9-909d-41f9-a77d-9c0a4cfa5f81.html
6. “World Payments Report 2018,” Capgemini and BNP Paribas; https://worldpaymentsreport.com/wp-content/uploads/sites/5/2018/10/World-Payments-Report-2018.pdf
7. “Global Payments Report,” Worldpay; https://www.paymentscardsandmobile.com/wp-content/uploads/2018/11/Global-Payments-Report_Digital-2018.pdf
9. “The Mobile Payments Series: US,” eMarketer; https://www.emarketer.com/content/the-mobile-payments-series-the-us
10. “Innovation Across Mobile Payments,” Federal Reserve Bank of Boston; https://www.bostonfed.org/publications/mobile-payments-industry-workgroup/innovation-across-mobile-payments.aspx
11. “Global Payments Report,” Worldpay; https://www.paymentscardsandmobile.com/wp-content/uploads/2018/11/Global-Payments-Report_Digital-2018.pdf
12. “Innovation Across Mobile Payments,” Federal Reserve Bank of Boston; https://www.bostonfed.org/publications/mobile-payments-industry-workgroup/innovation-across-mobile-payments.aspx
13. “5 benefits of mobile payment acceptance,” WorldPay; https://www.vantiv.com/vantage-point/smarter-payments/mobile-payment-processing-advantages
15. “Mobile Payment Adoption: An Empirical Investigation on Alipay,” University of Illinois; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3270523