They were supposed to revolutionise commerce, kill off cash and lead to us all cutting up out debit cards. So what ever happened to mobile payments?
Apple Pay launched in 2014 to much fanfare, the first widely-deployed mobile payment standard, with Apple CEO Tim Cook predicting the subsequent year would be “the year of Apple Pay”. But that year never materialised. While, in June 2016, 23.6% of iPhone owners said they had never tried Apple Pay, according to InfoScout research for PYMNTS.com, that year was a peak - Apple Pay adoption is now in decline, to 21.9% at last count in March 2017. The number of people who have used it in the last quarter has plummeted, from 51.4% at launch in 2014 to just 18.4% in 201715. And Android Pay adoption is far smaller still.
Mobile payments appears to be a technology with more hype than reality, a reverse momentum rather than a bright future. So what’s going on?
Reasons for consumer reluctance are many. Chief among them is security. We now live in a world where a different grand systems hack is splashed across the news headlines seemingly every day. According to an Auriemma Consulting Group study, 56% of our UK cousins cited security as an adoption barrier, 41% said they feared losing their phone and 31% said they simply preferred cash.
One of those reasons is little talked about - international differences. When he launched Apple Pay, Cook was right to say the standard was better than using cards with magnetic stripes that require signatures at payment. The trouble is, while US banks stay wedded to this old-fashioned system, many other countries around the world have long since moved on.
While US consumers still have not even experienced the benefits of Chip & Pin, many people in the UK are already enjoying frictionless, contactless payments using the card in our pocket. There is, then, far less of a perceived need for the upgrade mobile offers.
What could drive up adoption? Much has been written about the recent news that a majority of UK merchants now accept Apple Pay payments of unlimited value, exceeding the contactless limit of $40. Many pundits believe this is the factor which will now lead to an overdue boom in usage.
But this hope may be misplaced. Those limits were put in place by banks for a good reason - to assuage consumers’ concerns that a lost or stolen card could mean a thief or finder spending from their account with impunity. Furthermore, this belief ignores the fact that a majority of mobile payments are made for small, casual consumables, like coffee or a meal, not bigger-ticket items that necessarily require greater contemplation. You won’t buy a yacht or a sports car using your phone.
What most people have failed to realise, then, is that mobile payments are not about, well… payments. The history of technology suggests security concerns can be overcome if providers offer enough persuasive evidence of value or convenience. In mobile payments, that necessitates offering something other than a new way to pay - it means using the device as a channel to broker a new relationship with a consumer.
In recent years, we have seen smaller mobile payments providers like Droplet and Yoyo focus on providing loyalty incentives and rewards for mobile transactions. They make mobile payment a sideshow to a transaction that is completed this way not for convenience but for some future outcome.
And consumers like it. An Opinion Matters poll for Kalixa found a majority of UK internet users under 67 would make more payments via mobile phone if they were offered loyalty points or incentives. Many consumers are already used to using apps from brands like Starbucks to manage their loyalty accounts. To retailers, these offer a perfect opportunity to process both payments and rewards in one place. And there is every reason for retailers to embrace this. According to InfoScout’s survey, 13.3% of consumers say they have not used mobile payments because they already get rewards or points for using a different payment method specifically.
The happy coincidence of all of these trends is that mobile payments can be used not just to process transactions and not just to give customers rewards, but smartphones can be the engine that fuels retailers’ consumer data collection odyssey. These are the devices in the palm of our hands, every day, at every retail location we visit. They know when we are in a branch, they can know which are our favorite products and back-end data infrastructure can join the dots to make for more effective future product marketing.
Consumers are not yet convinced about mobile payments. It is time to give them reason to buy in.
Key takeawayIncentives and loyalty points encourage mobile payments.
15 Source: Apple Pay Stats, PYMENTS.com, 2016