The practice of settling point-of-sale transactions by using mobile devices is set to really take off in the US in 2016. What are the reasons behind the expected surge in adoption of this new means of payment?
The total value of transactions carried out at point-of-sale using a mobile device as means of payment is set to increase by 210% to $27.05 billion in the United States during 2016, predicts digital marketing research platform eMarketer. In 2015, US mobile payment transactions are likely to total $8.71 billion, with users spending an average of $376 annually using their mobile phones as a payment method.
Moreover, not only are transactions settled through mobile payments set to explode in value terms but the number of customers switching to POS mobile payments will also continue to rise, reckons eMarketer. In 2016, 19% of all US citizens who own a smartphone will carry out a point-of-sale transaction via their mobile device, rising to 31% by 2019. Three days after the launch of Apple Pay in autumn 2014, the Cupertino-based firm claimed that one million credit cards had already been registered in the system. Since then however, Apple has been saying very little about how its digital wallet is doing, a silence which would appear to speak volumes. So just how often are these wallets being used? At the moment, consumers seem rather shy of adopting the practice.
Growth in point-of-sale transactions using a mobile device
More players entering the arena
In fact eMarketer’s forecast is in line with one major trend, i.e. the increasing number of digital wallet providers on the market. A Gallup poll carried out last year revealed that US citizens own an average of 2.6 credit cards, which gives an indication of the potential for disruption in the US payments market. We can observe two main approaches. On the one hand, there are the big mobile wallet players, who are focusing hard on the consumer and have set out to radically transform the user experience, with Apple Pay competing with Android Pay and Samsung Pay, these latter two having been available in the United States only since September. Over the last year Apple has been hard at work approaching financial institutions and has signed partnerships with a large number of major banks. In October, the company announced that it had signed up an extra 70 banking partners. On the other hand Samsung, which is struggling to make up ground after launching one year behind Apple, has so far signed up only four major partners – Chase, Citigroup, Bank of America and US Bancorp.
Meanwhile, apart from the mobile giants, there is another group of providers, most notable among them being the American MCX retailers’ consortium, with their CurrentC payment product, and PayPal, which acquired Paydiant – a white-label payments platform for retailers – earlier this year in a bid to diversify beyond its Internet payments territory. CurrentC is taking a more merchant-focused approach, with the aim of subsequently winning over the consumer as a second step. PayPal – which announced in Quarter 3, 2015 that it now has over 173 million active customers accounts worldwide – is positioning itself somewhere between the consumer-focused and merchant-focused strategies.
Nor are the banks remaining passive. JP Morgan Chase, one of the largest US retail banks, recently stepped into the fray with its plans to launch the Chase Pay digital wallet in 2016, a move which was announced at the Money 20/20 payments conference in Las Vegas in October. ‟Long term, there won’t necessarily be a single winner that will sweep the board as one might think, with Apple Pay versus Android Pay as two diametrically opposed worlds. On the contrary, a number of players will co-exist in the market with offerings that are sometimes in competition with each other, but which may also be complementary,” argues Matthieu Soulé, a senior analyst at L’Atelier BNP Paribas North America, who specialises in Fintech issues, predicting: “Moreover, there probably won’t be a universal response at global level. There are more likely to be regional or countrywide approaches depending on the players on the ground and the various regulatory systems.”
One can also detect a dichotomy between the players seeking to use their large customer bases – e.g. Apple Pay, MCX and Chase, which is the top US retail bank for credit card issuance – and the ‘outsiders’ – startups, or former startup in the case of PayPal, which are aiming to beat a path towards an open market for everyone. The first group, with Apple the case in point, wants to impose a de facto standard by ensuring mass adoption by the general public, while the second group is looking to negotiate standards upfront.
Solving the chicken-and-egg conundrum
Although Apple is not telling us exactly how well Apple Pay is doing in financial terms, the product continues to make headway. At launch it already had 220,000 stores and apps on board, and eMarketer reckons this number will soon rise to 1.5 million. In addition, two major partnerships have been signed: with Starbucks, providing for Apple Pay to be available in 7,500 of the coffee chain’s outlets in 2016; and with KFC. Meanwhile PayPal, with its 173 million users, has recently started working with leading US retailer Macy’s, which now accepts the Apple Pay solution at its stores.
Moreover, the eMarketer analysts are forecasting that customers at stores in the United States which use these point-of-sale mobile payment systems will by 2016 form a vast community of over 37.5 million people. This seems likely to go some way towards overcoming the old chicken-and-egg paradox. On the one hand, consumers are unlikely to pick up on new payment methods if too few merchants offer the facility in their stores. On the other hand, merchants will only sign partnerships with suppliers of such solutions – and install terminals which are compatible with this type of payment method – if they are certain that their customers will want to use them. There is also the issue of added value. At the moment many members of the US public would argue that being able to pay with your telephone adds no more value than being able to pay with your credit card at the counter.
The trump card for digital wallets in terms of their appeal to merchants is enabling retailers to act before, during and post the transaction: “If the wallet remains no more than a form of payment acceptance – contactless though it might be – at the end of the day it’ll be no more attractive than any other means of payment.”
Matthieu Soulé explains: ‟Consumers are expecting more from using digital wallets. It’s not just about switching to mobile payments but about adopting a solution – ideally mobile payments together with a range of services. They might be offered money-off coupons, for instance. This is exactly what retailers want: they want to be able to act on what happens before, during and after the transaction so as to raise their customer conversion and retention rates, which they might be able to achieve by for instance pushing promotional offers or other coupons via the wallet. In other words, if the wallet remains no more than a form of payment acceptance – contactless though it might be – at the end of the day it’ll be no more attractive than any other means of payment.” He adds nevertheless: “But the fact is that there are real convergence points between the interests of the consumer and the retailer when it comes to the added value provided by digital wallets. That’s where we’re likely to see solutions emerge. And the promise of seeing these wallets simplify the processes of small and medium-sized firms, or combining into a single product a diverse range of services which today are being provided by various different players, is on everyone’s mind. However, there are as yet no real initiatives underway capable of creating an ecosystem of connected services which do add value for both parties in this way.”
As a last word on the subject it might however be worth pointing out that adoption of bank cards – which are regarded an absolute must today – did not happen overnight.