Mobile Payments: The Future is Here, just not Evenly Distributed

on September 26, 2016

If you have made a payment at retail with your smartphone and are anything like me, you’ll feel this is the future of payments. But as the famous quote from William Gibson says, “the future is here. It is just not evenly distributed.” After conducting some research in the US, UK, and Australia, it would be hard to find a more appropriate phrase for mobile contactless payments.

Last fall, the United States went through a drastic disturbance in consumer retail stores thanks to the EMV shift, which moved us from swiping our credit cards to inserting them into a terminal and waiting for the transaction to complete. With the average transaction time still taking between 5-10 seconds, down from 15 seconds six to eight months ago, US consumers have had friction added to their checkout process. It is with this retail experience in mind we were hopeful, last fall, that mobile contactless payments would take off. Toward the end of 2015, roughly 17% of iPhone owners had used Apple Pay, and 7% of Android owners had used Android Pay. Part of this had to do with less than 50% of the iPhone installed base in these markets having devices that are Apple Pay capable. An even smaller number of Android-based devices in use are NFC capable. Here we are a year later, with exponentially more smartphones in the market NFC capable, and interestingly, not a lot has changed.

When it comes to tap to pay terminals, the US is well behind markets like the UK and Australia. While we are still in early days with consumers paying with their smartphone in those markets as well, a majority of consumers there are already using tap to pay on a regular basis using their bank-issued card with an NFC chip in it. We decided it would be interesting to study consumers in the UK, Australia, and the US in order to see the contrast between mature contactless (tap to pay) payment markets and one like the US where it is all brand new.

We asked consumers in the US, UK, and Australia if they have ever used a form of contactless payment, defined as tapping to pay with your bank-issued card or mobile phone.

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As you can see when it comes to contactless tapping to pay behaviors, markets like the UK and Australia, with bank-issued cards that have tap to pay functionality and the vast majority of merchants accepting tap to pay, it paints a very different picture than the US market. Where ~80% of consumers in the UK and Australia have used a tap to pay method, 80% of consumers in the US had not. Part of this has to do with minimal acceptance of contactless methods at US retail, compared to many merchants accepting it in the UK and Australia.

To further highlight the stark differences of the US market compared to the UK, and Australia, where a form of contactless payment is a normal transaction behavior, 61% of US consumers said they are not that familiar or not familiar at all with any kind of contactless payment method. One solid conclusion from our research is we still have a lot of educating to do on the US market.

Room to Grow for Mobile Payments

After studying all three markets, what I found most interesting was first, the disparity between consumers using contactless in the UK and Australia and those not using it in the US as outlined above. The second thing that stood out was how all three markets were remarkably similar when it came to usage of mobile contactless payments. Meaning, using something like Apple Pay, Android Pay, or Samsung Pay.

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The chart shows the types of contactless transactions consumers have tried in all three markets. Interestingly, while tapping to pay with your credit/debit card is an established behavior in the UK and Australia (over 50% of the market uses this method on a weekly basis), consumers in those markets have yet to fully transition their contactless payment behaviors from their credit/debit card to their smartphone, even though it is accepted almost universally in their country.

When it came to which mobile contactless payment was most popular among those who said they have used their mobile phone to tap and pay, Apple Pay is the most common form of mobile payment with 62% usage share of mobile contactless methods compared to less than 30% for Android Pay and Samsung Pay respectively.

While we are still new to paying for goods and services with our smartphones, the future seems bright. Our research found consumers who have used Apple Pay, Android Pay, and Samsung Pay had high satisfaction levels with the experience, with speed and convenience the biggest factors in their satisfaction, and a high propensity to use it more often in the future.

Security Still the Largest Barrier for Non-Users

The sleeper story for consumers is security. While this happens to be one of the single most important reasons to adopt contactless payments, it is also the one least understood by consumers. In all three markets, 40% of consumers listed security concerns of adding their credit/debit card to their smartphone as the main reason they have yet to try it, while 29% said not trusting the transaction was secure as their main reason.

In an era of heightened awareness of identity fraud, merchant breaches of credit card data, and more, it is not surprising security concerns came up time and time again in our study. Yet, a data point that stood out was 45% of consumers stated an increase in willingness to use mobile contactless payments if retailers and banks helped them understand the security benefits of using something like Apple Pay, Android Pay, or Samsung Pay. This was listed as the single biggest thing retailers and banks could do to get them to use mobile contactless payments.

As I analyzed the data of over 50 questions between all three markets and the responses of 1,761 consumers, I’m convinced as ever mobile payments are the future. As more banks support it, merchants accept it, and consumers understand the security benefits, I’m convinced we will get to an era where paying with our smartphones is the normal and most common behavior. However, our research strongly suggests it is not consumers standing in the way of adoption. It is retailers and banks who need to make the appropriate moves to bring this safer and more secure way to pay to their customers.

I’ll be presenting the full findings of our research at a VIP event hosted by NXP in Las Vegas on October 24th. If you are coming to Money 20/20 or are a VIP in the banking and transaction industry, or media, let me know if you would like to attend.