Payments Going the Way of the Smartphone
Goodbye plastic and hello smartphones. While a small percentage of consumers are currently paying for goods by tapping terminals with their phones, two-thirds of Americans, according to a Harris Interactive poll, think it’s just a matter of time before that’s how we’ll all be doing it.
While most think it’s just a matter of time before we’re all paying by smartphone, only eight percent of 2,383 adults surveyed by Harris are actually interested in chucking cash and cards to pay by phone now.
As might be expected, younger consumers are more open to the idea of using phones to pay for purchases in stores. Households with kids are also more willing to giving payments by smartphone a try than those without children.
A major stumbling block to smartphone adoption is concerns over security. Fifty-one percent who are not very or at all interested in using smartphones for making payments say they don’t want to store sensitive information on devices that could be stolen. Forty percent are not comfortable using a phone to transmit data to a retailer’s terminal.
Perhaps an even bigger impediment is convincing consumers there’s a real need to make a switch to a different form of payment. Fifty-two percent just don’t see a need now. What will convince them to think differently in the future?
Discussion Questions
Where do you see the future of payments headed? Are there compelling reasons that retailers should be communicating to consumers to facilitate the switch?
The future of non-cash payments is absolutely mobile. It may take a while, but that’s where it’s going. It will have a long cycle of resistance amongst certain demographics, but once it hits a tipping point, payment processors that see financial benefits to digital wallets will force it to happen.
When they decide to stop mailing plastic, the late adopters will have no choice but to make the switch or use cash. I don’t see it in the next few years, but that tipping point is sitting out there probably around 80% smart phone adoption.
I bet early surveys for credit card adoption were similarly low. Like other banking innovations (e.g. ATMs, online banking, EMV) people are slow to change how they deal with money. But change will eventually come and we won’t look back.
Moving payments alone is not compelling enough. Retailers have to also include other benefits like digital coupons, targeted offers, and loyalty programs. When all the features are combined, mobile payments suddenly seem worth it.
If the payment to the phone credit companies is lowered to match the credit cards—as of now it isn’t even close—then most retailers will adopt to the technology quickly. We have enough costs built into our sale, and a competitive rate would be welcomed in a big way. Follow the money as they say, and you’ll figure out who wins this game.
If I leave home and forget my wallet, I continue to go to work even if only 2 minutes from home. If I pull into my parking lot at work and have forgotten my smartphone, I go home to get it. It is that important to all of us to have our phone.
It will be the way we pay for things in a year or so. No one wants to carry all the cards for payment, for loyalty or for hotels and airplanes. I just need to get the smartphone to unlock and start my car and I am all set… I’ll only need my phone and I’ll be good to go.
Tap vs. swipe is a small improvement.
Eliminating the need to carry around multiple payment and loyalty cards is a nice improvement.
Eliminating the need to stand in line at checkout is the “killer app.”
Consumers are cool to mobile payments because they don’t have enough information. Once mobile payments are adopted by more retailers, and consumers are educated about using them, look for mobile payments to shoot up.
That said, it is a confusing landscape. There are too many companies in the mobile payment race. Too many payment technologies. Consumers do not feel comfortable with any of them at this point.
We seem to always rush to enable tech systems to do things a new way just because they can. We fail to stop and really understand what’s not broken. Trusting the credit card company and the bank isn’t really all that broken for many Americans.
I’m more sure of Amex keeping my data as secure as they promise than I am of what retailer X might be doing with it.
I happen to like the PayPal model, where I can use the smartphone app for convenience at retail, pick up offers if I want to, while knowing that the transaction is secure via attachment to my Amex card. PayPal has earned my trust and can therefore serve as a go-between so I’m not handing over data to a retailer system.
Of course people say it’s only a matter of time before the world changes regarding tech adoption. It’s a natural survey response. I’m not betting the farm on that data point.
Just like every other new technology before it, e-payments will certainly come to pass, but we need the transition to happen over a period equal to the time it takes for us to not only trust the process, but for the technology and its process to be as easy as pulling a credit card out of our wallet.
There will inevitably be different competing formats and processes. What the accepted format is will be determined under the pessimistic observation of consumers. Time will pass and we’ll all look back and wonder how did we ever function without e-payments!
Today we have cash, checks, and credit and debit cards as payment methods. Now we are adding smartphones to the mix. The smartphone will likely be an electronic debit card as this is the direction the banks will push towards. This reduces the consumer float on money. Banks will need to upgrade their offering to provide real-time account balance and/or stop payment to reduce losses.
Retailers will need to link their frequent shopper programs to smartphone technology. They must understand their customers to know when to invest in the technology. Smartphone ownership skews young. A chain like GameStop should be ready soon as well as fast food restaurants. High-end department stores have a few years.
Security is THE issue, and it is this particular security issue that stands at the confluence of big, BIG data, the Convergence of Online, Mobile and Bricks (COMB) retail, and a whole lot more. For one thing, the tapping or waving of the cell phone to effect payment is just the end of the path-to-purchase. This tap/wave/scan will become an integral part of navigation and selection—thus obviating traditional checkout, a costly-to-the-retailer and frustrating-to-the-shopper, process.
As I have noted here before, the smartphone, aka cloud-enabled personal supercomputer, will follow in the historical path of credit cards, probably first with retailer-proprietary apps, but soon to transcend the porous walls of individual retailers to mimic shoppers own multi-retailer shopper experiences. The key to security will also follow the credit card.
What do you do if you lose your credit card? Call and cancel it! How so 20th century. 😉 Security for your personal supercomputer MUST rely on its ability to recognize YOU, personally, and if YOU are not THERE, lock-wipe-dissolve or whatever. This little device must be smarter than my dog Penny, and know the difference between me and anyone else.
I believe the biggest impediment is the antiquated fee structure of “card not present” or “terminal rental fees” when mobile payments make those fee structures obsolete. The banks want to keep those fee structures intact for profitability.
I have attended several mobile payment conferences over the last 14 months and there are literally dozens of providers looking to take the lead in the mobile payment space. Some roadblocks include hardware with the retail locations. Although Verifone, for example, has partnered with ISIS and is committed to updating retailer terminals with new hardware that can read a mobile payment, it will take time to make that conversion. This is probably one of the largest barriers beyond the consumer security concern (which is real).
Finally, mobile payment companies will need to explain the value of making the switch from swipe to tap. Both take less than 3 seconds, so what is the real value? Better security (big hurdle), less expensive for retailers (consumers don’t care), rewards to consumers (why and for what behavior), tracking of purchases to better target promotions (will consumers want this type of monitoring).
Mobile payment is the future (for now), but we have a lot of barriers to overcome before it becomes mainstream.
When we implemented DEX for back door receiving it was a similar issue with small or occasional vendors who didn’t want to make the hardware investment. The incentive for them was more business. The incentive for consumers will be targeted discounts.
I also recall the story of grocers hiring actors to walk the store with shopping carts when they went to self service.
Once the confidence issues (security) are put behind us, the smartphone—or some other type of device—will be the way we pay. A number of years ago Bill Gates wrote a book with the prediction that that we would be paying this way. There will be early adopters, both on the retailer and the consumer level, that will pave the way for others to follow. Think about how people use PayPal. Used to be a pretty scary way to make a payment. Now it’s “mainstream.”
An added thought: mobile payments will really take off when governments stop franking money.
The issue is security and privacy. Resolve these two concerns and the process will grow.
Until then, it’s another technological improvement proving that just because consumers can doesn’t mean they will.
Payment methods are always progressing towards easier and faster means. First there were credit cards, then with technology and communication improvements, along came debit cards and now smartphone payments are coming into play. Each of these payment methods increased the speed and efficiency of payment (remember the old days when purchasing with a credit card required the cashier to flip through a booklet to verify your credit card number was not on the list of bad or fraudulent numbers?).
It would behoove retailers to communicate and educate consumers to the advantages of using smart phones to make payments and allow them to become comfortable with the concept. I know there will be resistance to such an idea, but over time I believe it will become such commonplace that consumers will take it for granted. Purchasing over the internet was not considered safe or secure by some when it was first introduced—and now look at it!
Because of the number of reported security breaches the majority of Americans are suspicious of all types of electronic payments. When we visit the reports of what smart phone users are doing with this new battery operated gadget we find telephone, gaming, video e-mails and price shopping are the primary use for these products. Fifty percent of Americans no longer qualify for credit card use due to the recent onslaught of credit issues feeding into the current catastrophic economy. This credit reversal alone has caused a significant volume increase in the pay as you go simple system wireless service users.
Add to that the 25-30 million illegal aliens, now counted as Americans, that much prefer cash for their services and the percentage potential for this payment form rests in the low to mid teens. For that reason small businesses should be slow to respond to the add-on fees for this service.
If more merchants offer these payments, more will adopt them. Several technologies that are now part of our culture were viewed with consumer hesitation, however, mass adoption always happens with great ideas, like this. It’s gonna happen in the next 36 months. Mark my words.
While banks, transaction processors and retailers may like payment via smartphone for a variety of reasons stated by others here, beyond the ability to carry coupons electronically I’m not sure there is yet enough consumer benefit for this form of payment.
With the consumer concerns for security, privacy, potential theft of device, and the fact that for the average American household (grossing about $50K) the smartphone hardware and the monthly service fees are significant, the barriers to adoption seem high. Before we bury the credit cards, will we be seeing payment by thumb print, retinal scan, embedded chip, or some other technology?
Payments are headed mobile for sure. As stated by Tony and Anne though, follow the money and trust are the keys to getting there.
“Perhaps an even bigger impediment is convincing consumers there’s a real need to make a switch to a different form of payment.” And I’m one of them.
On Monday when I went to lunch, the server brought back one of those antediluvian hand-written cc forms, explaining the processor was down. After I recovered from my nostalgic reverie, I thought to myself, what a nuisance. No wonder card usage used to be small! Paper to plastic, THAT was a game changer…plastic to mobile, not so much.
Late to the interesting thread so let’s have fun; I suppose there may be a few scenarios:
1. Sam Walton goes fishing with the CEO of P&G scenario. In this future, an industry leader convinces a partner to participate in a win-win-win idea called EDLP – Everyday Low Price. How might this play out? EDHS – Every Day High Service. Pay electronically and all your acquisition, installation, usage, ownership and disposal issues are covered. Does Amex’s Kenneth Chenault like to fish?
2. The Roger Millikan great man theory. Millikan saved domestic textile manufacturing through his advances in manufacturing and EDI – the new EDI? Electronic Demand Integration. How will this play out? Terry J. Lundgren, here is your chance to transform the demand side!
3. The Standards Mode. This is the bottoms-up approach that begins with folks who are outside the system developing solutions for people who want to embrace the values and benefits of electronic relationships. In this model, an innovator from the incumbent side picks up on the concept, the idea works, fast followers do their own variant, and then the rest of the bell curve comes along to turn the idea into a standard to inexpensively jump on the band wagon and reduce the benefits to the adopters. The process is catalyzed by a leading consulting company who sees the trend as this generations Full Employment Act and is quickly followed by an enterprise vendor and a trade association or two. I am thinking of the demand sides version of (KPMG and Quick Response.) Here is the keynote speech for those who can’t wait:
“We used to worry about payment capture, but we know that this is all about adding value to the total consumer experience. Electronic identification will usher in a new era of demand side applications including new ways to manage product ownership, consumer health, product disposal, and all forms of payments. Electronic payment are the tip of a $10 trillion global opportunity etc.”
Don’t miss the party sponsored by Google and Amazon – the platinum sponsors.
Customer psychographics, as expressed in lifestyle, will influence adoption of mobile payment. For example: iPhone users are more likely to use the convenience and trendiness of mobile payment, compared to Google Wallet users. Security concerns seem to be blown up because the transactions are low volume, secured by pin (same as cards), and the data is sometimes stored on cloud.