By Patti Murphy
There's been plenty of hype about the impact of millennials on society in general and on payments in particular. This latest generation of adults is a huge demographic with potentially trillions of dollars a year in buying power. Millennials also have an affinity for mobile technologies, so some observers expect they will drive mobile payment adoption.
But the economic power of millennials is far from mature. Thus, even if mobile payments take off with this demographic, such payments will remain on the fringe for many years to come.
The undeniable fact is that baby boomers are in the economic driver's seat these days. They account for about half of all consumer packaged goods spending, according to The Nielsen Co., which also expects boomers to control 70 percent of all disposable income in the United States within five years.
Meanwhile, despite the massive hit to generational net worth experienced by boomers following the 2008 market meltdown, those 55 and older today control nearly 75 percent of overall wealth in the country, according to the Economic Policy Institute. Americans between the ages of 45 and 65 also dominate new business creation and drive significant business spending.
On the other hand, "Millennials are having a tough time of it," the consultancy Market Platform Dynamics observed in a recent white paper, Payments Innovation and the Use of Cash. The unemployment rate among Americans between the ages of 18 and 35 is higher than for any other generation, the paper noted.
So "even if millennials develop a new way of paying at the point of sale, it won't likely have much of an impact right away – they just don't have the spending power as a group to shift payment methods as a percentage of spending, which is what drives overall change."
Over time these consumers will advance in their chosen fields of work (increasing disposable income), marry, have children or increase spending in other ways. "But that's not going to happen all at once, and not much of it is going to happen even over the next decade," the paper stated.
This puts into perspective a recent consumer survey by the British firm Consult Hyperion Ltd. It revealed that nearly two-thirds of Americans are dubious about using mobile wallets for payments. Age is a factor, possibly gender, too. Among men between the ages of 25 and 34, for example, the split on mobile wallet acceptance was 50-50. Among women between the ages of 45 and 54, 78 percent said they would never use mobile wallets, the consultancy reported.
Here is another potential roadblock: many consumers who use smartphones to make payments are encountering problems. A survey by Jumio, an online verification and payment platform, revealed that 68 percent of consumers with smartphones or tablets have attempted to use those devices at the POS, yet 66 percent of that group reported being unable to complete those transactions because of obstacles at the checkout.
Prospects for mobile payments seem brighter globally. The international consultancy Berg Insight AB forecasts 1.2 billion mobile money users worldwide by 2017, up from 323 million in 2011. This is because in many emerging markets (especially in Africa and Asia) mobile phones are being leveraged to connect tens of millions of unbanked adults to the financial mainstream.
In 2011, about 61 million adults were using mobile devices to send and receive payments throughout emerging markets. Berg Insight expects that number to grow to 381 million by 2017.
M-Pesa, a joint venture between British telecom giant Vodafone Group PLC and the Kenyan communications company Safaricom Ltd., is perhaps the most successful mobile money initiative. As of 2012, 83 percent of the adult population in Kenya used M-Pesa to move about $8 billion. M-Pesa allows consumers to deposit, send and receive payments, as well as access cash. It uses short message service (SMS) technology, rather than more complex technologies like near field communication. M-Pesa reported its transaction growth rates exceed 40 percent a year.
The most successful mobile payment initiative to date, also SMS-based, has been in the Philippines, a country the GSM Association dubbed "the texting capital of the world," and where, according to the World Bank, only about one in five households have bank accounts.
There's no denying that mobile technologies are cool. But they are not always practical. Consumers have been quick to adopt mobile communication options because mobile devices make communicating faster, easier, more robust and cheaper.
I'm not convinced mobile payments can best more traditional payment form factors in any of these categories, at least in the United States. It doesn't take less time to pull up an app on a mobile device than it does to hand over a plastic card or cash at checkout. (For me, it usually takes more time.)
Similar problems plague other mobile financial services, too, as I discovered upon making my first check deposit using a smartphone. The online bank I used accepted the deposit then froze all of my accounts due to what it deemed "suspicious activity." What I discovered – after several days and exchanges with customer service – was that the activity deemed suspicious was the mobile deposit, which had cleared and posted to the paying account within just two days.
It seems the Internet service provider for my PC isn't the same as my mobile provider. Apparently the bank's fraud screening procedures aren't that sophisticated. If it had been using geo-location technology, for example, it might have determined that the phone was being used in the same exact locale as the PC (in my home office).
I understand payments (and especially check payments) better than most consumers, but I walked away from this experience scratching my head. After all, I was putting money into the bank, not taking money out, and the deposit cleared and posted without incident.
No business wants to alienate customers, merchants and banks. But unless and until banks make transacting with a mobile as simple (or simpler) than paying by cash or card, mobile payments will be a non-starter, at least until millennials are able to amass more economic clout than their elders.
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