By Patti Murphy
The National Retail Federation expects retail sales in the United States to total $665.8 billion this holiday season, a 3.6 percent jump over 2015. Sales in the ecommerce sphere are expected to account for $117 billion of that total.
But don't expect mobile payments to be a big part of that mix. Not that consumers aren't using their smartphones when deciding what to buy; it's just that many stop short of executing purchases with the devices. The latest American Express Spending and Saving Tracker, released in November 2016, suggests just over three-quarters of U.S. consumers plan to use mobile devices this holiday season to browse for holiday deals and compare prices, up from 58 percent during the 2015 winter holiday season.
The 2016 Holiday Survey from Deloitte Development LLC provides the most optimistic estimates for how consumers will use smartphones this year; 43 percent of those surveyed said they planned to make mobile purchases this holiday season.
"In a broad sense, I think mobile will have an impact on shopping; on where consumers shop and where they buy," said Tim Sloane, Vice President of Payments Innovation at Mercator Advisory Group. But when it comes to how they choose to pay at the POS, he said, "We're still struggling with that."
Data from recent studies suggests momentum is building for mobile payments, but slowly. When the payment company Total System Services Inc. (TSYS) queried consumers for its 2016 U.S. Consumer Payment Study, it found that 13 percent of respondents had used their mobiles to make payments at retail locations during the past year, compared with 7 percent in 2015
eMarketer Inc., which tracks digital buying trends, recently reported that 38.4 million U.S. consumers 14 years and older have used mobile phones to pay for POS purchases at least once in the past six months. That's just 19.4 percent of U.S. smartphone users.
"Despite double-digit growth this year and next, Americans' use of mobile wallets like Apple Pay, Android Pay and Samsung Pay, as well as branded apps that include mobile wallets like the Starbucks app, Walmart Pay and CVS Pay, will not reach mass adoption in the foreseeable future," the firm wrote. eMarketer expects the total of mobile payments in the United States to reach $27.7 billion for all of 2016.
The Federal Reserve reported in March 2016 that 24 percent of adult Americans used their mobiles to make payments last year. Among consumers with smartphones, 28 percent made mobile payments. The three most common payment activities smartphone owners reported were paying bills using a mobile app (65 percent), purchasing a physical item or digital content remotely (42 percent), and paying for something in a brick-and-mortar outlet (33 percent), the Fed said.
One reason for the slow adoption of mobile payments, according to some experts, is a lack of near field communication (NFC) terminals at merchant checkouts. NFC is the underlying technology supporting contactless (or tap-and-go) mobile payments. Virtually all mobile operating systems support NFC functionality, and all mobile carriers support NFC-based wallets.
"The primary reason remains that NFC is directly linked to the number of EMV [Europay, Mastercard and Visa] terminals there are in the market," said Aite Group LLC Senior Analyst Thad Peterson. "The presence of NFC terminals is not as universal as it will be in a couple of years."
In addition, many businesses are unaware their new EMV-compliant terminals can handle mobile payments, said Alexis King, Director of Partner Relations at National Merchants Association, a Temecula, Calif.-based ISO. "It's the responsibility of ISOs and agents selling to merchants to explain all the benefits [of EMV-compliant terminals]," she said. "I don't think NFC has really been explained to many merchants."
King said taking the time to explain and demonstrate all the benefits of newly installed terminals, including mobile payment acceptance, is a requirement for NMA's agents. "They all wear Apple watches, so they demonstrate how Apple Pay works," she noted. To date, however, uptake of Apple Pay among NMA clients has been limited to smaller merchants. "Until the large retailers offer Apple Pay and make a push for it [through marketing, etc.] I can't see it going much further," she added.
Many of the largest merchants in the country had been betting on an alternative approach to mobile payments, quick-response codes that did not rely on traditional credit and debit card rails. (NFC-based mobile wallets like Apple Pay and Samsung Pay require users to tie the wallets to specific card accounts.) The Merchant Customer Exchange LLC, a consortium of retailers behind that move pulled the plug on the venture in June 2016.
More recently, several large retailers have developed their own mobile payment apps. The latest of these, Kohl's Pay, is a proprietary mobile wallet for store-card holders tied to the retailer's successful Kohl's Cash loyalty program. Starbucks was the first to introduce such an app several years ago and now claims mobile payments account for a quarter of all payments in its U.S. stores.
"Merchant wallets have a compelling user adoption model," Sloane said. Peterson concurred, adding, "It's about loyalty; payments is secondary."
Apple Pay, Android Pay and Samsung Pay all have been making inroads with retailers large and small. Apple reported that its mobile wallet is accepted at more than 3 million U.S. retail outlets. Samsung, with a smaller user base than Apple, launched a rewards scheme in November 2016 that allows consumers using Samsung Pay to earn points toward gift cards and other rewards.
King expects more merchants to follow. "That's where they'll see the most success, when they wrap it in a loyalty program," she said.
Pew's research suggests rewards and discounts can motivate consumers with smartphones to make payments with the devices, this applies particularly to millennials and gen Xers. While just 17 percent of the U.S. population, as a whole, like the idea of receiving rewards and discounts when making mobile payments, it's 70 percent among millennials and 62 percent among gen Xers, Pew said.
Dom Morea, Senior Vice President, of Business Development at First Data Corp., agrees that support for rewards will help drive consumer adoption of mobile payments. He noted that many consumers are overwhelmed by the number of rewards program key fobs they carry and would prefer to have all their rewards programs on their mobiles. "This is about saving time, money, and helping consumers live their lives better, faster and more cheaply," he said.
Concerns about security – specifically the risk of identity theft and loss of funds – continue to be an obstacle to consumer mobile wallet adoption. "Fear is a powerful inhibitor, and fraud is top of mind for many consumers," said Peter Olynick, Senior Practice Lead for Retail Banking at NTT Data Consulting Inc. An international survey of 2,000 consumers by Oxford Economics for NTT and Ingenico Group found more than half believe mobile wallets are less secure than cash; 75 percent said guarantees against financial fraud would encourage them to use mobile wallets.
Following are recent stats on consumer shopping and mobile payment habits:
Marianne Berry, Managing Director of Payment Insights at Auriemma Consulting Group, said security concerns are not universal, and ACG's research revealed that most users understand mobile is a safer way to pay. "They like the idea that the retailers don't see their actual card data," she said. Non-users tend to be unsure of mobile payments security, however.
"Mobile payments offer a much higher level of security than does the mag-stripe card," Morea stated, adding that people tend to be more attached to their mobiles than their wallets; they also tend to realize more quickly when their mobiles go missing, he noted. "With the move toward digitization and tokenization, we're in a much more secure place than the industry has been over the last 30 years," he said.
As has been the case with many innovations, Apple was the first player out of the mobile payments gate, with Apple Pay. And Apple Pay continues to enjoy the highest adoption rate, with 33 percent of iPhone 6 owners reporting they use it, according to ACG's research. Among Samsung phone owners, the firm found 23 percent use Samsung Pay.
Google's Android Pay, a recent entry into the mix, aims to be a credible competitor, as well, although adoption of Google's mobile wallet app lags far behind Apple Pay and Samsung Pay. Google recently formed partnerships with both Mastercard and Visa Inc. which, it hopes, will boost usage. Under those agreements online merchants who already accept Visa Checkout and Masterpass digital wallets will also be able to accept Google's Android Pay beginning early in 2017. Mastercard has a similar agreement with Android Pay.
As Berry pointed out, however, many mobile wallet apps are not universally available, which may skew usage data. "Only the newest and most expensive models of phones support mobile payment, so owners tend to be affluent," she said.
Soon, in addition to Apple Pay, Samsung Pay, Android Pay and other U.S.-based mobile payments schemes, U.S. merchants will also have links to Alipay, a popular mobile wallet offering from China's ecommerce giant Alibaba Group Holding Ltd. China may lag behind the United States in terms of credit card users – about 100 million cardholders among a population of 1.3 billion. By all accounts, however, it has the highest rate of mobile payments adoption in the world.
Sales data from China's annual Singles Day (a November holiday that stands in contrast to Valentine's Day) shows 1.05 billion transactions went through the Alipay mobile app that day, a 48 percent increase over last year. At the peak of Singles Day, Alipay was handling 120,000 transactions a second, the company said.
Alipay, which claims 400 million users, has been seeking U.S. partners in an effort to support Chinese tourists who travel here. In October 2016, it struck deals with First Data and Verifone Inc. to achieve that end. Those deals make it possible for Chinese tourists to use Alipay wherever First Data's Clover Mini POS terminal and Verifone's e355 mPOS devices are installed.
Alipay said it is only interested in better serving Chinese tourists, and it will target high-end merchants. Many observers aren't buying that, however; they expect Alipay to enter the United States in a big way. "It's going to shake things up," King said.
So which mobile payment options are most likely to hold sway in the market, long term? "We don't think about it in terms of a sole winner," Morea said. "We think there's a greater likelihood that a set of solutions will emerge that consumers will come to prefer and adopt over time."
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