Mobile Wallet – The Future of Payments
A user’s age could be a major determinant of his or her likelihood to use a mobile wallet, according to new data from a Fiserv study.
The study found that, overall, just 16% of the general population had used a mobile wallet. But 33% of “late millennials” and 36% of “early millennials” had done so.
That’s a significant boost, and could point to even higher adoption coming down the line as young millennials and Gen-Z gain spending power.
That could be a result of increased awareness overall. Data from TSYS found that the number of users who are likely or certain to put their information into a mobile wallet rose from 2015 to 2016. And at the same time, users who are neutral or unlikely to do so are on the decline. If a user puts their information into a wallet, they might be more likely to test it in-store since they’ve already engaged with the product. That could help grow adoption and engagement, and ultimately help these wallets become better integrated into the spending ecosystem.
But there’s still room to grow before these wallets hit the mainstream. The hurdles that are stopping users from paying with wallets are relatively consistent. Fiserv found that nonusers avoid mobile wallets predominately because they don’t trust the security involved. And many users also prefer physical wallets or don’t have use for mobile wallets.
That fits with Federal Reserve data from Q4 2015, which found that security concerns and lack of interest were the biggest reasons consumers didn’t use the wallet. As a result, wallet providers will have to continue to work to solve these issues if they want larger percentages of consumers to adopt wallets and form habits around them.
Mobile payments are becoming more popular, but they still face some high barriers, such as consumers’ continued loyalty to traditional payment methods and fragmented acceptance among merchants. But as loyalty programs are integrated and more consumers rely on their mobile wallets for other features like in-app payments, adoption and usage will surge over the next few years.
BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on mobile payments that forecasts the growth of in-store mobile payments in the U.S., analyzes the performance of major mobile wallets like Apple Pay, Android Pay, and Samsung Pay, and addresses the barriers holding mobile payments back as well as the benefits that will propel adoption.
Here are some key takeaways from the report:
- In our latest US in-store mobile payments forecast, we find that volume will reach $75 billion this year. We expect volume to pick up significantly by 2020, reaching $503 billion. This reflects a compound annual growth rate (CAGR) of 80% between 2015 and 2020.
- Consumer interest is the primary barrier to mobile payments adoption. Surveys indicate that the issue is less the mobile wallet itself and more that people remain loyal to traditional payment methods and show little enthusiasm for picking up new habits.
- Integrated loyalty programs and other add-on features will be key to mobile wallets taking off. Consumers are showing interest in wallets with integrated loyalty programs. Other potential add-ons, like in-app, in-browser, and P2P payments, will also start fueling adoption. This strategy has been proved successful in China with platforms like WeChat and Alipay.
Credit cards are going the way of fax machines
The modern smartphone is a remarkable device. A single device that fits in your pocket can do all the tasks that once required cameras, camcorders, GPS devices, watches, alarm clocks, calculators, and even TVs.
But the next change might be the most radical of all—it could eliminate the need to carry cash and credit cards.
The growing importance of the smartphone as the go-to computing device for every digital activity is having a profound effect everywhere you look, but it’s only the biggest story among many exciting developments in the world of payments:
- Apple Pay was first out of the gate, but now mobile wallets are everywhere you look—Android Pay, Google Pay, Chase Pay and even Walmart Pay are making smartphones a real alternative to carrying credit cards. And the potential for mobile wallets to limit a merchant’s fraud liability could help them really take off in acceptance for small businesses.
- As consumers move more purchasing online, gateway vendors that can act as a front-end processor for online businesses are seeing explosive growth. PayPal-owned Braintree grew 111% YoY in the number of cards on file in Q4 2015, while Stripe and Klarna now have multi-billion dollar valuations.
- Mobile Point-Of-Sale (mPOS) startups like Square and ShopKeep have pioneered a whole new payments niche—accepting payments via tablets and smartphones. Coupling their transactions capabilities with new apps can revolutionize a small business’ inventory management, marketing, loyalty and even payroll.
- Mobile Peer-to-Peer payments in the U.S. are forecast to grow from $5.6 billion in 2014 to nearly $175 billion by 2019 as consumers increasingly skip the hassle of writing a check or going to an ATM. But smartphone vendors like Apple could cripple the dominant player of 2016 (Venmo) if they make a serious push to own the space.
If your job or your company is involved in payment processing in any way, you know how complex this industry is. And you know that you simply can’t understand where the next big digital opportunities are unless you know the key players and roles in each step of the payments “supply chain:”
- Card Networks
- Independent sales organizations and merchant service providers
- Hardware and software providers