We Need to Talk About Mobile Payments in the U.S.

Mobile payments are the future. Mobile payments are the present. Mobile payments are a lot of things to a lot of invested parties. One thing mobile payments aren’t is a sure thing in the minds of consumers. This is for good reason too. Mobile payments lack the ubiquity necessary to build consumer support and affinity. From the proliferation of “Pays” from smartphone manufacturers and retailers to the card networks’ own offerings, consumer confusion abounds.

Let’s take an honest look at mobile payments and where it stands as a payment options, covering both its pros and cons. Doing so will be instructive in determining where mobile payments have fallen short and where they can be improved. It should be noted that the EMV debacle has created a major opportunity for mobile payments players. Whether they will seize this opportunity remains to be seen.

Mobile Payments ARE a Better Solution and Experience Compared to EMV

The issues surrounding the U.S. transition to EMV (ex. chip cards) are well-documented. Chip cards were instituted for enhanced security, but unlike other countries who require chip-and-PIN, the U.S. chip cards require the less secure chip-and-signature to complete a checkout. The confusion around the EMV checkout flow has left retailers with longer lines and anxious consumers.

Mobile payments apps like the Starbucks app, Walmart Pay, Apple Pay and Android Pay (where they’re accepted) offer significantly quicker and easier ways to pay than using EMV chip cards and current EMV terminals.

Mobile Payments AREN’T the Best Solution and Experience..Yet

Mobile payments have a long way to go to fulfilling their promise of being a better way to pay than using cash. This is mainly due to the fact that mobile payments are 1) not ubiquitous, leaving consumers unsure of where they work and 2) have high fragmentation, leaving consumers confused and potentially apathetic.

For any form of payment to catch on with consumers, it has to be accepted everywhere. This was the case for check cards when they were first introduced in the mid-90’s by Visa and Mastercard. This level of ubiquity is even more important for technology products, which require utility that drives repeat usage in order to be habit-forming. Mobile payments need to become ubiquitous in order to stick with consumers.

Mobile Payments ARE a Real Opportunity For Brick and Mortar Retailers to Regain Customer Loyalty

Physical retail accounts for almost 92% of all U.S. retail sales. This percentage will decline as e-commerce continues to become a larger share of all retail sales. Until now, brick and mortar retailers have implemented in-store technology such as touchscreens and tablets to engage shoppers, but these technologies have done little stave off ever-decreasing foot traffic. Retailers will need to better leverage smartphones as part of the in-store experience.That can come in the form of “order ahead” functionality like the Starbucks app or Walgreens integrating its rewards program into both Apple Pay and Android Pay.

For retailers, integrating Apple Pay and Android Pay into their websites and mobile apps could be the necessary catalyst for consumers to find significant value in using mobile payments. Building up this consumer habit could translate into more use of mobile payments in-store because the necessary behavior (e.g. paying with a smartphone) has already been established for e-commerce and mobile commerce purchases.

Leveraging mobile payments in brick and mortar retail requires more than just features; it’s fitting into the workflow of an in-store shopper. The smartphone is the most personal device that a shopper has. For a shopper, the smartphone is the calculator, the coupon book, the to-do list, product recommendations and a host of other jobs-to-be-done that make up the shopping experience. Mobile payments apps can augment and, in certain cases, consolidate this experience, fulfilling many of these jobs-to-be-done. By creating a more holistic experience for consumers that makes “payments” just one of the many utilities of a mobile payments app, retailers have an opportunity to regain customer loyalty and trust.

Mobile Payments AREN’T Guaranteed to Have Successful Adoption

Cash is still king in most of the world. In the U.S., the EMV transition and lack of mobile payments ubiquity make challenging that throne a dire proposition. There are other significant challenges for mass adoption of mobile payments. One issue is that most mobile payments apps require, at the very least, a bank-issued debit card to use them. According to the FDIC, nearly 9.6 million U.S. households are unbanked, meaning they don’t have a bank checking account. The World Bank estimates that there are 2 Billion adults without bank accounts.

Another issue is that many Americans don’t have the financial literacy necessary to properly manage their finances, leading them to fall out of the banking system. The large number of unbanked adults and poor financial literacy is a massive hurdle for mobile payments adoption. Combine these issues with the lack of ubiquity and high solution fragmentation, and you have the current (lagging) state of affairs for mobile payments.

Mobile payments are not a solution looking for a problem, but that problem hasn’t been clearly defined by the interested parties. Mobile payments players need to clearly define mobile payments’ value proposition (e.g. better online checkout, security, personalization and better customer experience) beyond payments and make sure that it is accepted everywhere and “just works.” When that happens, we’ll see mobile payments really take off.

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