2014 was a big year for mobile payments, with Apple finally making the move that the whole industry had been waiting for. The release of ApplePay means that millions of iPhone 6 owners will be making contactless payments in the next year, and other players in mobile payments will want to figure out how to take advantage of that.
Some barriers that have stifled mobile payments adoption will still remain, especially for in-store payments. We have yet to see a solution that really benefits everyone, and until that does happen, adoption will be capped, Barry O’Connell, partner at Capco, predicts.
“We won't see mass adoption in 2015. I think solutions need to take care of all of the parties -- the merchants, the consumers, payments networks, the banks,” he says. “MCX hasn't shown why consumers would want to use it. Apple is the reverse. They offer a good customer experience, and got banks involved, but there’s nothing exciting [in it] for the merchants.”
[For more mobile payments coverage: What’s Next for NFC Payments.]
Other challenges, such as NFC terminalization and consumer perceptions around security, also need to be dealt with. But even if mobile payments don’t take off at the point-of-sale in 2015, there is still opportunity for growth in online purchases made with mobile devices, according to Deborah Baxley, principal, Capgemini Worldwide. “In-app purchases is the short-term future [for mobile payments]. The lines between in-app and e-commerce transactions -- those distinctions are going to start to blur.”
So mass adoption at the point of sale will still be limited. But what else can we expect in mobile payments next year?
1. The Uber model for payments will catch on
Uber has gotten high praise for the way it takes the act of paying out of the cab ride experience. Instead of handing cash or a card to the driver, the customer pays via a card stored on the Uber app. That kind of frictionless experience that eliminates the traditional checkout process could be translated to other activities, Chris Gardner, cofounder of Paydiant, a mobile wallet solutions provider, observed.
“If you take that seamless Uber-like experience, and think about other places you can apply it to, you could have self-checkout scanners at grocery stores [that charge via your mobile device when you walk out],” he says. “We are doing a pilot with a high-end retailer. When the customer walks into the shoe department, it sets off a Bluetooth alert to the associate. The associate gets a picture and profile of the customer on their tablet, and they take care of the customer and do the transaction there in the department, skipping the checkout line.”
2. Security will become less of a concern
Survey after survey has shown that the biggest reason why consumers don’t adopt mobile payments is because they don’t trust the security of the mobile device. That should start to change in the next year, as large brands that consumers already trust have thrown their weight behind mobile payments, Tommy Marshall, partner at Capco, predicts.
“We see the consumer surveys … in the end, though, Apple’s brand will make people trust it. You have MasterCard and Visa [that have partnered with ApplePay]. Those are trusted brands that are going to continue pushing it as secure.”
The current state of payments security in the US isn't that great anyway, so consumers need to be educated on how mobile can be more secure, Baxley suggests. “Mag stripe [cards] are already the most insecure transaction, so people shouldn’t be so worried about the security of mobile payments. The industry needs to educate the public.” That education effort could look to the EMV Migration Forum as a model, she adds. The forum has set up a working committee focused on public outreach for the shift to EMV cards.
3. NFC -- big retailers vs. small
If security is no longer the biggest obstacle for consumer adoption, the lack of NFC terminals in the US looms as the next big challenge. “I think we will see marginally higher rates of NFC terminals [by the end of next year],” Capco’s Marshall predicts. “There are some merchants that have NFC on their terminals already, but they just haven’t activated it yet. It’s just a matter of training the checkout staff how to use it. But I’m not sure that that’s a priority for the retailers right now.” Large chain retailers are more likely to adopt NFC-capable payment terminals, since they are already updating their terminals for the EMV liability shift in October of 2015, he adds.
The real challenge is going to be medium and small businesses, which are likely years away from changing their terminals. “It will take a decade for mom-and-pop retailers to [adopt NFC],” Gardner forecasts. “They won’t change their terminals until they die on them. It’s just too high of a cost for them.”
4. Wearables will gain a little steam
The Apple Watch -- equipped with ApplePay -- is due out in the spring of 2015, and will likely give innovators a chance to turn their focus on wearables for payments. Wearables will offer new ways for consumers to integrate their financial and everyday lives.
“I’m excited about the possibilities around rewards for health integrated with your credit card. I think the loyalty side of wearables will be very interesting," O’Connell shares.
The impact of wearables will also seep over into mobile banking, Baxley predicts. “Wearables will make banks rethink their apps and start to disaggregate them into smaller apps [for different banking functions]. They could develop app store strategies.”
5. Banks will develop multi-play strategies
ApplePay isn’t going to be the only player with something to say in mobile payments. MCX will release its solution next year, and ApplePay’s launch has other players wondering if they should offer mobile wallet apps as well.
“The retailers now realize that they need to offer an alternative. There’s a sense of urgency there now. And banks felt like they had to go along. Apple told them take it or leave it,” Gardner relates.
ApplePay poses a risk in that it’s only beneficial for the bank that is the top card in the customer’s wallet, he adds. But just as customers typically carry four or five cards, they will also probably have four or five different mobile payments apps. “A user might have ApplePay or Google Wallet for certain transactions, and then have a couple of retailer apps for their favorite [shopping] locations.”
Banks will want to play in multiple wallets to hedge their bets, and the largest banks are well positioned to introduce their own wallets. For those banks, targeting Android, which makes up 60% of the smartphone market and has already enabled NFC on handsets, will be the most sensible play. Banks that launch their own wallets will have an inherent advantage over retailer and third-party wallets: integration with mobile banking.
“[Banks that launch their own mobile wallets] will need a business case for retailers to accept it, and will need to integrate mobile banking. That’s a competitive advantage that no other player can offer,” Gardner recommends.
Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio