From monitoring our fitness regimes to scheduling our day to communicating with friends and loved ones, the smartphone is pervasive in just about every aspect of life. One aspect that the smartphone has struggled to take over is handling our daily transactions. The first mobile payment system, in which individuals use their cell phones to conduct a digital transaction, was introduced in 1999. While mobile payments systems are more accessible today – they are still struggling to gain popularity with the majority of consumers and merchants.
Before we explore why mobile payment systems are not experiencing widespread acceptance and integration, let’s take a look at some of the major players in the mobile payment industry and examine the differences between them…
1. Google Wallet
It should come as no surprise that Google, the Internet behemoth, has its hands in the mobile payment industry. The free Google Wallet app for iPhone and Android allows users to send money to other individuals via email and manage many different loyalty cards. It also allows individuals to conduct transactions by placing their Android phone against a point-of-purchase terminal. Google Wallet utilizes near-field communications (NFC) chips in select Android phones to transmit an individual’s credit information to a point-of-sale system in a secure way.
2. Square Wallet
Square Wallet, from electronic payment company Square, is a free app that runs on most Apple smartphones. You set it up by loading your name and a picture of yourself into the app, along with a credit card number. Then go to any retailer that uses the service, launch the app, and click a command that checks you in at that store and opens a tab for you. When you are ready to pay for whatever it is you are buying, you merely tell the cashier your name and they can open your tab, confirm your identity via your photo and charge your card with the push of a button.
LevelUp, a Boston-based startup, offers a smartphone app that pays your bill by displaying a bar code. When you launch LevelUp, a square QR bar codes appears on the screen of your phone. The merchant uses another phone to scan the image, which is translated into the number of the credit card you have preprogrammed into the app. LevelUp, like Google Wallet, integrates a rewards systems that can track loyalty programs and even offer savings to customers when they try new places. LevelUp is also attractive from the merchant side because transactions through the app are four seconds faster than processing a credit card. Businesses also pay 0% payment processing fees, allowing them to re-invest those savings into growing their businesses.
PayPal can be considered the reigning king of digital payments. From Michael Gorman of Engadget, “Within the PayPal app, you’ll find a list of of nearby merchants that accept PayPal and you can search for specific stores as well. From there, you choose which place is getting your dollars, check in on the app and add any offers from that store that interest you. Checking in is what prompts the app to demand your PIN to unlock your wallet, after which your photo is beamed to the merchant’s POS screen or smartphone. Upon arriving at the register with your items and speaking the magic words “I’m paying with PayPal,” the clerk identifies you by your picture and confirms the payment amount. Then, the funds are transferred without you needing to whip out your phone a second time (unless you want to double check the bill). No muss, no fuss.”
The mobile payment system concept makes a lot of sense. We use our smartphones for just about everything, why not make it possible for the phone to replace cash and credit cards during our daily transactions? Mobile payment systems can reduce transaction time since consumers can scan their smartphones to make immediate transactions. Every single mobile wallet app encrypts consumer’s credit information, making it safer than carrying around a wallet. This considered, why is it that mobile payment systems are not in every store today?
Most Consumers Are Not Thrilled About Mobile Wallets
The chart above highlights two main objections that the average consumer has with mobile payment systems. 1) Despite the evidence proving otherwise, consumers do not view mobile payment systems as secure and trustworthy transaction mechanisms. This is a phenomenon that is pervasive in almost all forms of digital payment systems. Lots of people do not trust websites or digital applications that store their financial information, even if the information is secured, encrypted, anonymous or all of the above. 2) Customers do not see any significant advantage in using a mobile wallet versus a credit card. This fact is also my biggest issue with mobile payment systems. I do not think that mobile payment systems present a solution to any problem(s) that necessitates widespread adoption of the technologies. After all, is paying for a transaction with a credit or debit card really that time consuming? A lot of consumers and businesses do not view a four-second decrease in transaction time as worthy of adopting a completely new technology and implementing a completely new transaction process.
A 2012 report by McKinsey polled a large group of consumers who access financial services via their smartphones. The report states that:
“Of those surveyed who use a smartphone, 24% report using their mobile device to make a remote payment, but only 15% have used their phone to send personal payments or to transact at the point-of-sale. This limited adoption of mobile payments appears to be linked to consumers’ lack of enthusiasm for key benefits offered by mobile payments as depicted in the following chart.”
Mobile Wallet Competition and Fragmentation
Look above at the examples of current mobile wallet apps. Those are not the only four that exist in the industry today. There are many more similar apps and companies hoping to offer the cure-all solution to mobile payments. This presents a lot of problems for businesses and consumers. First of all, most of these systems offered by different companies require different technologies to be adopted by merchants before they can go about processing mobile payments. This lack of standardization in the industry leads to severe fragmentation where the average consumer cannot conduct a majority of the transactions he or she wishes to conduct on their favorite mobile payment app because most businesses will not offer any form of mobile payment system. Even if they do, there is a chance that it will be a different system than the customer currently uses. If there were industry standards placed on the technologies and procedures used by mobile payment system providers, I think mobile wallets and the like would stand a far greater chance of obtaining widespread implementation and popularity than they currently do.