Smartphone wallets

Mobile payments have certainly evolved... It’s incredible to think that only 20 years ago most retail stores would have a stack of cheques sitting under their register, having to wait days to be cashed, reviewed and actually processed into their bank accounts. Back in the 90s, where phones weren’t yet smart—a time when a lot of shops were closed on Sundays—paying for something with a cheque was not at all unusual, and for many merchants actually much preferred to the small, plastic alternative... the credit card.

But nothing stands still in the retail industry. The year is now 2015, and times are a changin’.

Today, even touchless credit card payments are, for the more technical savvy among us, quickly becoming a thing of the past. The new wave of technology making a huge splash is mobile payments, i.e. smartphone payments.

Currently, some of the more known and used mobile methods are Apply Pay, Android Pay, and Samsung Pay. These mobile wallets come as standard features in almost all new smartphones; because they’re inbuilt they’re also highly integrated with the phone’s primary functions and are beginning to work seamlessly with payment terminals all over the retail world.

Will wallets go the way of the cheque?

Nevertheless, mobile payments still have in no way reached their potential in terms of consumer use. In 2015, in the US alone, mobile payments topped a total of $8.71 billion.

Emarketer predicts that this number will rise in 2016 to $27.05 billion, which is nothing short of an incredible increase illustrative of the unrealised potential mobile payments hold. Talking US figures again, they also predict the number of people using mobile proximity payments will rise from 23.2 million in 2015 to 37.5 million in 2016. Truly a huge jump.

Another prediction worth mentioning is the types of purchases people make; 45.5% of all mobile payments account for low-priced goods costing between $20–$100, and as a percentage of overall mobile payments this is set to grow to 63.9% by 2018. As time goes on, however, and as more and more people become comfortable with using this type of technology, the average price-point of transactions is expected to increase (no surprises there). What is somewhat surprising is that although 52% of Americans are ‘highly aware’ of mobile payment technology, only a small portion of that number actually uses it on a regular basis—about 18% according to a survey done by Accenture.

Of course, there’s no doubt the industry poised to capitalise on mobile payment technology most is the retail sector. Mobile proximity payments are exactly that—payments made at a POS terminal using a mobile device. Proximity in this regard refers to something exclusively physical. Retail merchants are in the best position to integrate POS systems capable of accepting mobile payments. The issue here is actually providing an incentive for people to make the switch from plastic to phone.

Mobile payments - are we at a turning point?

Even if, hypothetically speaking, every single retailer out there was set up to accept mobile proximity payments, it doesn’t necessarily mean that people have any good reason to use their phone instead of a credit card.

There needs to be some sort of clear value proposition for consumers to start changing their habits, otherwise, why would they? Using your phone isn’t any more convenient than tapping a credit card; in fact, it’s at least slightly more cumbersome.

In the long run, it might make credit cards unnecessary, thereby slimming down one’s wallet, but we’re talking about right now. As Jordan McKee, a Senior Analyst at 451 research puts it, ‘Most mobile wallets today are simply credit card surrogates; they’re a veneer over what already exists. This provides little incentive for merchants to upgrade their infrastructure and for consumers to change entrenched payment behaviors.’

This is one of the most pressing short-term hurdles mobile proximity payments will have to leap over if the predictions mentioned above are to materialise. Another big obstacle it faces has to do with security. As is the case with any new technology that deals with consumers’ hard-earned money, mobile proximity payments will have to build an extremely trustworthy long-term record, unblemished by things like hacked security networks and chronic fraudsters.

If the predictions are correct, 2016 could very well look like a turning point in the way in which we spend our money in stores. With almost all new major smartphone models having their own inbuilt mobile wallet, and as more and more major corporations like Starbucks and Coca-Cola begin introducing rewards programs for mobile proximity payments, it’s only inevitable that credit cards will soon be a thing of the past. As to exactly how soon that will be? Well, the cards are on a table.