Mobile Payment’s Tipping Point

Dan Peacock
Vice President of Product Strategy
Posted on February 23, 2017

With so many competing ‘Pays,’ where should retailers commit?

We’ve been calling mobile payments the future for some time. But, as usage numbers show, it’s a future that still hasn’t arrived. So, with an array of competing (and largely incompatible) technologies fighting for dominance, how should merchants prioritize in-store mobile proximity payments alongside their other investments?

Don’t Believe the Hype

Apple Pay was meant to be the game changer. When Android Pay, Samsung Pay and others joined in, it seemed there was no turning back. However, despite initial success and high numbers of app downloads, sign-up rates and usage of these payment mechanisms actually has slowed. Today, over a third of Apples Pay’s early adopters – their best prospects – rarely think about using it, according to

Ultimately, customers did not feel there was any advantage to using a mobile wallet, so conventional credit and debit card transactions remain the default.

The problem is that mobile payments are not the seamless and frictionless experiences that encourage widespread adoption. Users need to get out their smartphone, unlock it, find the app, unlock that, select the card and hold the device close to the terminal. Then, there may be another PIN to enter to finalize the payment. Or they can swipe a card, and perhaps enter a PIN.

If that weren’t enough, mobile payments rarely offer special incentives, like loyalty points or savings, that could encourage use. And the lack of standardization, coupled with ongoing investments in EMV POS terminals, means many merchants remain unable to accept mobile payments.

The Potential Keeps It Interesting

Despite the headwinds, no one is suggesting that mobile payments will not become a significant percentage of the payment market. The opportunity is just too big. Smartphone ownership in the United States climbed from 35 percent in 2011 to 64 percent in 2016, according to Pew Research. Meanwhile, younger adults, the more affluent and those with higher levels of education – some of the most desirable consumers – are among those most likely to own a smartphone.

So when will we finally see mobile payments take off at face-to-face merchant locations? Looking beyond the U.S., we see some similarities and differences. China has become a hive of mobile payment activity in a fiercely competitive environment. However, this is no longer a domestic issue as China’s mobile payment providers now battle for Chinese tourists’ mobile payments on the global stage. According to iResearch Globally, 10 trillion mobile payments, worth around $1.45 trillion, were processed in 2015 and that number is projected to almost double in 2017.

Conversely, Europe’s high levels of tech adoption and smartphone penetration have not translated to major increases in mobile payments. In fact, despite many services being launched by big name handset manufacturers, telecom operators, banks and retailers, none have taken off as predicted.

The greatest lesson for merchants may be Starbucks. Combining a good mobile experience with value and utility, mobile payments accounted for 21 percent, or $1.03 billion, of Starbucks’ 2016 Q4 sales.

Another growth area is in fuel retailing where car manufacturers have teamed up with fuel vendors to create a truly frictionless purchasing experience, all automated through the car dashboard. Other similar apps from fuel vendors link directly to their loyalty schemes, offering instant discounts and combining purchases made at the convenience store. We believe solutions such as these reduce friction and can be a key to driving mobile payment utilization.

Add Some Value

Mobile proximity payments may be more secure, notionally faster and a whole lot sexier than traditional payments, but none of that is not enough to generate regular usage. To gain significant traction, mobile payments need to be tied into a bigger retail experience – linking to loyalty programs with instant redemption at the POS, for example.

Innovative added value is the key. The smartphone is more than a POS device in each customer’s pocket, it has additional capability that can be leveraged. Simple geolocation-based offers can provide customers with more of what they want, at the moment they need it.

On the merchant side, innovative use of counter-less checkouts that automatically bill a consumer on exit, or from a roving cashier with a tablet, can remove the problematic queueing issue. Merchants need to have a plan in place to not only accept mobile payments, but to be the ones to drive customer engagement through a seamless user experience. Adding genuine value to the transaction will help merchants achieve the goal of turning new customers into repeat customers and engage existing customers more deeply.

Play the Long Game

Despite the hype, and a fragmented market, mobile payments continue to gain ground. Mobile payment transaction volumes doubled between 2013 and 2014 to reach $3.5B. This upward trend will likely continue through 2017 as more users come on board and make increasingly larger purchases. Integration of proximity payments with other m-commerce activities will lead to increased consumer awareness, which in turn should reduce concerns about security.

To incentive change in consumer behavior, the payments experience must be as good or better than what they’re used to. That means finding ways to provide something consumers haven’t had before. When that happens, we will truly have reached mobile’s tipping point.

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Dan Peacock
Vice President of Product Strategy

Dan’s a member of FIS’s Payments Product Strategy team and focuses on developing the long-term strategy for U.S. retail payment products. His background spans 19 years in financial services leading co-brand credit card programs in the retail, travel and loyalty sectors, as well as issuer-branded consumer and business card programs.