The Battle of Payments

Payments Leader

Posted on August 13, 2015

mobile payments

The payments industry has seen quite the avalanche of new technologies – from ApplePay and AndroidPay to social media companies, like Snapchat and Facebook, offering peer-to-peer payments. These companies offer innovative new functionality and a “cool factor,” but no brand is impervious to the dangers of a new market. Adoption is tricky no matter who you are, and it’s therefore critical to consider your adoption strategy as well as the ease of the process by which your product works. Factors that determine adoption are not always straight forward or clear. With that said, when the dust clears, what companies and payment technologies will reign supreme?

Flashback to four years ago: When Google first introduced the Google Wallet with NFC capabilities, it was the first step toward swipe-less transactions, yet it was not readily adopted by merchants or consumers. That’s because the system of swiping a card wasn’t broken. It may be an old system, and it may be prone to fraud and come with higher costs than other options, but the system continues to work.

NFC and swipe-less payments made another splash when Apple announced ApplePay last year. Even with companies clamoring to claim their piece of the market, adoption rates are unimpressive compared to the number of people who still swipe their cards.

There is promise for growth, however. Statistics show that once converted to mobile payments, 4 out of every 10 users choose mobile as their primary mode of payment. Building consumer confidence, providing a frictionless user experience, and offering a product that is more feature-rich to the physical card is the key to pushing mass adoption.

What Payment Devices Are Out There?

There’s a slew of products available in the mobile payments market battling it out in the wallet wars, and there are advantages and disadvantages for each of them:

ApplePay – This is probably the most recognized. Introduced in 2014 and using biometric as well as tokenization verification, acceptance of this payment type is growing amongst merchants. Reacting to the coming liability shift deadline for EMV, many merchants have upgraded their terminals to accept ApplePay, in fact.

ApplePay does have its drawbacks. So far we haven’t seen a compelling rewards program to incentivize use, (although rewards may be offered through the card used in the ApplePay app). Merchant adoption is still low as NFC is not universally available at terminals. Market penetration also is limited. The number of smartphone users across the global is anticipated to surpass 2 billion, but iPhones represent less than 20 percent of that total. Further limiting use, in order to even utilize ApplePay, the consumer must own an iPhone 6 or 6 Plus.  Those numbers are small, with only 75 million iPhones 6 or 6 Plus sold in 2014, compared to 500 million total iPhones sold.

Google Wallet – The first in the field to pioneer NFC technology, Google did not have the relationships in place to see early mainstream adoption. The fact that Android has a very robust user-base in the United States and abroad could be an advantage in commanding market share.

That said, Google has had a slow start and will have to provide an amazing customer experience to compete with other options available.

Samsung Pay – In February, Samsung bought the mobile payment startup LoopPay, squaring off against Apple as a wallet provider and device manufacturer. Samsung’s most obvious advantage shows in its adoption rate of 90% of the non NFC Point-of-Sale (POS) terminals in the United States.

Samsung has a few hurdles to climb since it has a late start compared to Apple and Google. It is also unclear how Samsung, which produces a majority of Android devices, will compete with Google who offers their own mobile wallet solution.

Unlikely Payments Competition

As the battle for market share rages on, social media companies see potential in the payments market. We are now seeing companies like Facebook enter the payments arena. With Facebook Messenger, you can message any person on your friends list by tapping on a little “$” icon, which allows you to send them money. Unlike the aforementioned payment options that require a specific device, this is not device or network dependent. Facebook Payments is available to anyone who signs up for Facebook.

Snapchat and Twitter are trying to cash in on the social media payments game. Snapchat recently announced a partnership with Square that will allow you to use the Snapchat app to send money to other users from a connected debit card. Snapchat is the mechanism by which one sends the money and Square handles the transaction behind the scene. Twitter is experimenting with money transfers and payments to further their market share and generate revenue. Some will no doubt fail in their quests to enter the payments arena, but I guarantee you that some will succeed and change the landscape.

Currently, these social media payment options are limited to peer-to-peer money transfers. I will be shocked if this remains the case. What could be the result of allowing consumers to pay at a retailer through their social media accounts? Would it impact the younger generations signing up for credit cards? The answer could be invaluable.

Creating the New System

Answering the question, “Who will be left standing?” is hard. Companies will have to innovate and create products that are both easy to use and secure if they aim to become the market norm. Right now the early leaders are Apple and Google, but as we’ve seen, they have their limitations. For consumers, it comes down to ease of use – what could be easier than pulling out your wallet and swiping a card? Answering that may decide who wins and who creates the new payments standard.

In the end, the consumer decides, and right now this battle is in the early rounds. Fortunately for consumers, the products offered will only become better and more intuitive, with rewards offered to those who use them.

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Payments Leader

Payments Leader from FIS provides insights on credit, loyalty, fraud and emerging payments strategies through blog posts from our industry experienced authors.