Despite the fact that they received plenty of media attention during the past few years, "proximity" mobile payments, or mobile payments made at retailers' points of sale (PoS), have yet to hit the mainstream. Multiple reasons why exist, but perhaps the most significant roadblock thus far: Today's mobile payment systems simply don't offer a strong enough value proposition to compel consumers to use them consistently.
To date, the market has seen four alternative-payment success stories, according to Penny Gillespie, a research director of digital commerce with Gartner: PayPal, for online payments; Visa Signature debit cards; payroll cards; and gift cards. Each option offers "strong value propositions to consumers, as well as to merchants," Gillespie says, because they provide something new and beneficial that wasn't available before. Gift cards, for example, let consumers to easily send funds to friends and family, they make it easy for recipients to spend that money, and they drive recipients to stores, which benefits retailers.
However, mobile payments and wallets generally don't offer compelling reasons to use them, beyond the initial coolness factor and perhaps the ability to save a few seconds at checkout, according to Gillespie. "If you want consumers to do something different, the experience has to be as good or better than the previous experience," she says. "That means giving them something they didn't have before."
Some consumers do use mobile payments, but …
Recent data suggests that at least some consumers are interested in mobile payments, and that usage is on the rise.
Approximately 27 percent of U.S. smartphone owners say they used Apple Pay, Android Pay or Samsung Pay at some point, according to a study conducted in March 2016 by Auriemma Consulting Group, which focuses on payments and lending. Another recent study from research firm Phoenix Marketing International found that 32 percent of U.S. credit cardholders with smartphones have loaded a credit or debit card into Apple Pay, Android Pay, or Samsung Pay. Among those respondents, 67 percent were millennials and 50 percent were Gen-Xers.
In 2015, $8.71 billion in mobile payments were made in the United States, according to an October 2015 report from eMarketer. The total for 2016 is expected to surpass $27 billion. And Forrester estimates that U.S. consumers will spend $83 billion via mobile payments in 2016, a figure that's expected to increase to $142 billion by of the end of 2019, according to a report from Forrester Principal Analyst Brendan Miller.
While the future of mobile payments may be bright, many challenges must still be overcome, including the follow seven significant hurdles.
1. Mobile payments aren't seamless
The proximity mobile payment process is still not the seamless, "frictionless" experience it needs to become to gain widespread adoption, according to Forrester's Miller.
For example, when consumers use debit cards via Apple Pay to make purchases, they must take out their smartphones, use a thumbprint to unlock the phone and mobile wallet, select the card to use (if multiple cards are available), and hold their devices close to payment terminals. After transactions are made, consumers must usually still enter their PIN or provide a signature.
In other words, the mobile payment experience isn't that much better than using an actual credit or debit card, Miller says.
2. Mobile payments don't offer special incentives
Most mobile payment services and wallets don't offer enough added value to entice hesitant consumers. For example, mobile payment users typically can't redeem loyalty points or special offers at the PoS when making a purchases.
However, some branded mobile apps with payment features have successfully tied together loyalty programs and point redemption, according Miller. Starbucks's mobile app, for example, effectively combines the coffee chain's loyalty program with mobile payments, he says, but few such success stories exist.
"There needs to be an incentive for people to integrate mobile solutions and wallets into their everyday lives," says Maxime de Nancias, COO and cofounder of Mobeewave, a startup that developed a mobile peer-to-peer payment application called PayMeTap. "Mobile wallets need to integrate a greater number of loyalty programs with major retailers. They need to provide value outside of consumer-retailer transactions."
3. Mobile payment infrastructure is slow to evolve
Mobile payments haven't become mainstream, because the infrastructure required to enable them is still evolving, according to Miller. For example, U.S. merchants have replaced or are currently replacing older PoS terminals with new ones that support credit and debit cards with embedded chips. Such cards are based on the Europay, MasterCard, and Visa (EMV) global standard, and they are designed to be more secure than magnetic-stripe cards.
The EMV standard is already widely deployed in many countries but is still being rolled out across the United States. As part of the transition, many U.S. businesses are moving to EMV terminals that also support Near Field Communication (NFC) transactions, Miller says. (NFC chips are built into many of the latest Android and iOS smartphones, as well as other devices, such as smartwatches.)
Consumer adoption of NFC-equipped smartphones is gaining momentum, and 50 percent of consumers in North America, Japan and a number of Western European countries are expected to use smartphones or wearables for mobile payments by 2018, according to Gartner. However, the transition to NFC-capable terminals will "take years" to complete, according to Miller, and that means it will also be years before proximity mobile payments take hold.
4. EMV transition won't help mobile payments
EMV terminals may actually add friction to the current mobile payment process. "Trader Joe's and Whole Foods were among the major retailers that switched on EMV last week, which instantly made the quick Apple Pay experience decidedly less so," wrote Evan Shuman, founding editor of retail tech site StorefrontBacktalk, in a May Computerworld.com blog post.
"Instead of the shopper being done when Apple Pay confirmed all that it needed to confirm … a series of new messages pop out on the POS screen," Shuman wrote. "The first message displays — again — the amount of the purchase and asks that the shopper confirm acceptance of that amount. The problem is that the shopper already saw that amount before paying with Apple Pay … the second message insists on a signature. Note that this shopper has already provided a finger scan — which is a few billion orders of magnitude more secure than a signature — so it's a rather pointless request."
Apple Pay, Android Pay, Samsung Pay and other secure NFC payment systems "are going to have their customer experiences seriously degraded because of EMV rules and visibility limits within today's payments systems," according to Shuman. "It's entirely possible that future versions of NFC wallets may be able to do a better job at shouting at POS systems what they are and what they are doing, but that doesn't help shoppers (or retailers) today."
Retail-specific mobile payment systems, such as Walmart Pay and Target Pay, may not experience the same issues, because they often control the programming of their POS systems, according to Shuman. "You can safely bet that a Walmart POS will know darn well when it's communicating with Walmart Pay," he wrote.
5. Modern mobile payment experience is inconsistent
Consumers today have many mobile payment and wallet options, including Apple Pay, Android Pay, Samsung Pay, PayPal, Visa Checkout, Walmart Pay, and bank-branded mobile wallets from Wells Fargo and Chase.
This diversity of offerings slows the adoption of mobile payments, according to Steve Gilde, global payments executive at IR, a company that provides performance management software for IT infrastructure, payments, and communications. Consumers are confused by it all, and they just want payment methods that are simple, easy-to-use, ubiquitous, and that always works, he says. "It's hard for any one mobile wallet provider to say they deliver that today."
"What the consumer wants instead [of the confusing array of mobile payments] … is a simplified mobile commerce experience," wrote Karen L. Webster, CEO of PYMNTS.com, a website that covers digital payments and ecommerce, in a recent blog post.
Consumers want "an account that's smart enough to keep track of all of their loyalty memberships, coupons, promo codes, and to apply those discounts automatically to their purchase at checkout — without the friction that gets in the way of actually checking out," Webster wrote.
6. Ingrained behavior is tough to change
Paying with smartphones, smartwatches or other devices simply isn't an ingrained consumer behavior … yet. Changing such behaviors can take years.
Today, only 31 percent of U.S. mobile payment users always use mobile payments at locations where they are accepted, according to the previously cited Auriemma Consulting Group study. The most common reason? Consumers simply forgot to pay with their mobile devices. "Reaching for the phone instead of the wallet isn't an automatic reflex, even for mobile pay enthusiasts," says Marianne Berry, managing director of the firm's Payment Insights practice.
7. Mobile payment security concerns
Mobile payments may or may not be more secure than other forms of payment, but some consumers at least fear that they aren't and therefore shy away from using smartphones and wearables at cash registers.
All-too-common data breaches at banks, credit card companies, retailers, and others are widely reported in the media, fueling consumer anxieties. Thieves have access to incredibly sophisticated tools to grab consumers' passwords, login credentials, and other personal data, according to Gilde. And despite recent high-profile encryption battles between Apple and the U.S. government, concerns exist among some consumers that smartphones collect too much information about their purchases and other activities.
According to the 2015 Mobile Payment Security Study of more than 900 cybersecurity professionals, the threat is real. Nearly half of survey respondents said mobile payments aren't secure, and 87 percent said the number of mobile payment data breaches will increase in the near future.
However, some cybersecurity professionals still choose to use mobile payments, according to John Pironti, risk advisor for ISACA, the group that organized the survey. "This shows that fear of identity theft or a data breach is not slowing down adoption — and it shouldn't — as long as risk is properly managed and effective and appropriate security features are in place," Pironti told PYMNTS.com.
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