“The mobile phone is staging a coup,” said CNN in August 2009. “In the not-too distant future, you may be able to leave the wallet and the keys behind.”
We’ve heard this story for years. Despite advances in payment technologies, Americans continue to reach for their wallets. Entering 2020, the mobile payment adoption rate remained below 10% in the United States, according to a Bain & Company report. Cash and credit, meanwhile, were at 79% and 80%, respectively.
“I always kind of said, ‘come back and talk to me in 2020,’” said Will Hernandez, a media strategist at BackBay Communications, when interviewed in January. Hernandez has covered the banking and payments industries for more than 12 years. “Well, we’re here now. But I still see some of the same problems.”
And then everything changed in March. A global pandemic and patchwork of local and state regulations forced consumers to modify their habits.
“I wasn't initially convinced that there was going to be this huge leap when we were about a month in, and that’s only because old habits die hard,” said Hernandez, during a more recent interview. “But data from the card brands says otherwise regarding contactless payments. And with touchless service being the rage right now, these trends will only continue.”
Visa reports that the use of tap-and-go payments rose 150% in the U.S. during March. A Mastercard survey from April 10-12 found that more than half (51%) of U.S. consumers say they’re using cash less often, or not at all, since the pandemic began. The same survey revealed that 50% worry about the cleanliness of signature touchpads, 72% prefer to skip signatures altogether, and 74% say they will continue to use contactless payments post-pandemic.
The road ahead remains uncertain. Let’s take a closer look at where mobile payments were pre-pandemic, and what retailers can reasonably expect in the near future.
The China Difference
If you spoke to anyone about mobile payments before the pandemic, then you probably heard about China. According to a 2019 report by eMarketer, China represents 18.6% of the global population but 61% of proximity mobile payments—meaning point-of-sale transactions using a mobile device as the payment method. Estimates vary, but one report predicted that 790 million Chinese citizens would use mobile payments this year.
Alibaba’s Alipay and Tencent’s WeChat Pay are the two dominant platforms—accounting for 53.8% and 38.9% of transaction value share, respectively. Alipay is used mostly for online shopping, while WeChat is popular at brick-and-mortar stores.
I still have to carry a wallet because I have my driver’s license, health card and more. By introducing mobile payments, am I really reducing friction?
Mobile payments are ubiquitous to the extent that even panhandlers have QR codes. China Channel reports local businesses are known to encourage this practice. They take a cut of transactions and harvest the WeChat account names for use in their marketing efforts.
China’s success with mobile payments can be attributed to two major factors. First, China is a mobile-first market where consumers get their first taste of the internet through a mobile device. Second, credit card ownership was low when Alipay and WeChat were introduced.
“In the U.S., people have more access to traditional credit,” said David Jones, editor of Mobile Payments Today. “Mobile is so big in parts of Southeast Asia and China, and it’s growing in Africa, but they didn’t have much access to plastic credit cards. They jumped from cash to mobile.”
Jones explained that many consumers were excluded from traditional banking services through high fees and inadequate transportation. Mobile services also appealed to migrant workers who wanted to quickly transfer funds to friends and family.
Alipay and WeChat also find success through their ability to bundle a diverse range of services. For this reason, some experts refer to them as “super apps.” Users can book travel, reserve a table at restaurants, access public services and much more.
“The U.S. is not China,” said Hernandez. “The amount of things you can do within those apps—if someone did that here, then it might change the landscape.”
“They have near universal acceptance,” said Don Frieden, president and CEO of P97. “Those platforms work at virtually every retail establishment.”
The ecosystem in the United States is comparatively fragmented. A consumer would need ExxonMobil Rewards+ to turn on the pumps at their stations, while Shell’s app is needed to pay at their pumps or purchase products in the store. As Frieden pointed out, however, the Shell app may not work at a Shell-branded Circle K. Conversely, the Circle K app won’t work at Shell-branded fuel pumps.
“The problem is you can’t train a consumer when you have massive disparities between systems,” said Frieden.
Success at Starbucks
This isn’t to say there aren’t success stories in the United States. Membership in Starbucks Rewards grew 16% year over year to end the first quarter of 2020 with 18.9 million members. In that quarter’s earnings call, Starbucks mentioned that the mix of mobile order and pay transactions grew to 17%.
“I’ve been in payments for 15 years, and the same topics have always been there,” said Sarah McCrary, CEO of GasBuddy. “But then Starbucks comes along. Apple Pay just came out and said they finally exceeded the number of transactions that Starbucks has, but think about that: It took a company that big five years.”
According to McCrary, these are signals that consumers will choose mobile payments over a card within the right context. Beyond rewards, members also receive a 7% to 8% percent discount. There’s also the ability to skip lines.
However, consumers may be reluctant to switch when mobile payments aren’t paired with incentives or added to reduce friction.
“I have a theory that the wallet is one of the biggest reasons why adoption rates are low,” said Brandon Logsdon, president and general manager of PDI Marketing Cloud Solutions, during an interview in January. “I still have to carry a wallet because I have my driver’s license, health card and more. By introducing mobile payments, am I really reducing friction?” asked Logsdon. “For me personally, even when Apple Pay is accepted, half the time I’m pulling out a card. Sometimes it’s just faster.”
Embracing a Mobile Future
There’s no denying that much has changed during the past few months—including the way we shop.
From curbside and delivery to new ways to pay, Americans have adjusted to a retail landscape complicated by health concerns and a patchwork of local and state regulations. Even as traffic rebounds, many would agree that some of these changes are likely to stay.
“Online retail will become the primary commerce channel for an even greater subset of the American consumer,” writes Web Smith, founder of 2PM Inc.
This behavior was already being conditioned prior to the pandemic as many aspects of our lives were conducted digitally. We reserved tables at restaurants via OpenTable, sent money using Venmo and hailed a ride with Uber. And instant pay apps provided many employees with access to funds immediately after working a shift. It was enough to ask if many consumers might begin to view plastic cards and physical currency as antiquated.
But this isn’t to say that everyone’s habits are changing. The “new normal” is not the same for everyone. Although e-commerce penetration surged from 16% of U.S. retail to 27% during the first eight weeks of the pandemic—representing years of growth—most buyers have not been driven online. Some of that shift was also reactionary.
“Against the drumbeat of forecasts of the demise of physical stores, people still prefer them,” writes Steve LeVine, editor at large at Medium. “Perhaps not the current number of stores but physical shops nonetheless.”
Maybe the question isn’t “physical versus digital” but rather how retailers can provide additional channels to access their brands. Many consumers are looking for delivery, curbside pickup and other means of access. The restaurants most successful during the pandemic are those with robust off-premise sales channels. Moving forward, they’re doubling down on digital everything.
“When boundless restrictions, fear of physical endangerment and poor customer experiences abound, buyers may continue in the shift to digital,” writes Web Smith, in a recent 2PM member brief. “Consumers will search for ease, quality and service elsewhere. And e-commerce will be the great equalizer.”
This certainly creates opportunities for further growth in mobile payments but so will a revised in-store experience. Many consumers are likely to emerge from the pandemic as newly-minted germaphobes. Even the most risk tolerant consumer is sure to view touchscreens and keypads differently than he or she did in January.
That’s one reason why it’s no surprise that leading retailers are looking beyond cash and cards.
“We predict the mobile app will become the dominant form of payment,” said Starbucks Chief Executive Officer Kevin Johnson in a May 4 letter to customers.
Fuel and convenience retailers, too, have made significant investments in mobile solutions. Sheetz recently released a feature that enables scan and pay within its app. Contract operator StrasGlobal launched an online ordering and curbside pickup program. Moving beyond the store, Kum & Go announced the ability to turn on pumps and pay for fuel using its &Rewards app.
“Let’s be honest, no one gets joy from starting a pump. On a cold winter’s day, the last thing you want to be doing is standing outside paying for gas,” said Kum & Go President Tanner Krause in a press release. “Today, in our current moment, limiting common contact points is essential. So we created an app feature that significantly reduces the time to activate a pump and allows you to do most of it from the comfort of your vehicle.”
The development of mobile payments will also be influenced by Big Tech’s continued move into financial services. As a recent Wired article mentions: If you thought iMessage kept you tethered to your iPhone, get ready for when your life revolves around Apple Pay.
Apple offers a credit card in conjunction with Goldman Sachs, and while Amazon doesn’t offer a card or a checking account, reports suggest they may be in the works. Amazon Cash already enables underbanked consumers to load Amazon accounts with cash after downloading a barcode and presenting it at participating retailers.
“Apple created a really good experience with their new payment card,” said Frieden. “If they can get connected into fuel retail sites, we’re going to see a high uptick in the use of that technology. But they have to get past the barrier of integrating into site systems. Otherwise, you have to retrofit 1.3 million gas pumps with contactless readers.”
No Time Like the Present
Unlike China, the United States is in a category formation period. Merchants and consumers are still establishing their mobile commerce relationships.
“You don’t want to be too late to the game,” Frieden said. “Once consumers have started using applications by certain merchants, it’s going to be harder to move them to your platform. There are early adopter advantages. People are lazy and will keep using what they’re familiar with.”
At the same time, cash and cards are likely to remain the choice for many—at least in the near future. Hernandez understands this challenge too well.
“My mother is never going to make a mobile payment. Never. We tried, and there’s no way,” Hernandez said. “But I’ve been incredibly interested in the discussions about how consumer behavior is going to change once we’re on the other side of this pandemic. Maybe, just maybe, this finally puts the U.S. over the hump as far as contactless payments go.”