As if the emerging mobile payments market isn’t complicated enough, new research indicates the payments industry, retailers and consumers are rarely on the same page as consumers in terms of how they view new payment technology.
That disconnect, combined with a “wait-and-see” approach to mobile payments, could cost some players potential customers, according to a report from Cincinnati-based payments processor Vantiv Inc. and Mercator Advisory Group.
Vantiv presented the “Executive Thinking on Payment Opportunities” webinar Nov. 28 to highlight research it commissioned to Boston-based Mercator through interviews with 35 financial institution and large retail executives, and 1,200 consumers during 2012.
Consumers want more value out of using a mobile device for payment, seeking digital receipts, product information and comparison pricing, says Peter Kulik, vice president of product strategy and innovation at Vantiv. However, executives tend to view mobile payments as “electronic plastic,” or simply an extension of card-based transactions, Kulik adds.
“To us, this is a key disconnect between executives and consumers because consumers are saying a key barrier to using mobile payments is that cards are very easy to use,” Kulik says.
If a mobile payment application does nothing more than allow a payment, the consumer will likely continue to pull a plastic card out of a wallet, Kulik says.
“There would be no reason for paying through a mobile device,” Kulik says. “But the great opportunity here for executives is to develop applications with a broader role in the whole shopping experience.”
Ken Paterson, vice president of research operations at Mercator, says bank and retail executives believe consumers regard convenience and rewards as the most important factors for adopting mobile, but consumers surveyed indicated their main concern was the cost of conducting mobile payments.
“Consumers feel that ‘surprise fees’ create a bad experience, so the potential disconnect here is that executives should not underestimate the effect of raising fees on transactions or processing,” Paterson says.
In addition, if executives understand that cost is the top consumer concern, they should be directing those consumers to lower-cost payment methods, such as prepaid cards, Paterson says.
“Consumers show a lot of enthusiasm for prepaid cards and view them as a product that would be helpful when shopping online,” Paterson says. Bank executives don't share consumers' view of the importance of prepaid cards, he adds.
“The research has shown that fees [for prepaid products] are more accepted by consumers when there is additional value associated with the program,” Kulik says. “We believe, in the mobile environment, competitive forces are more likely to drive the prepaid pricing structure rather than technology.”
Other than concerns about the entrance of non-payments players in the mobile field, executives mostly worry about mobile payment security, Kulik says. However, some interviewed have the opposite perception — they view mobile technology as closing the security holes present with plastic cards, instead of viewing it as a technology that opens new holes, Kulik says.
If security is a top concern for executives, costs come in a close second, he adds.
And cost is where executives and consumers find some common ground, Kulik says.
Paterson says merchants also express uncertainty about costs, mainly because of changing standards and evolving technology in mobile payments.
“Many retailers express doubt that EMV [chip-based smartcards] would become the dominant standard in the future,” Paterson says.
Part of that doubt rests clearly on the fact that so many mobile pay options based on consumer smartphone use have been developed, he adds.
“Near Field Communication, QR codes or cloud-based systems all rely on smartphones,” Paterson says.
Retailers are not sure that NFC will be the winning technology, but NFC represents a long-term strategy for mobile pay development, Paterson says.
“In the meantime, that’s why other simpler technologies are out there getting usage,” he adds.
Rather than fear the uncertainty of which mobile technology may ultimately take hold, executives should view the various options currently in use as a positive, Paterson says.
“These are all getting people used to seeing others use their phones to make payments,” he adds.
In general, the research indicated consumers feel they will be using mobile devices to regularly make payments in two years, whereas executives tend to view mobile payment adoption taking hold in about five years.
“Despite the uncertainty, don’t take a wait-and-see approach,” Kulik says. “Consumers want change sooner, rather than later, and they have high expectations for mobile and prepaid.”
Merchants shouldn’t be deterred by earlier tests that indicated a lack of consumer demand for mobile payments, Kulik says. “There weren’t a lot of handsets capable of making mobile payments at that time,” he says.
In October, Vantiv, formerly Fifth Third Processing, launched its Vantiv Mobile Wallet, a software-based wallet that does not use NFC technology.