Card issuers struggling to sell 'complex' mobile innovation

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Card issuers face a conundrum in supporting payments innovations that promise to improve user convenience and security, as more consumers express frustration with the rising complexity around making everyday purchases.

“Consumers in a very short time went from decades of simple, consistent payments to a very fragmented payments experience, and many are becoming confused,” said Jon Pendergrast, senior vice president and head of U.S. payments strategy for TD Bank at a Tuesday panel exploring the effects of recent payments technology at SourceMedia's Card Forum this week in Austin, Texas.

Consumers approaching the checkout in stores don’t know whether they must swipe, tap or insert their card, there’s little consistency in online checkout processes and the steps to using mobile wallets and apps vary widely, Pendergrast said.
The bumpy rollout of chip cards in the U.S. added another layer to consumer frustration, according to Andrew Davidson, senior vice president and chief insights officer with Mintel Comperemedia, which tracks consumer attitudes about payments with regular national surveys.

“Since chip cards came along (following the October 2015 EMV liability shift), the average card-processing time at the point of sale has gone from 3 seconds to 10 seconds for many consumers, and when paying online people are likely to find that a merchant’s desktop checkout experience is completely different and possibly more confusing than the same company’s mobile app,” Davidson said.

In a recent Mintel survey, 30% of U.S. adults ages 18 to 34 said “I don’t ever want to use my phones to pay for merchandise,” with that negative sentiment rising to 47% for consumers over 35 and 56% for consumers over age 55.

In a separate presentation at Card Forum on Tuesday, market research firm Phoenix Marketing said while mobile wallet awareness is fairly high among consumers, usage has “flat-lined” more than two years after Apple Pay launched the first broad contactless wallet. Phoenix Marketing interviewed 15,000 U.S. consumers over the last 12 months about mobile wallet awareness and usage.

Apple Pay scores highest in consumer awareness, at 66%, followed by Google Wallet with 58%, PayPal with 56% and Android Pay and Samsung Pay with 42% each, according to Phoenix Marketing data through April 15, 2017.

“Apple Pay leads, but it’s not at all dominant, so the mobile wallet race is still anyone’s game to win,” said Leon Majors, senior vice president at Phoenix Marketing. Third-party mobile wallets as a whole capture around 8% to 15% of total card spending, which is “fairly trivial,” he added.

Card issuers face tough choices about which payments methods to support to best satisfy their diverse customer bases, according to Majors. “It’s like playing three-dimensional chess meeting the needs of the youngest to the oldest customers, all with different preferences.”

Most issuers are keeping their options open while they continue to explore new payments technologies, said Randy Vanderhoof, executive director of the U.S. Payments Forum, in an interview.

“Nobody wants to bet on which mobile payment wallets and apps are going to fail, so many issuers are keeping multiple payment approaches in play so they’ll have a foot in whichever methods win,” Vanderhoof said.

What’s complicating the task for issuers is the lack of consistent patterns in users’ payment preferences, according to Vanderhoof.

“Even within a group of Millennial consumers, we see many surprising influencing factors and big differences in their preferences based on trust and peer groups,” Vanderhoof said.

It will likely take at least a few more years before the various payments options issuers feel they must support narrow to a few big winners, said Ali Raza, a longtime payments consultant who recently joined the global payments consulting firm UL as a lead principal adviser for transaction security, in an interview at Card Forum.

“Technology is driving major changes—globally—in what had been a really stable payments landscape for manyyears. We’re in the middle of major transformational change that doesn’t show any sign of stabilizing soon, which means card issuers, payments companies and merchants will likely keep experimenting with different approaches for some time,” Raza said.

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