There will be significant growth in mobile payments over the next five years, Javelin Strategy & Research predicts, but most people still don't make payments with their mobile phones today.
Only 0.01%, or $398 million out of $3.98 trillion in retail point of sale payments, was made with a mobile device last year, according to Javelin's 2013 Retail Point of Sale report.
"A mobile developer speaking at an industry conference in the Silicon Valley asked a room of hundreds of people to raise their hand if they made a mobile payment in the last 10 days," says report co-author Aleia Van Dyke, payments analyst for Javelin. "About 10 people raised their hand."
Javelin predicts $5.4 billion in mobile payments at the point of sale by 2018, Van Dyke says. The 2012 numbers represent "a tiny sliver, barely registering on the dial," she adds.
But there's a reason for that.
"The game changer in mobile is not as a payment option," Van Dyke says. Mobile phones are "a technology that is changing the shopping experience and payments will grow from that," she says.
Merchants such as Starbucks and Dunkin Donuts, which offer their own mobile apps, will fuel much of that increase. Those merchants will have "the upper hand" because they are developing "a fairly simple payment process," Van Dyke says.
As more U.S. merchants accept EMV smart card and Near Field Communication contactless technologies, mobile payments will grow, Van Dyke says.
Prepaid card use will also grow in the next five years, while use of cash and checks decline, the report states.
But cash isn't going to vanish any time soon, Van Dyke says. The report found that 81% of consumers used cash at a physical point of sale over a 30-day period, down from 83% in 2011.
"We are seeing trends of [consumers] abandoning cash, but it's still a universal currency," Van Dyke says. "When it is in your hands, there is a high trust factor. It's legal tender and hard to let go of."
Checks, on the other hand, are expected to decline to only 5% of point of sale payments by 2018, the report states.
Credit cards regained their place atop the list as the most popular form of payment, after taking a backseat to debit cards during the recession, the report states. Consumers used credit cards for 32% of retail purchases, compared to 30% for debit cards.
Prepaid cards are knocking gift cards out of the popularity ranks, accounting for $120 billion of point of sale transactions in 2012. Prepaid card use is expected to grow to $158.5 billion by 2018, the report says. Prepaid card growth will surpass gift cards by 2015.
"The growth of prepaid cards is an important trend because more mobile apps are being created for prepaid products, turning them into alternative checking accounts for the underserved," Van Dyke says.
For the first time, consumers ages 18 to 34 say they prefer debit cards over cash, she says. In 2012, 31% of consumers in that age group said they preferred debit cards, compared to 29% in 2011. Those preferring cash fell to 29% in 2012, from 32% in 2011.
"It's an important shift because it signals growth in electronic transactions at the point of sale," Van Dyke says.