Consumer adoption numbers indicate most mobile wallets are stuck in the mud, but key wallet providers have made enough advances in other critical areas to suggest there is still potential in this market, Celent researchers say.
Apple Pay, Android Pay and Samsung Pay made strides in availability, acceptance and value proposition last year, pumping enough life into the systems to give them reasons to be "cheerful" about the future, according to Celent's 2017 annual payments trend report.
The wallets have expanded their global reach as well as the number of devices, banks and loyalty programs they support. This growth has run parallel to the spread of Near Field Communication technology at retailers, enabling more stores to accept contactless and mobile payments.
The lingering hurdle is still consumer adoption. Even after the shift to EMV-chip cards, which many shoppers perceive as slower than magstripe cards, there is not enough pain in plastic to convince consumers to change over to mobile wallets.
Citing numbers from recent VocaLink research, the Celent report notes 82% of U.S. millennials have heard of Apple Pay, the largest and most high-profile of the mobile platforms, but only 8% of iPhone users say they currently use it. Those numbers are similar for Apple Pay's rivals as well.
"For wallets, I don’t think we can juxtapose transaction volumes and consumer usage with the importance of bank integration or additional commerce capability," said Zil Bareisis, a London-based senior analyst for Celent and author of the annual trend review. "The latter is critical for the wallets to be successful, the former [adoption metrics] is still the way to measure that they do indeed become successful."
Despite the challenges facing mobile wallets, as more banks in each market come on board, more consumers have the opportunity to use their products, Bareisis said. Equally important is the fact that most consumers are likely to own a device that is capable of supporting a mobile wallet. That was not the case when the first NFC wallets began appearing six years ago.
Celent notes that more than 2 million locations in the U.S. accept contactless transactions and mobile wallets, while all terminals in Europe will have to accept contactless by 2020, and most already do.
Mobile wallet providers will also benefit from incorporating in-browser payments, with Apple Pay operating through Apple's Safari browser and Android Pay doing the same through Google's Chrome. And deals to integrate with Mastercard's Masterpass and Visa's Visa Checkout digital wallets should fuel some usage for Android Pay and Samsung Pay in the coming year.
Besides the major third-party mobile wallets, merchant-branded payment apps are likely to move to the forefront as well in the wake of the retailer joint venture Merchant Customer Exchange's decision to drop its CurrentC wallet project last June.
"I don’t have the inside knowledge about MCX, but I don’t think it was just an experiment to gauge the merchant interest in their own apps," Bareisis said. "That would have been a very expensive market research project."
Rather, MCX put forth a genuine attempt to create a standard platform for its members to build upon, Bareisis said. "Many of us were skeptical about the competing merchants’ ability to collaborate effectively, and ultimately, it proved too much for them," he added.
MCX merchants are now working with Chase Pay, which JPMorgan Chase built on top of its ChaseNet platform. This gives Chase the opportunity to set lower fees for transactions made between Chase cardholders and Chase merchants — thus satisfying one of the major goals MCX established when it first formed.
Consumers will also be seeing payment options like Walmart Pay, Amazon Go and Dunkin' Donuts Order On-the-Go, to go along with a Starbucks app that has already gained much popularity. Those examples illustrate that merchants have total control over their branded apps, opting to use them for loyalty programs or for time-saving features like order-and-go, Bareisis said.
The coming year may also be when U.S. banks make a dent in the crowded and competitive person-to-person payments technology race that PayPal's Venmo and Xoom, Square Cash, Facebook Messenger and Google Wallet have dominated.
Early Warning's Zelle, formerly known as clearXchange, puts the large U.S. banks in a position to offer customers a bank-branded option, but reality still says that the sheer number of banks in the country means that "no solution on its own can guarantee nationwide reach," Bareisis said.
Another factor that has worked against banks is their penchant for not taking the P-to-P opportunity seriously. "Even when a solution is being offered, it would often be hidden deep inside online and mobile banking apps, along with bill payments," he added.
When contemplating P-to-P, banks have to consider the consumer-facing layer as well as the infrastructure behind it. "There is no question that banks need to own the infrastructure layer and invest into faster payments and a real time network to try and minimize the number of the third-party-based transactions," Bareisis said.
However, the actual interface is likely to be more fragmented.
"A customer might choose to initiate a debit card-based transfer via Square Cash, a bank account-based transfer via a Facebook bot, or a PayPal transaction via a Siri command, among others," Bareisis said.