Why the payments industry failed to bring mobile to the masses

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It seems that every year, at least since Apple Pay launched in 2014, it’s the “year of the mobile wallet.” And each year, like clockwork, the banks end up disappointed in the lack of traction in mobile wallet usage and adoption.

This is despite a steady stream of new entrants in the mobile wallet market — as LG in 2018 — and rebrandings such as Google turning Android Pay into Google Pay. Concurrent with this trend, major holdouts like Costco, CVS and 7-Eleven have committed to supporting NFC mobile wallets.

Despite such great progress being made with merchants and issuers as it relates to mobile wallets, the sobering reality is that these electronic wallets stored on phones are trying to change consumer habits when there is little compelling reason to do so.

“Five or six years ago we thought the physical card would disappear and people would pay with their phone, but that hasn’t happened," said Prashant Sharma, senior vice president of credit cards at CIBC. "What’s driven the slow adoption of mobile wallets, while it’s convenient to tap a phone, there’s nothing more to it. It’s as convenient to tap a card, if even more so."

Sharma and other executives discussed the topic at SourceMedia's annual PayThink conference, which took place this week in Austin.

Uber is one of the clearest success stories in mobile payments. Though it supports many funding sources within its app — including standalone wallet apps like Apple Pay and Google Pay — the end result is always a seamless, near-invisible payment at the end of every ride.

Ultimately, when consumers begin to ask the question of why should they change to mobile when no clear reason exists, it’s because the financial services industry has not created enough value to encourage a shift in payment habits, according to Brian Crist, chief payments council at Uber.

"Are we trying to solve for a wallet that’s been in your pocket for 100 years or are we trying to solve for an easier way to pay?” he asked.

To be fair, when Apple Pay launched in 2014, followed Android Pay (later renamed Google Pay) and Samsung Pay in 2015, many financial institutions and merchants were not fully committed to mobile wallets and the payments infrastructure was still being built. Consumers were often confused with the patchwork merchant acceptance — even within the same retail chain — and by banks developing their own wallets in addition to supporting the one attached to their mobile phone's operating system.

Things got more confusing when some early mobile wallet accepting merchants, such as CVS and Rite Aid, turned off their terminal acceptance as they sought to develop their own competitive network known as Merchant Customer Exchange (MCX).

“When we first launched Android Pay in the U.S., Chase didn’t participate. Now we have 98% coverage in the U.S. from an issuing standpoint," said Steve Klebe, business development of Google Pay at Google. "We have CVS and PetSmart turning on NFC acceptance. We’re making huge progress.”

To compel consumers to use their phones as a payment device, Apple recently rolled out incentives to encourage such behavior. However, with major merchants such as Walmart continuing to balk at accepting third-party mobile wallets, it means that consumers will still live in a bifurcated point of sale environment where they will still need to rely on plastic cards.

So why are consumers still reluctant to get rid of cards? Crist summed up the current state of affairs in the U.S. mobile wallet space when he stated: “The value proposition at point of sale is still a stretch.”

Other executives say we may have been too eager to write the obituary on plastic cards.

“The biggest issue is that mis-expectations were set from the beginning. It takes a long time to get contracts done, technology done. It has been an ongoing process,” said Klebe.

While certain mobile apps such as Uber and Starbucks have an embedded payment, they can’t speak to solving for general-purpose retail. In the Uber case, it was part of the value proposition of selling ride sharing with a behind the scenes payment compared to an unpleasant taxi cab experience that required the correct amount cash. For Starbucks it was part of loyalty play that made the purchase and rewards process seamless.

Klebe added his displeasure with the "wallet" moniker.

“I’m not a fan of the wallet metaphor," he said. "It should have died and gone to heaven. The ultimate goal is that we should have the payment disappear. Uber is the poster child for that experience. The idea is to bring ubiquity and make the complexity go away."

While the disappearing payment may work for certain retailers such as Uber, or certain situations such as an airline selling in-flight meals, having a disappearing payment experience across all retail can be alarming.

“The problem is that if it’s invisible, it can feel out of control. Plastic cards are not going away any time soon,” Sharma said.

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