Article

Are mobile payments on the verge of a breakthrough?

Despite years of hype and expectations that failed to materialize, U.S. mobile payment adoption may be close to a breakthrough as issuers transition to contactless cards and retailers make significant upgrades in POS systems.

NYC is testing contactless card and mobile wallet use on public transit.

August 19, 2019 by David Jones — Editor, Networld Media Group

Mobile payment adoption has been a long running promise in the U.S., as overhyped data on mobile wallet use and millennial spending patterns have teased a sudden shift in consumer purchasing and payment behavior. However, a series of developments in recent months has resulted in a ray of light in the not too distant future that could finally result in a consumer surge that will lead to a boom in a digital transformation. 

In a report on mobile wallet adoption released earlier this month, Juniper Research estimated that consumer spending through digital wallets would rise 40% this year in North America and Europe to $790 billion in 2019. 

Juniper analysts said the increase is due to a continued migration from consumers using cash, the transition by major banks to contactless cards as well as a surge from millennials and younger consumers who are increasingly using the iPhone, where the firm estimates that one third of the devices are being used to make contactless purchases.

"There are definitely a series of factors that (are) promising for mobile wallet adoption, with the rollout of contactless cards a key factor," Nick Maynard, lead analyst at Juniper, told Mobile Payments Today via email. 

POS upgrades

Maynard said that Juniper is predicting that mobile wallet use for in-store purchases in the U.S. will exceed 100 million for the first time. 

He cautioned, however, that a remaining obstacle in the U.S. is the relatively low penetration of contactless point-of-sale terminals, despite efforts by major U.S. banks to expand the use of contactless. 

"In terms of contactless POS adoption, there are significant costs with upgrading POS devices, particularly when the EMV upgrade has already caused significant costs with retailers," Maynard said. "Secondly, some POS devices are technically contactless capable, but have not had this functionality enabled by the payment processor for a mixture of reasons."

Juniper estimated that only about half of POS terminals here support contactless, which Maynard called a major hindrance to the use of contactless. The terminal challenge is not a threat to QR-code use, however, and that form of payment is mainly used by the Chinese mobile systems that are increasingly being deployed in the U.S. and Canada to deal with millions of tourists and business travelers that visit every year. 

Randy Vanderhoof, executive director of the U.S. Payments Forum, told Mobile Payments Today that consumers in the U.S. have been getting used to the transition from using magnetic stripe cards to EMV, which took place well behind other international markets. 

"Mobile and contactless acceptance is still catching up to mobile wallets, and contactless cards are just starting to enter the market," he said via email. 

Vanderhoof argued that the rollout of contactless payments on major transit systems like New York City and POS terminal upgrades at major retailers will help drive mobile payment adoption in the U.S. 

He said that 78 of the top 100 merchants in the U.S. accept contactless cards and that number is growing. He also noted that several large card issuing banks, including JPMorgan Chase, Bank of America and Wells Fargo, are transitioning their customers to contactless cards. 

Thad Peterson, senior analyst at the Aite Group, said the U.S. continues to trail other markets because the perceived value of moving from cards to mobile wallets has not yet been fully established. 

"While there are other things that can be put into a mobile wallet such as loyalty cards and promotions, the value added hasn't been sufficient to drive behavior changes," Peterson told Mobile Payments Today via email.

He said that value proposition issue is beginning to change, as mobile wallets are increasingly being used for online purchases and in-app payments, while added value is being realized from offerings like the bill payment tool from ACI Worldwide, which recently acquired Western Union's Walletron business and allows consumers to view and pay their bills through Apple Wallet and Google Pay. 

Cover photo courtesy of American Express.


 

About David Jones

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David Jones is the editor of Mobile Payments Today. He is a veteran business and technology journalist, with three decades of experience writing about business travel, real estate and technology.

Since 2015 he covered a range of technology stories for the ECT News Network, which includes the E-Commerce Times, TechNewsWorld, LinuxInsider and CRM Buyer, writing about cybersecurity, artificial intelligence, machine learning, open source computing and privacy issues among others. He recently covered FinTech issues for PYMNTS.com.

He worked as a staff writer for Bloomberg Business News and an online reporter for Crain’s New York Business. He has written for numerous media organizations, including Reuters, The New York Times, The Real Deal, Continental, City Limits and The Nation. 

He was previously awarded the George Washington Williams Fellowship for Journalists of Color by the Independent Press Association.