The initial blog in this series discussed how the Mobile Payments Train was quickly leaving the station and financial institutions were at risk of being left behind if they did not board soon. While there are pockets where mobile payments are becoming prolific, Point-of-Sale (POS) payments (also referred to as "mobile wallet") which together with their associated intelligence databases and customer relationships are the key to mainstream consumer spending, are not yet gaining momentum.
This is an exciting time to focus on mobile payments and all indicators predict that mobile wallet will eventually sweep the US as it has done in other countries. However, declarations that there has been or will soon be a sea-change in consumer behavior are premature. The following paragraphs will first explore the current situation and then explore the barriers to mobile POS payment adoption.
The Mobile Wallet Today
Looking past the headlines reveals that mobile payments made to download music, games, books, and apps are taking off. Additionally, there is moderately rising volume for online purchase of consumer goods via mobile payments. These expansions are primarily the result of repurposing web browser applications, some in existence for over a decade, from PCs to mobile phones. With a nod to all the hard work invested by our brethren that design and develop mobile applications, this is hardly worthy of the headlines currently being applied.
I recently searched for an opportunity to make a POS mobile payment in order to educate myself about the process. After trying to do so with my credit card providers, the large bank that provides my checking account and debit card, and my cellular provider, I concluded that making a POS purchase was nearly impossible. In fact, Starbuck's offers the only viable opportunity I have to utilize my mobile wallet and discussions with others indicate that almost all US residents face such similarly limited opportunities.
In informal surveys of friends, relatives, co-workers, and strangers I've met while travelling, I have yet to identify one American that has the ability to make regular POS payments using their phones. Unless you are addicted to Starbucks, live in a pilot area, or bank with a pilot bank, it is probably difficult – maybe even impossible – for you to process a POS mobile payment today (if you try, I want to hear about your results). Don't worry, we will wake you up when you can use your phone for payment at your nearest grocery store or fast food restaurant.
Barriers to Mass Adoption of Mobile Wallet
There are several additional reasons that help explain the slow adoption of mobile wallet by American consumers. Technology advances at warp-speed and American consumers are accustomed to snapping up the latest and fastest technology. But this is not yet apparent with mobile wallet. American consumers adapt to financial services innovation more slowly than the rest of the world for various reasons. One cause is that US providers – banks, cellular providers, credit card associations, retailers, and others – are fragmented, view all other parties as competitors, and therefore do not work well together.
Additionally, Americans simply do not have as much reason to adopt mobile wallet as some other nationalities. This is due to the fact that bank accounts are standard and money transfer is already easy. Furthermore, we love our plastic and it works well for us given that consumer credit is highly accessible. In many nations where such established financial infrastructure is lacking, the leap from cash to mobile is a huge advancement which has led to rapid adoption. Americans simply do not have as much to gain in moving from plastic to mobile. It is not be surprising to discover that the under-banked segments become early adopters, bypassing credit and debit cards to move directly from prepaid cards to mobile wallet.
Another important factor is the United States' vast economic diversity. There are no financial transactions ubiquitous enough to drive widespread adoption among American consumers. Conversely, Japan's mass transit system implemented a mobile payment platform that has driven consumption behavior of its consumers and acceptance by many retailers.
As mentioned in a previous blog, the uncertain regulatory environment is another cause contributing to the hesitancy to commit by all players. While there are many other reasons, the ones mentioned above are some of the most significant.
As our original blog declared, the bullet train is leaving the station, but observation indicates the car carrying US POS payments is still in the station and may be for a few more years. The future is not clear, providers are fragmented and the "winning" technology may still be in the lab. Do your homework before making significant mobile payment investments. Invest in proven technology that meets the needs of your consumer and merchant customers.
Return to CapTech Blogs soon for a discussion of Mobile Payments from the merchants' perspective.