While some industry experts claim that mobile payments are steering us towards a cashless society, the fact is that adoption of the technology remains sluggish. Gallup reports that just 13% of smartphone users have a digital wallet app, while 76% with an app never or rarely use it. And at least one third of U.S. merchants do not currently accept digital wallets, according to Mobile Payments Today.
Nevertheless, the card brands are leading contactless payments, and we believe that these efforts will ultimately drive adoption of digital wallets among both merchants and consumers.
Contactless cards are quickly becoming standard across the globe. Several countries across Europe, Asia, and Australia perform over 50% of face-to-face payment transactions as contactless, so it is only a matter of time before that trend catches on in the U.S. Additionally, merchant adoption is currently one of the biggest reasons that mobile payments have struggled to take off. But with over 95% of new merchant terminals capable of performing contactless transactions, compared to less than 40% enabled to accept digital wallets, contactless payments should begin to see higher adoption rates.
The surge in usage of contactless cards will help increase the use of mobile wallets. Part of the hesitation for consumers to use a mobile wallet is just about what you would expect. Worldpay research into the topic reveals that 40% of non-mobile users don’t believe mobile wallets are safe; 20% don’t use mobile payments because the retailers they shop at don’t accept the payment type; and 20% of consumers don’t understand how mobile payments work.
The U.S. has more processors and a higher number of financial institutions than other parts of the globe, which is why other countries have transitioned to contactless cards and mobile wallets faster than the U.S. The shift to EMV also happened a few years earlier in most of Europe and Asia than in the United States; and the shift is still so recent here, which has delayed merchant and consumer adoption of both contactless cards and mobile wallets.
Changing consumer behavior is the main obstacle in the adoption of these payment technologies. With both the merchant and cardholder adoption, it’s a chicken-and-egg scenario. Merchants aren’t rolling out mobile wallet acceptance because cardholders aren’t using it, and cardholders aren’t using mobile wallets because merchants aren’t accepting it.
Since 95% of the new EMV-capable payment terminals are also equipped to accept contactless payments, the hardware itself is there. However, in many cases, the merchant does not have the functionality enabled and is not actively using it. Similar to the shift to EMV, merchants are skeptical about the user experience that will come with NFC enables terminals. Again, the shift toward contactless cards should start to change some of that behavior, and encourage merchants to enable NFC payments.
Similar to the EMV change, consumers will be urged to adopt contactless cards, as the card brands make the shift to get more of that type of card into the marketplace. The number of contactless cards in the U.S. has already increased by as much as 75% over the past year, and overall contactless transactions have nearly tripled. This shift to contactless cards will start to change cardholder behavior, with consumers no longer relying solely on swiping their payment card at the terminal. We believe that this shift in behavior will then help accelerate the growth of mobile wallet payments.
Global management consulting firm McKinsey & Company reports that mobile wallets are currently handling about $300 billion in transactions in the U.S. alone, and mobile wallet spending is expected to surpass $1.2 trillion by 2020 — approximately one out of every five dollars spent in the U.S.
Although it doesn’t appear that mobile wallets will render financial institutions obsolete anytime soon, it’s worth keeping a close eye on their evolution and adoption. Engaging a trusted payments partner like Worldpay is a good way to stay ahead of the curve with access to mobile wallet insights, tools, and expertise.
For more information contact us at 866-622-2201 or visit us online at vantiv.com/fi.
Mick Oppy is Vice President, Financial Institution Products, at Vantiv, now Worldpay.