There’s big money to be made in the cashless business. Mobile operators, technology companies, start-ups, banks, merchants, and others are scrambling to establish their mobile payments services as the replacement for your cash and cards.
The leading mobile payment system will give its creators a cut on almost every payment we make and, perhaps even more importantly, real-time access to our spending habits.
As dollar signs roll in their eyes, players in the mobile payments industry should remember that competing interests risk creating a fragmented market; political interests may weaken profitability; economic factors and security fears may threaten public confidence; and, more critically, getting the user experience wrong will mean low slow public adoption, hindering the industry’s growth.
Many of the basic technological challenges have already been solved – the race now is to package these services in a way that customers find usable, convenient and importantly, more compelling to use.
The stakes for fully thought through UX have arguably never been higher – the spoils are immense.
The next Trillion Dollar Industry
This year, an estimated $325 billion will be spent worldwide using mobile payments technologies, according to Gartner data. That’s up from $163.1 billion in 2012, and $235.4 billion in 2013.
By 2017, it’s estimated that over three quarters of a trillion’s worth of goods and services will be bought and sold via smartdevices.
Speaking at February’s Mobile World Congress, Michael Corbat; the CEO of Citigroup (full disclosure, an iQ client) described the global potential for mobile payments: “In markets where banking is not already well established, many are moving straight to mobile payments, and skipping plastic and branch banking altogether. Having a smartphone is like having a bank right in the palm of your hand.”
In more established markets introducing mobile payment solutions presents its own challenges. The problem is that cash and cards are already pretty simple and user friendly solutions. Any successful mobile payments platform will have to provide the public with a significant benefit to entice them away from what they already have in their pockets. And when that does happen that doesn’t mean cash will disappear,
- 18-29 - 35.7%
- 30-44 - 32.6%
- 45-59 - 21.4%
- 60 – 10.4%
“We won’t see the death of traditional payments,” says RealEx Payment’s COO, Gary Conroy, “People have been predicting the death of cash for 50 years, and it’s not gone yet. The fact is, cash works, and people like that. And culturally, we don’t have a problem with cash.”
The current marketing leader, both in the development and use of mobile payments, is Starbucks. With the help of Square, the coffee giant has been accepting mobile payments since 2011, and is already the most used mobile payment system in the US.
Starbucks’ app allows coffee drinkers to purchase their drinks by tapping their phone against a receiver, and it integrates with the company’s loyalty card – so customers have an added incentive (apart from their caffeine hit) to use the system. The other benefit to Starbucks is data. With their system the company can build more detailed profiles of its customers’ preferences and habits.
- 39% QR Code
- 18% Mobile app (no scanning required)
- 14% Mobile app (waving/tapping)
Corporations’ interest in our purchasing behaviour data can’t be underestimated. Access to this data is seen as so important that we’ve seen natural rivals come together to create their own mobile payments solution.
One such collaboration is Isis, a joint effort by AT&T, Verizon, and T-Mobile that combines mobile payments with traditional loyalty card schemes. Using Near Field Communication (NFC) their system allows users to make in-store payments with their NFC-enabled (i.e. Android) phones.
Michael Abbott, Isis’ CEO, is reporting strong figures for the system since it was opened to the public at the end of 2013. Abbott says that Isis’ customer base is increasing 50% month-on-month, with the average user making seven payments with the system.
- 14% Starbucks
- 11% PayPal in-store payments
- 7% Google Wallet
- 5% Square Wallet
- 1% Isis, Tabbedout, Dwolla
The figures may seem promising, but even with the clout of three of the US’s largest mobile operators there are no guarantees for its success. An early usability fumble by the company set back its initial progress, and soured some users against the service. Customers found the app too slow and confusing to use on a regular basis.
It’s worth noting, the issue here had nothing to do with the infrastructure or the technology, but rather, social adoption and usability factors. The app has since been redesigned to make for a more streamlined user experience. Even with an easier to use app, Isis faces a tough time gaining mass adoption.
Once touted as the likely winner of the mobile transaction war, that perception is no longer as prevalent. And even now the experience is still compromised; iPhone users are required to purchase a less than attractive, ‘enhanced’ case to make an NFC payment using Isis. And even Android users who have NFC enabled phones must upgrade their SIMs before they can start making any payments.
NFC – DOA & Market Fragmentation
“In my opinion NFC is dead”, says RealEx’s Conroy, “it’s still not available for Apple devices. And who cares if you’re replacing your card with your phone.”
While some blame the slow demise of NFC on Apple’s reluctance to incorporate the technology into the iPhone, the reason that it failed to take off is far more fundamental – few people found it useful. Tapping or waving your phone at a receiver is not an experience users want. This is a lesson that many companies are learning, Google Wallet has largely forgotten NFC and is now experimenting with sending payments peer-to-peer via Gmail. For a giant like Starbucks the current crop of app/hardware solutions are working well, or well enough.
But smaller retailers find it difficult or impractical to provide the same level of service, not only because of expense and lack of public adoption, but also because of the variety of solutions. From a user experience point of view, what we don’t want to see is a fragmented mobile payments industry, where customers use different apps for different retailers, while using cash or plastic for others.
We’re going to see more fragmentation of the market before we see any consolidation
“Distinct Wallet apps are more of a problem than a solution, and it’s ultimately not a practical state to be in; it certainly won’t work in the long run. The amount of wallets apps out there is not sustainable, and it doesn’t work for consumers.” “We’re going to see more fragmentation of the market before we see any consolidation,” says Conroy.
Interest in payments
Currently, consumers are confined by their hardware (as with Isis’ solution), and are expected to install multiple apps for each mobile payment service they wish to use. The latest (March 2014) data from the US Federal Reserve reports that 74% of consumers were unlikely or very unlikely to use their smartphone to make in-store purchases, with many citing a lack of interest as the main reason. But one company that has managed to crack this apparent user apathy is Hailo. Hailo chalks much of its success down to not trying to convince the public to use its service, but in convincing drivers.
Speaking to The Guardian, Hailo’s co-founder, Ron Zeghibe, described how they overcame consumers’ conservatism, “We were the eighth [taxi hailing] app to launch in London. [and ] the problem, I think, was that most of them looked at getting the customers. We flipped that on its head….we realised that what it is really about is building the loyalty [of] the driver base.” Hailo’s tack appears to have worked. The three year old app is now one of the most used mobile payment systems in the world. Half of London’s black cab drivers have signed up to the service, while in Dublin over 60% of the city’s taxi drivers are Hailo users.
Frictionless & location based payments
While they wouldn’t normally be considered direct rivals, PayPal and Apple are squaring off against each other with similar location-based mobile payment technologies. Both companies have earned the trust of millions of users, and have access to their credit card details, and both are concentrating on Beacon technology as the foundation of their mobile payment solutions.
Industry watchers are murmuring about the potential of both PayPal’s Beacon and Apple’s iBeacon to allow customers to make payments without having to tap, wave, or perform any other acrobatics with their mobile devices. In simplest terms, the customer could pay for whatever goods they’ve picked up by swiping away a notification on their phone, with a receipt then sent by email. It’s a concept called frictionless payments.
Most of the elements for this system are in place, all it would require is for owners to install small USB dongles in their stores.According to PayPal, these dongles will only cost “double digits” figures and will integrate with most existing point of sale systems. While customers might like the ability to make frictionless payments they may be less eager about the emerging privacy concerns. With this system merchants will be able to track customers who have installed their apps as they walk around the store. Merchants may also have access to customers’ names and some demographic data, like their age, previous purchases, and profile photographs.
Adding real value for the user
- 54% funded their purchase via their debit card,
- 42% via their credit card,
- 40% directly via their bank accounts,
- 9% via a non-financial institution, such as PayPal.
“Everyone wants to get into the mobile space, but what you find is that there are a lot of ‘solutions’ out there that don’t really solve a problem. There are a growing number of ‘me to’ operators, but few that add real value for the consumer or the merchant,” says Conroy.
Mobile payment services also need to offer users (merchants and consumers) a significant reason to move to from cash and plastic – better security, greater fraud protection, data spending analytics. But paramount to all this is a frictionless checkout experience.
At the checkout, consumers need a real reason to reach for their phone rather than their wallets. While many start-ups in this area attempt to leverage advanced mobile features too few concentrate on the basic features that customers need. The key to a viable and user-friendly mobile payments industry is the interoperability of various systems, allowing users to select the provider and service they prefer and seamlessly move between them.
As Conroy says, “Consumers don’t think about it as mobile payments as being separate from other payments; they just need it to be quick and easy. If you can make it frictionless, that’s when you’ll get customers on board.” Consumers will win when the paying experience is just a matter of walking out of the store.