Motivating Mobile In 2018

Another year, another chance for mobile wallet players to convince consumers to give up their plastic cards and utilize the phone as a payments form factor.

It hasn’t been easy. Despite there being some variety of “Pay” for every day of the week, none have garnered even a 10 percent usage rate among consumers. The most-used mobile wallet in the U.S. as of 2017, according to PYMNTS/InfoScout data is Walmart Pay, with a usage rate just a shade below 6 percent (5.95 percent to be exact). The anchorman in the lineup is Android Pay, which has yet to crack the 2 percent mark.

Mobile adoption in the U.S. is slow. In comparison to a market like China’s, it’s glacial. In 2016, the value of smartphone payments in China hit $5.5 trillion — compared to the $112 billion market in the U.S., according to IR Search. That roughly 50-fold difference in size denotes that in the U.S — and to a somewhat lesser extent, Western Europe — mobile payment is an emerging option that is still finding footing with use cases.

China’s mobile payments tend to be baked into the very fabric of commerce — down to street musicians in Shanghai or Beijing who put up boards with QR codes on them so passersby who don’t have cash on hand can still offer money for their music.

“It has become the default way of life now,” said Shiv Putcha, an analyst with the research firm IDC. “Literally every business and brand in China is plugged into this ecosystem.”

The U.S. story, on the other hand, is far different.


Already Satisfied Customers

In the transition to mobile, consumer preference tends to get in the way: Mobile is competing directly with plastic in the U.S.; in China, it was able to leapfrog that form of payment entirely. So far, mobile is having a hard time breaking customers out of their habits. When PYMNTS/InfoScout asked consumers why they weren’t using available mobile payment methods, the most common answer was that they were happy with what they were already using. More than 40 percent of respondents — as of September 2017 — noted that they liked their cards just fine.

The second most popular answer for Apple Pay and Walmart Pay — the two most popular platforms — was that they weren’t familiar with how the mobile method worked. Android and Samsung Pay consumers were unsure if stores even accepted that particular payment method — which is unsurprising for Android, since it has such a low penetration rate, but somewhat surprising for Samsung Pay, because it’s main selling point is that it works anywhere a credit card is accepted.

Data shows that consumers are increasingly more aware and knowledgable about mobile payments. When looking at the top two methods, consumer confusion about how to use the system is on the decline, as are concerns about the relative security of mobile next to more familiar form factors. Nor does it seem to be a blanket refusal to try a new thing: Nearly 25 percent of potential Apple Pay customers have used it at least once, and a little over 22 percent of Walmart Pay customers can say the same, according to the data.

But when push comes to swipe, dip or tap, customers aren’t seeing a reason to make the broader switch to use mobile.


Improved Inducements

This has forced the much-promoted — but still underperforming —“Pays” to give customers more than a new form factor.

Walmart has made a concerted effort in this regard — but as the largest physical retailer on Earth (in terms of sales and size, but not market cap), they may have the most options in this regard. Walmart Pay is part of a push by the retailer to introduce value-added digital solutions around money and customer services. Consumers can also use that app to initiate wire transfers through MoneyGram, check gift card balances, apply coupons and have all receipts sent automatically to its Savings Catcher function.

During the holiday season, Walmart also synced its store card-based rewards with its mobile wallet, so that all in-store purchases made on a store card got a 3 percent cash back reward. The 3 percent reward tier is reserved for purchases made online through; the regular in-store reward is 1 percent.

Target made a similar move with the rollout of its digital wallet product — also tied to its store-issued REDcard and its standard 5 percent cash back reward. That 5 percent is a sunk reward: Customers also acquire it by paying with plastic, but Target is offering its digital wallet as part of its suite of digital services, thus tying it directly to its Cartwheel savings catcher.

“Wallet in the Target app makes checkout easier and faster than ever,” said Mike McNamara, Target’s chief information and digital officer. “Guests are going to love the convenience of having payment, Cartwheel offers, weekly ad coupons and gift cards all in one place with Wallet.”

The non-store-affiliated Pays don’t quite have the direct control of an entire retail experience, though they too seem to be pushing better inducements to mobile.

Apple Pay, the granddaddy of these services and the once-leader of the field, has released its peer-to-peer (P2P) service, Apple Pay Cash, into the wild in the hopes that a wider range of digital payment services will push a wider adoption by its massive consumer base. The early reviews are rolling in: While they are largely positive, there’s also a building consensus that Apple still has much work to do, since the space it’s trying to break into is home to Venmo — PayPal’s well-established and very popular P2P payments service — and Zelle, the bank-backed alternative that rolled out last year.

But Apple has been pushing more direct inducements, most recently in a pair-up with Fandango. Movie fans who pay using Apple Pay on the mobile app will receive a $5 credit. The number “5” was big in mobile promotions this season it seems: Chase (which has also struggled to gain traction despite its massive base of card customers) is offering 5 percent cash back rewards to customers who use their Freedom cards within Chase Pay, Android Pay, Samsung Pay or Apple Pay. The program at rollout, however, was limited to gas stations or when paying for your internet, cable TV and phone service.

The multi-billion dollar question, of course, is this: Will any of these promotions boost mobile adoption? To a limited extent, the answer is probably yes; a few more consumers will give digital wallets a chance, particularly if they get a slightly better reward for so doing.

Long-term, however, the inducements are too small to change habits en masse. Customers like their cards, and Walmart customers really like their cash. Cardholders are already rewarded and are used to those rewards; the digital wallet is not distinct in that regard.

But the segment remains worth watching if for no other reason than the model is changing — for retail-based payments systems especially — reorienting away from payments and even discounts to fuller service offerings tied to mobile payments. Early traction from Walmart seems a clear indication of this. It will be interesting to see how that spreads in 2018.