‘Mirror, Mirror, On The Wall, Whose Digital Wallet Will Be Used Most Of All?’

The Fed’s new mobile survey data contains a treasure trove of information on how mobile payments and digital wallets are doing. To guide us through the mass of data MPD CEO Karen Webster relies on a well-known and highly rigorous statistical technique to ferret out the nuggets of truth from the mass of data. So read on for a look at how the Magic Mirror in Show White might have evaluated fact from fiction regarding the results of two recent studies on mobile and digital wallet use.

By Karen Webster @karenmpd

CEO, Market Platform Dynamics 

The Magic Mirror in the famous fairy tale had a great run until the day that it told the Evil Queen that some newcomer named Snow White was far more beautiful than she was. At that point, it got pretty ugly, with a set of activities that involved a poison apple, seven dwarves and then eventually a handsome prince who saved the day.

There’s no such Magic Mirror in digital-wallet land to give us the unvarnished truth as to whose digital wallet is and will be the “fairest of all.” What we have instead is a never-ending series of surveys and reports that attempt to fill that gap.

The latest is the study published by the Federal Reserve Board of Governors just last week on consumer use of mobile financial services, including mobile payments. That survey, which was conducted in December 2013, was sent to a bit more than 4,000 people. About 65 percent of them, so about 2,600, responded to a series of questions about their habits, usage, preferences and inhibitions on the topic.

Some of the results, as reported, were not all that surprising: mobile banking use is on the rise, smartphones have turned out to be important new tools for the unbanked and underbanked, mobile devices are changing the way that consumers buy things, and young people are the mobile financial services power users.


But digging around in the data turned up a few observations that I think might put a few new words in the mouth of the digital payments Magic Mirror, if one existed. And since Magic Mirrors only speak the truth, the insights used to inform those words will then be shaped by a small set of big and important considerations for how digital payments will ignite:

  • Who’s adopting mobile payments overall?
  • How much spending power do they control?
  • How many people are using their mobile devices in the physical store today?
  • What payment methods are they attaching to those digital wallets?
  • Who still says ‘no?’
  • And, then, ultimately, what will ignite digital payments in store?

So let’s see if the Fed survey can help us direct that digital payments Magic Mirror narrative and identify who might likely eventually be the “fairest digital wallet of them all.”

So, Magic Mirror, just who’s doing digital payments?
The Fed’s study reports that the growth in digital-payments using mobile devices is sort of ho-hum, increasing only slightly from 23 percent of mobile-phone users in 2012 to 24 percent in 2013. But the big finding was that consumers are making more and more digital payments in the physical store.

While still nascent, it seems we’ve come a long way since the 2011 survey, when less than 1 percent of smartphone owners had ever used a mobile phone to make a payment in-store. And since in 2011, there were about 82 million people who owned smartphones in the U.S., 1 percent of that population represented roughly 0.037 percent of the U.S. population – or about as many people as were held in solitary confinement in prison that year. (So, not really many.)

In 2013, when it came to using mobile phones to pay for stuff in-store, things seem to have evolved pretty rapidly, the Fed’s data show. As of the end of last year, 17 percent of all smartphone owners had paid for a product or service at a store that way, with nearly twice that many making a purchase online using their smart mobile devices. That’s still a very teensy part of the overall population, like roughly 3 percent, but at least we’ve made it to the left side of the decimal point, and usage has nearly tripled in one year’s time.

But of the 24 percent who made a mobile payment using their mobile phones in the previous 12 months (versus ever in their lives), as you might expect, those numbers look even stronger.  Thirty nine percent of those folks said that they had made a mobile payment in-store, 59 percent said they have bought something on line with their mobile device, and 39 percent said they had used their phone to send money to another person.

Perhaps most interesting (but probably not all that surprising) finding is that these in-store payment experiences are cloud-based. So what these data say to me is not so much that digital-payments use is increasing, but that it’s increasing because there are more smartphones able to interact with more merchant POS systems that accept payment using bar codes instead of only NFC.

More ways to mPay, finally!

The slow growth of 2011 wasn’t necessarily the result of consumers not wanting to make mobile payments, but because they didn’t have the devices capable of making them at the merchants that were equipped to accept NFC payments. Outside of Starbucks, there were very few cloud-based POS options available to anyone with a smartphone capable of downloading a mobile payment app.

And so here’s where these data get interesting to me. When it comes to what digital wallets people are using to pay in stores, its down to just three players:  Starbucks, PayPal and LevelUp, survey data say.

According to the Fed study, 14 percent of smartphone users who make mobile payments used the Starbucks mobile app, and 11 percent used PayPal in store.  Seven percent said they used Google Wallet (pretty unlikely that was in-store though), 5 percent used Square, and hardly anyone used Isis (1%).

This is also fairly consistent with comScore’s 2013 Digital Wallet Roadmap study where, among some 1 million respondents, 72 percent were familiar with PayPal and 48 percent of those had used it. What that survey didn’t distinguish was use in-store, but it did hint at several other things that help position PayPal for momentum in that channel.

Stat check

Take a look at the chart below and the far right column, which is where I think the digital payments rubber meets the cyber road.

Sixty-four percent of consumers who were aware that PayPal had a digital wallet also had used it. In second place was LevelUp, where 40 percent of those who were aware of its digital payments app also used it, besting Visa, Square and PayPass by a pretty wide margin.

The fact that only 5 percent of those surveyed had ever heard of LevelUp isn’t as important as 40 percent of those who had, use it, and exclusively in store. Ditto PayPal. The fact that 64 percent of those who know about PayPal’s digital wallet also use it is pretty compelling. That suggests that actually being able to use said wallet in a store not only drives usage, no duh, but may also prompt people to pay  more attention to the “ask” to download the app and/or to ask about it when they observe others using it.

Makes sense, right?  Why should anyone bother to pay attention to, much less download, a digital wallet unless it can be used (a) at your favorite retailer (s) whom you visit on a very regular basis, e.g. Starbucks, or (b) at enough of the places that you visit to make it useful, e.g. PayPal and LevelUp?

It also makes for a pretty compelling sales pitch to merchants who won’t be all that interested in investing in digital wallet acceptance if they don’t think there will be consumers interested in using it. PayPal and LevelUp have pretty strong stories to tell their respective merchant prospects on that front.

Digital Wallet Provider

Percent of Respondents
Who are Aware

Percent of Respondents Who Used

Ratio of Awareness to Usage





Google Wallet




MasterCard PayPass




Square Wallet



















Source: comScore’s Digital Wallets Roadmap 2013, MPD Analysis

Digital wallets, payments and spending power

So now let’s move to who’s using mobile payments and how much spending power they control.

No big surprises here.

According to the Fed study, the digital payment’s power users are, by and large, the Millennials – those ages 18 to 29. They account for 36 percent of mobile payment users. But their older siblings aren’t exactly stuck in the dark ages either:  those ages 30 to 44 represent 33 percent of mobile-payment users, and their parents, the Boomers ages 45 to 59, account for 21 percent of digital payments users.

So is it really big news that more Millennials than Boomers used their Starbucks app to buy their lattes or digital goods using their phones than?  Not really.  But is it newsy that 20+ percent of Boomers with smartphones also use their phones to make mobile payments?  I think for merchants who are trying to figure out whether deploying mobile payments now is worth it, it should be.

If I’m a merchant, I might be more stoked by the fact that I could serve 21 percent of the Boomers with mobile phones and their $1.2 trillion annual spending power versus 36 percent of Millennials who drive sub-$200 billion in spending power annually.  Of course, the Millennials love mobile devices and are naturals for using those devices to pay for things, but they’ll come along for the ride regardless.

If I’m a merchant, I might want to think hard about how to get their big-spending parents jazzed, so then I can score the digital payments two-fer:  Boomers and their big spending ways and their kids who represent the future generation of shoppers who’ll follow along just because paying with the mobile device is second nature.

The other related insight here is that it’s probably time to stop thinking about digital payments and the great age divide. Have you ever looked around at who uses mobile devices in airports to scan boarding passes? Or who uses the Starbucks mobile app?  It isn’t just the younger populations. Smart mobile devices make it really easy, almost idiot proof really, to use for just about everything, including digital payments. The gating factor for mobile devices and digital payments isn’t age, it’s where to use it once someone has gone to the trouble of downloading the app.

What’s in your digital wallet?

Here’s where I thought there was some interesting and potentially useful insights for digital-wallet providers.

The most commonly used funding method was the debit card at 54 percent, followed by credit cards at 42 percent and bank account at 40 percent.  According to the Fed study, only 5 percent of mobile-payment users had a prepaid card attached to their mobile wallets.

This finding suggests that, overwhelmingly, it’s the banked population that uses digital payments today and that those people attach their digital wallet accounts to their checking accounts in one form or another.

And that could be news.

The “could be news” part comes out of the fact that one of the big digital payments use cases cited by the survey was bill payment, which, of course is funded by a bank account. Still, the fact that more people use debit than credit to pay via their digital wallet could have some important implications for the design of digital-wallet products and business models moving forward.

It also suggests that expressed concerns over security could be a red herring.

As is also typical in most of these surveys, respondents said they had concerns about security of paying using their mobile devices. However, what’s not clear is whether those concerns will or would stop people from adopting or using digital wallets.

An interesting real-life data point is the behavior of consumers post-Target. Consumers haven’t stopped using cards at retailers; those with concerns have stopped shopping at the retailer that they believe put their cardholder data at risk – Target. Since most people haven’t used digital payment at a physical store, it’s not clear that security is the deterrent; merchant acceptance more likely is.

And judging by the rapid growth of digital payments online, and from PayPal’s numbers and growth in that area, security does not seem to be an inhibitor there, either. As more on and offline retailers accept PayPal and more consumers access the Internet via their digital devices, it seems reasonable to assume that their mobile transaction volume will increase, too.

The digital payments sticking point

As bullish as all of this for digital payments, by and large, the Fed survey results report that 50 percent of mobile-phone users are pretty uninterested in using phones to pay for things in-store, even if offered.  And the reason these consumers cite: it’s just as easy to use other methods and there’s no real, clear benefit cited, with 76 percent and 63 percent of respondents, respectively, answering in that way.

This is where I think that surveys tend to distort the reality of what consumers actually will do when presented with a new opportunity that adds value or convenience.

One of the most famous stories about market research is a survey done in early 2007 before the introduction of the iPhone that asked consumers about their interest in using a device that combined a phone with an MP3 player, a camera and apps that allowed access to information. Such a product, according to this survey, scored very low.

Of course, the introduction of the iPhone a few months later and the reviews and recommendations that it received from those early adopters, combined with the easy-to-use experience that it created, blew the credibility of the study results right out of the water. Asking consumers about things they really can’t imagine or don’t fully understand and using those insights to drive strategy can send a company down the wrong path for the wrong reasons. It’s why companies need a vision for their products independent of traditional “voice of the customer” research and why Steve Jobs never believed in it.

So my interpretation of the Fed findings is that it could be that survey respondents, who represent a very, very small slice of the population, don’t have places to use their digital wallets in physical stores – either the stores they like to shop at today or ones that might they be persuaded to shop at – so they haven’t bothered to download a digital app or use one, like PayPal, that they may have but can’t use at a store that is convenient for them to use. Of course, it then is clearly more convenient to use cards or cash at those places and to answer survey questions about future use as not being all that interesting.

For anyone to get really excited about any digital payments, they have to be able to use digital devices to pay consistently at the places they like to shop. It’s why Starbucks is the number one digital app used by those the Fed surveyed – Starbucks apps can be used at any Starbucks-owned cafe, regardless of where it happens to be.  Digital-payment acceptance in physical stores is much more spotty beyond that, at least right now.

Digital wallets as a channel to the opinion of others

Perhaps some of the most interesting aspects of the Fed survey were what consumers said they did with their mobile devices in stores. Asking consumers about what they do (or better yet, observing them in action) is a much more reliable way of assessing how consumers are using apps and devices to enhance the shopping experience.

Not surprisingly, consumers use their devices to check out reviews and recommendations, but interestingly, and overwhelmingly, 74 percent actually changed their buying decision as a result. This is a huge proof point related to the impact of opinions on consumer buying decisions.


Relying on the opinion of others and its impact on buying behavior is something we dedicated an entire session to at The Innovation Project 2014 a few weeks ago.  Getting lots of people to weigh in on the experience in a public way influences the actions of others, even if they’ve never purchased the item or the brand before. As this new research suggests, it isn’t only friends who influence decisions to try new things, it’s the opinions of others, as Yelp and eBay have proven for many years.

With mobile device in hand, consumers also consulted their balances in real time before making a purchase, and 50 percent decided against making a purchase for lack of available funds. This is another interesting and powerful insight that can inform a variety of digital-wallet providers and merchants use cases.

But perhaps most interesting of all is the notion that half of those consumers surveyed don’t use their mobile phones to do anything related to the shopping experience at all. Those who do tend to check out prices versus wanting to organize loyalty and membership information and even receiving discounts and offers.

Mirror, mirror on the wall, who’s likely to become the fairest digital wallet of all?

Here are some of the inputs that our digital payments Magic Mirror is likely to consider before answering the question with conviction.

Consumers seem to want to use their digital devices to access information in real time to help them make better buying decisions – price and, more importantly, what others think about what they are about to buy. The offers and discounts that bombard consumers, unless they help with that process, seem to be of lesser value – perhaps the first piece of real evidence that merchants and digital-wallet providers don’t have to bribe consumers with margin-reducing discounts to get them to “buy-in.” But listening to the wisdom of the crowds drives the purchasing decision and has changed preference nearly 75 percent of the time. The implications for digital-wallet providers should be clear:  get consumers excited using a digital wallet for payment so that others can follow in their digital footsteps.

And that will come down to getting accepted at merchants.

What will ignite digital payments, pure and simple, is merchant acceptance.  The Fed survey, while based on a small sample, suggests consumers are increasing their usage of digital payments because more places are available to them to use their cloud-based digital wallets. Sure, consumers will decide which digital wallet they will use, but that decision will be based on where they can use it conveniently and consistently.

Discover is a good data point. They have built a profitable payments network not by having tons of consumers  – they have a roughly 5% share – but by having broad merchant acceptance. Starbucks has shown us the same thing in a digital wallets world: 10 million digital-app users (against 7 million consumers who visit Starbucks every week) drive 20 percent of its sales.  But what both illustrate is how critical merchant acceptance is. The Starbucks app is usable at all Starbucks locations in the U.S., and Discover can be used in 8 million U.S. locations and with Diners Club, around the world.

Of all of the digital wallets surveyed in both the Fed and comScore study, PayPal is the general purpose digital wallet that consumers have used the most to shop in-store. It’s had 14 years to build a brand and a digital footprint online, worldwide, and has 100+ million active digital wallets to leverage, but it’s been focused on evolving its digital wallet’s user experience in-store and building momentum to drive acceptance and more places for consumers ot use the product they already have on their mobile devices. In fact, last year alone, PayPal is said to have introduced 53 new products to enhance the in-store merchant/consumer experience, introducing both PayCode and Beacon, among other things.

So when asked about whose digital wallet will be the fairest of all, the Magic Mirror will likely answer it will be the one that can build momentum with consumers by getting the broadest merchant acceptance in the shortest amount of time. In our story, could the Discover network rails or ACH play the part of merchant acceptance handsome price? Could MCX and its merchant network be the seven (plus 43) dwarves that cause the digital payments Magic Mirror to look in different direction? Could there also be an Apple of some kind that could poison the efforts of everyone so far?

I think we may need to give the Magic Mirror a little more time to gather its thoughts.



Digital transformation has been forcefully accelerated, but how does that agility translate into the fight against COVID-era attacks and sophisticated identity threats? As millions embrace online everything, preserving digital trust now falls mostly on banks and FIs. Now, advances in identity data and using different weights on the payment mix afford new opportunities to arm organizations and their customers against cyberthreats. From the latest in machine learning for fraud and risk, to corporate treasury teams working in new ways with new datasets, learn from experts how digital identity, together with advances like real-time payments, combine to engender trust and enrich relationships.