Mobile payments and consumer adoption is a lot like the chicken and egg conundrum — the chicken being the merchants and the egg being consumers.
They need each other to work. Without the merchants on board, consumers won't follow. But without merchants believing consumers will follow, they aren't apt to onboard a new, unfamiliar, and often expensive payments technology.
Whether we're talking big mobile payment schemes like Apple Pay, which, as the latest research from PYMNTS and InfoScout shows, has yet to get consumers psyched on a massive scale — no one company has been able to tip the mobile payment adoption scale. In fact, consumer adoption rates appear to be dwindling, backing up the assertions from MPD Chairman and Economist David Evans made in December 2014: Why Apple Pay Is Fizzling.
So, if Apple, with its trusted brand name, elegant card provisioning, massive ad spending, widespread issuer and card brand backing can't win over enough consumers, what’s the future look like for mobile payments, more broadly?
If you ask Laurence Cooke, the CEO of nanoPay, a Canadian-based digital and mobile payments platform that's spent the past nearly three years getting its product ready to scale, it’s all about fear of the unknown.
The Four Big Mobile Payment Fears
"There are four different types of fears," Cooke explained in an interview with PYMNTS. "The fear of fraud, the fear of unknown, the fear of doing something wrong [and] the fear of privacy loss and identity theft."
No consumer wants to be wrong when they step up to pay at checkout. This means not having the payment option available when they thought it would be, or a payment not going through or getting rejected. There's also the trust issues consumers still have with their mobile devices and credit card networks, in general.
"There are very few people that really want to try something for the first time. Because people don't understand things, they obviously often don't want to do it," Cooke said. "Most people have a very limited understanding of payments as it is, and combining payments and mobile is a very, very limited misunderstanding."
While options like Apple Pay, and even nanoPay, aim to reduce fraud with single-use tokens, that doesn't mean much to the consumer. And like Apple Pay has loyalty built in, so does nanoPay. But there's still a gap in what consumers care about the most. And that's the concept of giving them an experience they can't get with a credit card.
What's So Different About Mobile Payments?
Because mobile payments are still about loading credit cards onto an app, there's some level of trust that consumers grapple with. As Cooke explained, most mobile payments platforms are still about replacing a credit card with a credit card payment — but with a device instead of the physical card.
That's just not enough to sway consumers. Or many merchants, at this point. Even as payment companies pitch the security benefits (like not having payment credentials going over a network), that hasn't sold merchants enough to sell consumers.
And so on, and so on...
So who's going to be the one to sway consumers? Cooke believes the payments companies have pushed out their pitches enough to consumers, so the obvious choice left is the other side of that chicken and egg conundrum previously referenced.
"It's absolutely going to be the merchants. There is no reason for the payments companies to push anything else on anyone. And the consumer doesn't try anything without reason. I do think that there is a consumer adoption cycle," he explained, elaborating more on why more consumers aren't buying into mobile payments. "At the moment, mobile payments equals credit card disguised as a mobile phone. We are taking a smartphone and making it look like a dumb card. That's what we're doing in mobile payments today. All we're doing is a credit card transaction really. So there's nothing to get excited about. It's not significantly different from a merchant's point of view, and it's not better from a consumer's point of view."
[bctt tweet="At the moment, mobile payments equals credit card disguised as a mobile phone"]
"Trying to replace a credit card transaction with a credit card transaction that's in a mobile phone is interesting, but it's expensive and futile," Cooke said.
Why Merchants Still Don't See The Point
But right now, it's often just as, or even more, expensive for merchants to accept most mobile payment options on the market. So what's the incentive to make the switch when consumers haven't shown it will help increase customer spend or loyalty? Retailers also know that payment companies and issuers have a tendency to increase fees once the burden gets shifted back on them.
While the payment players rush to win over merchants and remind consumers that many of their devices are equipped to be payment devices, at the end of the day, he believes that merchants are stuck in the middle of the mobile payments debate. And it's going to have to be up to payments companies to incentivize those merchants — just as much as it is for merchants to find ways to incentivize consumers.
"Retailers will incentivize consumers to adopt [mobile payments]. But they will only do that when there is a good economic reason to do that. Those two good economic reasons are data on customers and to lower transaction costs," Cooke said. But merchants must pass off some incentive to the customer (like giving a certain percentage off on purchase made with mobile payments) in order to convince them, he noted.
"Retailers are naturally concerned about the downloading of costs from the payment industry. I think they have had the obvious reaction. Until we offer them a really good reason, and that's either the customer data or better transaction costs...they shouldn't jump ship and start embracing them," Cooke said.
And that's coming from a CEO who's working to create merchant partnerships to adopt his mobile payments platform. Perhaps his refreshing honesty about the mobile payments market is what the bigger pay players need to be taken down a peg.
Maybe then someone will break the mobile payments mold and convince merchants why they should convince consumers to embrace mobile payments.
Quite the conundrum, indeed.