A lot of exciting things have happened in payments — and commerce, more broadly — over the last three years.
PayPal became pals with the card networks and their issuers.
India demonetized its currency and put digital payments adoption into overdrive.
Amazon ignited conversational commerce with Alexa and the portfolio of apps and devices that now have her at the consumer’s beck and call.
Selfie Pay became a real thing.
Walmart bought Jet.com to beef up its eCommerce business.
Paying gig workers faster has given the gig economy a real boost.
Efforts on the part of the payments ecosystem to fight the fraudsters have managed to decrease the rate of online fraud by about a third.
But here’s one thing that the last three years hasn’t done: increase the consumer’s appetite to turn their smartphones into a digital payment form factor when they check out in a physical store.
In fact, the results from the latest PYMNTS/InfoScout Mobile Payments Adoption and Usage study over nine quarters concludes what now sounds like the same song, different verse: Consumers largely haven’t been given a good enough reason to remember to use them, even though when they whip out their plastic cards to pay for something in a store, they often have their phone in their other hand.
Let’s be clear what we mean by usage: It is the percent of people who have the payment method on their phone, who pay at a terminal where they could use that method and then who actually use it to make a purchase.
That reluctance to ditch the leather wallet for the digital version is despite the proliferation of NFC-enabled terminals for the [Fill-in-the Blank] Pays that need NFC to initiate a payment, which is a pretty sobering reality for the “granddaddy” of all the Pays — Apple Pay — despite Apple CEO’s Tim Cook’s ebullient shout-out to Apple Pay in its latest earnings report last week.
Apple Pay may be, to quote him directly, “by far the number one NFC payment service on mobile devices, with nearly 90 percent of all transactions globally.” But that’s a lot like saying you’re the best of all the C students in a class of C students: It’s still a class of C students.
After almost three years — with all of the hype and all of the investment in advertising and promotion — Apple Pay seems unable to consistently crack 6 percent usage in the biggest payments market in the world.
Our results show average usage over nine quarters to be about 4.5 percent. And while it has hit a high of 5.9 percent, and did hit 5.5 percent this past quarter, the trend remains flat despite the increase this quarter.
At this point in its lifecycle and hype-cycle, it begs the question: Can it ever break that ceiling?
At the end of June, when we went back into the field, 24.5 percent of respondents said they tried Apple Pay for the first time, up from 21.9 percent in March. And 5.5 percent said that they used it to pay for a purchase, up from 4 percent in June — but off its high in March of 2015.
It’s hard to know if that’s the start of a consistent upward trend or another blip, but statistically it looked like just another random blip along a pretty dismal trend line. When we asked consumers how often they used Apple Pay to pay for something in a physical store, they did so about 18 percent of the time. That stat hasn’t budged since March and has been on the decline since October of 2015.
There is one exception to this story: Walmart Pay.
Since March, we’ve seen the first-time use of Walmart Pay increase by 31.7 percent to 19.1 percent of respondents. And of those who have the app on their smartphone and use it to pay, there was an increase of 53.5 percent to 5.08 percent of respondents.
What’s interesting about that jump isn’t so much the jump itself, but the speed at which Walmart Pay is turning those who try it once into those who use it again. Usage, at 5.03 percent, is after only a year in market and only slightly less this quarter than Apple Pay’s 5.5 percent, now closing in on year three.
Frequency of usage with Walmart Pay also tells an interesting story.
Nearly 50 percent (47.2 percent to be exact) of respondents who shop at Walmart said that they used it every time they could — only 6.6 percent said that they never thought to use it at all.
Now, that’s not to say that Walmart doesn’t have its work cut out. Walmart Pay’s biggest competitor is cash — which was what consumers said they used when they didn’t use Walmart Pay — and what many of them do use when shopping there. Ditto EBT cards, which can’t yet be registered to a digital wallet for payment. Those are two big and important hurdles that Walmart Pay must clear.
But what appears to have made Walmart Pay sticky isn’t the ability to pay using the app at the store — but rather the portfolio of value-added solutions wrapped around the act of paying at checkout.
But even that isn’t checkout in the traditional sense of the word.
Walmart Pay’s QR code actually authenticates the user before the checkout process begins, at which point the consumer can then put her phone back in her purse. The process of applying coupons, promos, Savings Catcher rewards and gift card balances (if any) kicks into high gear in the app, prompting any and all of those options for the consumer to choose from before checkout is finalized. Walmart Pay also enables mobile order ahead for groceries with curbside pickup, buy online and check out in-store using cash and now a series of financial services, including savings.
All of that is a world apart from where Apple Pay started in its quest to win the in-store payments game — and it’s not even where it appears to be heading.
Integrating store-specific loyalty programs into Apple Pay sounds great — until you get to the part where the checkout experience still requires standing in line to get to the counter to check out. At that point, as our survey respondents have told us consistently, using a card works just fine, especially since the EMV experience at checkout today in most stores is pretty fast.
But I hear you saying, wait, Tim Cook made the point during the earnings call to say that three out of every four Apple Pay transactions happen outside of the U.S., where he remarked that “infrastructure for mobile payments has developed faster than in the U.S.”
Even though the backwaters of payments innovation, the U.S., (if I were reading this to you, you’d hear this said with a healthy dose of sarcasm) may still be a few years away from contactless terminal ubiquity, it’s been reported that 52 percent of merchants in the U.S. can accept an NFC-enabled payment, including lots of those long tail merchants like coffee shops and delis that operate integrated point-of-sale terminals, such as Clover and Square.
Unfortunately, what once might have been a good scapegoat for Apple Pay’s lackluster performance here in the U.S. — and frankly was an early criticism of mine about their ignition strategy at launch — isn’t the reason Apple Pay isn’t knocking the socks off U.S. consumers.
But what about those other global markets that are driving 75 percent of Apple Pay’s transactions?
How much volume is Apple Pay driving, and where are consumers using it?
Is it in the U.K. for transit use cases, where contactless transactions are crushing it?
In Australia, where the big banks were trying to block Apple Pay, since they don’t want to be locked into Apple Pay’s 15 bps at the expense of their own contactless mobile wallets?
In Japan, where it’s been hard for any mobile wallet over the last 15 years to gain any traction, and where it seems that Apple Pay’s strongest use case, like the U.K., is transit?
In one of the new markets like Sweden or Denmark where digital payments are a way of life, but so are popular in-country schemes like Swish and Dankort that today have broad consumer adoption and usage?
The short answer is that we don’t know, and we might not ever.
The likely answer is not much, since if it was material, Apple would be talking about it.
Case in point: Even when Apple broke out drivers of its Services revenue in their earnings report last week in response to an analyst’s question, they gave a nod to everything but Apple Pay. And no one else asked.
What seems certain though is that it won’t be in China, where Apple is betting its future and where Apple Pay as a mobile payments solution is bombarding users with promos and freebies out the wazoo to get them to give it a try.
As the second largest economy in the world, it’s understandable that Apple has made China a top priority. There’s only one problem: China has not made Apple a top priority.
Apple, as a company, has lost sales in China since 2012 and was down 10 percent last quarter after declining 14 percent the quarter prior. Apple has a ~9 percent share of handsets in China, and 0 percent share of payments (I think they rounded down!), according to a terrific piece of research done by China Channel. In China, Apple is considered a luxury brand — but is now one of many handsets that Chinese consumers can buy that allow them to access the most important thing to Chinese consumers: WeChat and all of the chat and games and commerce capabilities that its ecosystem enables.
According to China Channel’s report, 67 percent of Chinese consumers use Alipay or WeChat Pay’s QR codes to pay in a store, 22 percent use UnionPay cards and 11 percent use cash (and zero use Apple Pay). When 4,000 Chinese consumers were asked to choose between WeChat and Apple Pay, 88 percent chose WeChat — only 4 percent chose Apple. The Apple apps ecosystem that’s such a draw for consumers in other economies has little appeal to the Chinese consumer who gets all she needs from WeChat.
It seems equally hard for Apple in India, too.
With 1.3 billion people and GDP growing at a 7 percent clip annually, Apple maintains a 3 percent market share of the smartphone market, according to Kantar, in a market that is dominated still by feature phones. Of those 1.3 billion people, 70 percent live outside big cities, and 93 percent of those rural villagers have never conducted a digital transaction.
So, what’s wrong with that you ask — especially given the fact that two-thirds of the population are under 35?
Price points and competition.
The average price paid for a smartphone is $155 — Apple’s plans to manufacture smartphones in India have suggested that they will retail for $455. Cheaper and high quality smartphones made by Chinese OEMs now have 51.4 percent of the market in India — growth that is up 142 percent since last year. Mobile wallet schemes, spurred on by demonetization and independent of the hardware that enables them, are well in flight. Paytm, backed by SoftBank and Alipay, has 200 million users and growing. Oxigen, MobiKwik, PayU/Citrus Pay, along with the PayPal/card network partnerships and card network Bharat QR code schemes all have a running head start too in a market where the phone hardware, largely, is just the host for a digital payments capability that makes the financial lives of that Indian consumer better and easier.
So, what does this all mean?
After nine quarters of tracking 8,000 consumers a quarter, it seems that the verdict is in.
Consumers in the U.S don’t want a new way to pay at an old checkout experience.
What they want instead, including iPhone owners, is a new experience that removes the inefficiencies in how they pay for things they want to buy in those stores. They view connected devices as their ticket to those new payments experiences.
In other words, what consumers want is a new way to pay at a whole new checkout experience.
The blurring of the online and offline worlds — and the opportunities that creates for reinventing the way consumers shop and pay, which I’ve been writing and talking about since 2010 — isn’t just talk. It’s how consumers expect their digital payments experience to be delivered.
It’s also what consumers are using.
Mobile order ahead, just to take one example, is crushing it at the brands that have embraced it, driving more than 50 percent of transactions during peak times and increasing the average order size by 20 percent.
And it will also determine the so-called mobile “wallet” winners and losers. Here in the U.S. and everywhere else in the world.
In fact, it may already have.