The Future Is Here… Not Quite
Mobile payments have been dubbed the “next big thing” for quite some time now. Along with drones, virtual reality and the cyborg workforce, they’ve become part of futuristic jargon. However, the thing with mobile payments is that there’s still lots of hype and little to show for it.
Since its debut, mobile payments simply haven’t yet taken flight. With Google Wallet released in 2011, Apple Pay in 2014 and Android and Samsung Pay in 2015, it seemed like these innovative ways to pay would’ve hit us by storm by now. Looking further back, Google Wallet actually launched over a decade after PayPal’s founding in 1998, which didn’t fully launch mobile payments until later.
According to eMarketer, only 7 percent of Americans use Apple Pay since its launch four years ago, and only 25 percent of American smartphone users use mobile payments for any purchase. While that’s been the case for the United States, China’s been different.
81 percent of smartphone users in China pay by phone. To say the least of this stark difference, substantial integration took merely 3 years to complete. During 2015 and 2016, Chinese tech giants Tencent and Alibaba (now under Ant Financial) who back WeChat and Alipay, respectively, introduced the ability to pay via a simple scan of a QR code. Mobile payments have since trickled down from large corporations and even to beggars on the streets. By purchasing simple point of sale (POS) devices, businesses can scan QR codes displayed on consumers’ smartphones to enable seamless payment.
Beggars on the streets have done similarly; by displaying WeChat and Alipay QR codes on cardboard signs around their necks, passersby can transfer funds immediately with a simple scan. In fact, total transactions on China’s mobile payment platforms are estimated at over $17 trillion in 2017, which surpassed China’s GDP, according to market research firm iResearch. While there are entire books and lectures dedicated to the transformative Chinese economy today, the reality is that payment-by-scan technology hasn’t come to be nearly as widespread in the United States and abroad as it has become in China.
The majority of American consumers are bogged down by the plastic credit card functioning as their primary purchasing tool. Designed for convenience already, mobile payments may be not viewed as substantially more convenient for American consumers as they are for the Chinese. That is because Chinese consumers leaped from making primarily cash payments to mobile payments and skipped right over credit cards. For them, WeChat and Alipay function as the convenient way to pay as the plastic credit card did for the average American when it replaced cash.
Tech giants seeking alternative revenue sources along with early adopters, dream of the futuristic notion of our smartphones completely replacing the functionality of our credit cards. Mobile payment providers have attempted to incentivize merchants to integrate their technology into their businesses. Apple, for one, partnered with Square, among others, on a program enabling local merchants to process $12,000 worth of payments for free if their customers use their smartphones to pay. This comes out to about $350 in processing fee savings on the merchant side, as explained on Square’s site. Apple also provided marketing materials to place next to POS devices to promote mobile payment methods and to educate US consumers about the technology. Even so, eMarketer predicts that by 2022, Americans are expected to pay approximately $161 billion each year via mobile payments – a clear increase from previous years.
Payment-by-scan technology has brought convenience to transactions and has stretched online actions to offline services. A primary example of this is Uber’s lead in the ridesharing race. By harnessing smartphone technology and applying it to personal cars, it has created an “online-to-offline” business model, which has since been replicated in other markets. Mobile payments are being utilized to fuel the “online-to-offline,” or O2O, revolution, bringing the convenience and growth of e-commerce to the purchase of real-world services. O2O services include on-demand food delivery, hair styling, manicures and pet sitting services as well as ridesharing platforms.
In addition to speeding up the O2O revolution and linking the online and offline realms, a transition to mobile payments may reap tremendous reward well beyond consumer convenience. For starters, mobile payment systems and merchants using them have the potential to aggregate an enormous amount of real-world data on the buyer behavior and consumption patterns of their users. With the growing amount of actionable consumer data, mobile payments give merchants a competitive edge over non-mobile payment companies and merchants. This is mainly because the data collected and analyzed can be used to understand their consumers and tailor products and services toward them, and especially can be used to better mobile payment systems. With more data points available, digital systems are able to improve their speed and precision creating greater convenience in the use of mobile payments furthering their use and ultimately increasing available data to further improve the systems.
Interestingly, at another attempt to attract consumers and build alternative revenue streams, in late March, Apple announced its Apple Card which will debut this summer. Apple Card is supposedly a “new kind of credit card” backed by Goldman Sachs in order to provide a digital-first financing option for consumers by integrating Apple Pay. The card also features chip technology so that consumers can use it at non-Apple Pay businesses. In an attempt to force its way into the financial services, Apple seems to be pushing its ready-made product and service onto consumers whether they like it or not.
Whether mobile payments become a universal norm or continue to boom primarily on the Eastern Hemisphere, countries and companies utilizing them will certainly have a data edge over those who do not. It remains to be seen whether mobile payments will bump out the incumbent plastic credit card or live up to the label as the “next big thing.”
Photo Caption: Ways to pay expand as dozens of industries attempt to harness mobile payment technology for purchases.