Imagine a world in which you pay for everything you buy with just a smartphone. That dress you see in the store window, shoes to match, a delicious meal at the new restaurant in town, a cup of coffee on your way to work, and even groceries at the local supermarket. All paid for using mobile payments apps on your smartphone. No more pulling credit or debit cards out of your wallet. In fact, you don’t even carry a wallet any more. It’s just you and your phone.

Despite my feeble attempt to make it read like a trailer for a movie adaptation of a Philip K. Dick novel (Minority Report, anyone?), this scenario doesn’t actually sound futuristic at all. It sounds like yesterday’s news. Consider all the recent news in payments – the introduction of Apple Pay, Google Wallet partners with SoftCard, Samsung purchases LoopPay, and now, Samsung introduces Samsung Pay. Each piece of news pushes us closer to considering mobile payments as inevitable – the idea that mobile payments is the new normal way to pay and that it will be adopted very soon.

But the reality is far less certain.


Are Mobile Payments ‘Better Enough’?

Breakthrough and disruptive innovations that create categories, upend business models or establish a new normal way for doing something tend to have one thing in common: a discernably better consumer experience.  The Kindle was better. The iPad was better. This applies to emerging categories with the potential to become the new normal as well.  Single-serve coffee makers are better. Tesla is better.

The bar for changing behavior is that the new consumer experience is discernably better than existing alternatives.  And the question in payments has always been: are mobile payments noticeably ‘better enough?’

So far, the answer has been ‘No.’ Swiping a credit card is an extremely simple, very familiar and almost completely error-free experience. How do you improve upon such a consumer experience? Mobile payment solutions, such as Square, have had some success with a few specific types of purchase occasions or merchants – the food truck parked around the corner, the hipster coffee shop – but showing discernable superiority for broader consumer payment experiences has been an ongoing challenge.

But, What About Apple Pay?

We at Ipsos independently surveyed consumers about Apple Pay, just as we have done for every major payments innovation in the past 15 years. We had consumers evaluate two versions of Apple Pay – one version that was brief (focusing on the core idea and key benefits, without any broader context of how this fits in the payments ecosystem) and a second version that was much more detailed (including more detail on features and benefits as well as information on the ecosystem such as merchant acceptance, participating banks and networks).

The brief version fared similar to many early mobile payments solutions and other technologies we’ve assessed – with reasonably strong consumer appeal and interest, but mediocre differentiation and relevance coupled with a healthy skepticism that the solution would actually meet expectations in market. This indicates a potential willingness to try Apple Pay if the situation allowed, but with concerns about the credibility of the solution working consistently.

The detailed version, on the other hand, fared extremely well across the board, with consumers indicating particularly strong differentiation and relevance perceptions relative to the brief version. This confirms that the success of Apple Pay hinges on

  • the entire payments ecosystem working in concert,
  • the consumer being fully educated about all Apple Pay features and benefits, and
  • Apple Pay living up to the expectations of a superior consumer experience, which is being built by significant bank/network advertising as well as by the halo of the Apple brand.

Anecdotal evidence suggests that the consumer experience with Apple Pay (as well as Google Wallet, for that matter) has not been better enough, relative to existing alternatives, to support continued usage and loyalty. Too few merchants accept it (or have the necessary NFC terminals). At merchants who do accept it, it doesn’t work consistently for every tap. When it doesn’t work for a consumer, merchants are unable (or unwilling) to help correct the experience. And even if it does work, it may turn out not to be the one-tap seamless consumer experience you expect – you may find yourself going  through multiple steps on the POS terminal (besides tapping your phone) to complete a transaction.

Payments Stakeholders Coax Consumers to Use Mobile Payments

The introduction of Apple Pay in late 2014 was hailed as an inflection point in the evolution of mobile payments. It suddenly made all other mobile payments solutions seem clunky by comparison. What Apple Pay really did better than any solution that came before was to build upon and use the existing payments ecosystem, thereby leaving the entire payments business model completely undisturbed (with the exception of a small per-transaction charge for Apple, of course). There was no attempt to disintermediate the banks or payment networks. By bringing together the consumers who use Apple Pay on their iPhones, the banks who issue the cards, and the payment networks on whose rails the transactions run, Apple was bringing together three of the four key stakeholders in the payments ecosystem. (The only stakeholder with a less than enthusiastic response to Apple Pay has been the merchant.)

The issuing banks (Chase, Bank of America, etc. who issue consumer credit cards), acquiring banks (the banks that process the transactions for the merchants) and the payment networks (Visa, MasterCard, AmEx) have a lot to lose if parts of the payments ecosystem are disrupted.   All the advertising and marketing efforts by banks and payment networks on behalf of Apple Pay seek to coax consumers into usage of Apple Pay, while effectively maintaining the existing payments ecosystem.

It is obvious that merchant acceptance is the final key to the success of Apple Pay and other mobile payment solutions. Merchants have not been welcoming of the mobile payments solutions that effectively maintain the existing payments ecosystem, and some large merchants, including WalMart, have banned Apple Pay.  Merchants have formed their own coalition (MCX) and long harbored ambitions to get into mobile payments on their own terms which culminated in the development of their own app, CurrentC.  Given the similarities in consumer experience and the relative lack of consumer marketing efforts, CurrentC will face similar hurdles to adoption as other mobile payment solutions. On the other hand, the merchant side also represents a great opportunity for technological innovation on its own (e.g., the introduction of future-proofed terminals such as Poynt).

Finally, rounding out the new players looking for a stake in the mobile payments space is Samsung, with the recent acquisition of LoopPay and launch of Samsung Pay. Samsung’s announcement of Samsung Pay focuses on its ability to work with existing POS terminals (i.e., without requiring NFC) potentially circumventing the merchant acceptance issues. But the question still remains: will the consumer experience be better enough?

With so many very large companies that have so much to gain or lose by the adoption of mobile payments and any potential disruption to the payments ecosystem, there will continue to be tremendous activity in the mobile payments space. In the flurry of activity, keep your eye on whether consumers are being offered a ‘better enough’ experience. Regardless of the stakeholder push to coax consumers to use it, consumers will truly adopt mobile payments solutions and make it the new way to pay only when they perceive a discernably better experience. That’s what we’ll continue to watch for.

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