The future of mobile payments – are there too many options that are confusing consumers and merchants?

Mobile Payments

It does not seem like all that long ago on September 9, 2014, when Apple unveiled Apple Pay as a new mobile payment platform.  When Apple Pay was released, it would have been hard to predict that over the next few years the mobile payments marketplace would explode with new mobile payment technologies and options that would be available for consumers to use to pay for their purchases using their smartphones.

New mobile payment technologies are developing so fast and with so many options to choose from it is becoming increasingly difficult for consumers and businesses to keep up.  As with any innovation, there will be clear winners and losers over time.  In the meantime, how are consumers and merchants supposed to make sense of all the options available?

Mobile payments can be broken down into three main payment platform categories:

Smartphone manufacturers – Each of the major smartphone manufacturers offer their own branded mobile wallet.  This includes Apple Pay, Samsung Pay, Android Pay, and coming soon LG Pay.  Most of the manufacturer wallets allow consumers to load credit cards from Visa, Mastercard, American Express and Discover as well as select department store cards.

Business and store branded wallets – This category includes mobile payment applications sometimes referred to as closed payment wallets and include names such as Walmart Pay, Kohls Pay, and Starbucks to name a few.  Branded payment wallets typically go beyond just payments and push branded promotions to customers and track customer loyalty, among other business use cases.

Peer-to-peer payments – Included in this category are payment applications that allow individuals to pay other individuals using applications such as Venmo, Square Cash, Zelle, and Snapcash.

In addition to the applications mentioned above, there is what seems like new payment platform announcements on a weekly basis. According to Chris Gardner, Head of Product at PayPal In-Store, “there are a plethora of ways to conduct a payment transaction today, and almost all of them use the current credit card payment based standards of swipe, EMV, and contactless NFC.”

Gardner sees more payment options as good for the consumer and ultimately good for businesses. However, in the short-term, he sees the biggest hurdle to mobile payment adoption is education.  Consumers need to be educated about the benefits associated with mobile payments and merchant’s need to be educated about the types of hardware and software required to accept all of the current and future mobile payment methods. “We are moving into an environment when one size fits all is going away, and we are rapidly moving towards a post point of sale commerce environment,” said Gardner.

With so many mobile payment options to choose from, Mark Ranta, Head of Digital Banking Channels at ACI Worldwide thinks we are in a “payment paralysis state.”  Ranta views the current landscape of mobile payment options from the following stakeholder perspectives:

Consumers – There are too many choices leading to confusion and slow user adoption of any one single mobile payment acceptance method.

Industry – The payment industry providers and processors think more choice is better and more options are good for business.

Merchants – Big box retailers are creating their own company branded payment applications, which leaves small and medium sized merchants somewhere in-between the consumer and industry perspectives, which is a possible cause for slower adoption rates.

“Payment innovation is coming so fast and furious that the consumer is not adapting to the new technologies at the same rate of innovation,” says Ranta.  Ultimately, Ranta believes that the payment industry will settle on 4-5 major platform options, which will become the standards for which consumers and businesses will choose and develop new technologies and integrations.

“I’ve had the chance to try the majority of mobile payment methods, but the only solution I use on a consistent basis is the Starbuck’s app. I simply haven’t found another solution that’s compelling enough to replace with my credit card. After constantly asking merchants if they accept a certain payment type, I lost interest. Like most consumers, if I’m going to adopt a new solution, I want ubiquity, and I haven’t found many solutions that offer that yet,” Joe Kleinwaechter, Vice President of Innovation and Design at Worldpay US.

When Kleinwaechter was asked why he thinks mobile payment adoption rates by both consumers and merchants is relatively low, his response was “mobile payments are not yet solving a consumer problem.” Kleinwaechter also believes that over time the options available in the marketplace will consolidate down to 2-3 industry standard options.

“Merchants are still slowly upgrading their retail point of sale (POS) systems to support various mobile payment options while new payment options keep showing up. No merchants have provided a complete list of payment solutions that their POS terminals support, neither do payment solution providers offer a complete and up-to-date list of merchants accepting their respective solutions. Consumers have to second-guess which payment option they could use. In a situation like this, a consumer usually uses his credit card instead.”, says Harry Wang, Senior Director of Research at Parks Associates.

So far we have only discussed mobile wallets and payments.  As more mobile payment options continue to come out daily, the next generation of payment acceptance methods will be more integrated into our daily lives through a concept called the Internet of Things (IoT).  We already see some early examples of IoT payment methods with home appliances, sunglasses, automobiles, physical “buy” buttons from Amazon and much more.  There is no end in sight to the number of payment possibilities that might be available once the IoT payment methods begin to hit the marketplace.

“The current state of mobile payments reminds me of the early days of the Internet when businesses were launching a website but did not know why they were launching a website,” says Kleinwaechter.  Just as the Internet developed over time to gain the trust of users, mobile payment platforms will need to do the same by educating consumers and merchants along the way.

What many consumers and merchants don’t realize is that mobile payments are some of the most secure payment acceptance methods available. “Like many digital devices, consumers often think of their smartphones as “hackable” and, therefore, don’t want to risk using mobile payments. But despite this misconception, many mobile solutions are even safer than traditional methods,” says Kleinwaechter.

In addition to educating consumers about the security and benefits of using mobile payments, merchants need to be educated about hardware and software options required to accept the new payment methods.  Many times merchants have some form of technology already in place that has the ability to accept many new forms of mobile payments. However, they simply don’t know it because they have never been properly trained and educated about their current solutions by their service providers and payment processors.

Even with consistent consumer and merchant education, it will still be very challenging to obtain significant increases in consumer adoption with so many mobile payment options available without any guarantee that a particular option will be supported by merchants.  “There’s a challenge in the number of choices available today. With so many payment vectors to consider, the cognitive overload becomes taxing on consumers. When you have a choice between two things, it’s easy. The minute you add a third choice it becomes far more complex. Consumers won’t invest their time and energy into an app that might not work. With the number of options available today, we’re asking them to make a bet with their time that most aren’t willing to take.”, says Kleinwaechter.

Even if mobile payment adoption rates were to significantly increase, merchant acceptance hardware and software upgrades need to keep pace.  According to Leo Castro, Vice President of Product Marketing at BigCommerce, “merchants are looking for upgrades in the areas of Omni-channel first and not necessarily focusing on upgrading payment acceptance methods.” Castro believes that the mobile wallet and hardware providers have a responsibility to educate merchants about the benefits and necessary upgrades needed for mobile payment acceptance.

Often when someone hears mobile payments, they associate it with brick and motor stores.  You might be surprised to learn that mobile payments have had some decent adoption rates among e-commerce retailers.  This makes sense since the software that runs many e-commerce sites such as BigCommerce are built by technology-savvy individuals who understand the benefits of mobile payment acceptance.  According to Castro:

  • Approximately half (~48%) of BigCommerce merchants offer at least one mobile wallet as a payment acceptance method at checkout.
  • More than 18% of gross merchandise volume (GMV) transacted across all BigCommerce merchant stores is paid for by using a mobile wallet.
  • 30% of GMV transacted across all BigCommerce stores is done on mobile devices.

As was touched on briefly above, mobile payments are a much deeper problem for merchants to grapple with than simply choosing which mobile payment methods that they wish to support.  There are some basic fundamental questions all merchants must ask themselves with one of them being, what customer payment problems they are trying to solve.

“For businesses that want to inspire loyalty among a tech-savvy customer base, branded payment apps are going to look increasingly appealing. The question is whether consumers want separate apps for all of their go-to shops and restaurants, and that’s a difficult question to answer right now. So much of the technology is new, and we haven’t pushed the limits of what it can do yet. Ultimately, only time will tell what the preferred method of payment will become,” according to Melissa Johnson, Merchant Accounts and Mobile Payments Writer/Reviewer at MerchantMavrick.com.

What can merchants do today to put their feet in the water and begin accepting some forms of mobile payments without breaking the bank until more standardization occurs?

Mobile Payments Poynt
A merchant can make a relatively small investment to upgrade their acceptance hardware and software without fully replacing their entire point of sales system.  One of the better options on the market is the Poynt platform. Poynt is a modern terminal that allows merchants to easily accept Chip (EMV), NFC (Apple Pay, Android Pay, etc.), and traditional credit cards (magnetic stripe).  Best of all, Poynt plugs and plays into a merchant’s existing POS infrastructure, meaning their existing investment in hardware and software won’t be lost.  Besides payment acceptance, the Poynt hardware comes pre-loaded with applications that allow for easy implementation of such programs as customer loyalty and inventory management, among others.

Most, if not all, of the mobile payment options available to consumers today, are offered to them free of any charges or fees.  It’s the merchant that gets hit with the cost of upgrading hardware and software systems, not to mention potential higher fees and rates that might be charged by their payment processors for newer hardware and software integrations and support.  Therefore, merchants have been slow to upgrade their acceptance methods while the mobile payments marketplace continues to innovate and explode with options.

There is no end in sight of possible new future payment options as long as venture capital and private equity continue to flow into the payments space.  Innovation is a good thing and will ultimately leave consumers and merchants more secure, and hopefully, over time lower the overall cost of accepting customer payments.

This post is part of our contributor series. It is written and published independently of TNW.

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