Mobile payments have grown from a niche service for tech-savvy consumers to mainstream use in the space of several years. This article will highlight current trends in the mobile payment space and how emerging technologies and shifting tastes will impact the sector in the coming years.
1. Mobile Wallets Are Increasingly Prevalent
Mobile wallets were first popularized in 2014 when Apple began offering Apple Pay on its smartphones. Competitors later offered their own mobile wallet platforms, such as Samsung Pay, Android Pay, and Microsoft Wallet. According to research, mobile payment software could net over $500 billion in payments by 2020, a roughly 80% compound annual growth rate. Part of what has helped spur adoption is the inclusion of mobile wallets on the most popular phones, as well as shifting consumer acceptance of such software. One Federal Reserve study suggests that for 26% of Americans who began mobile banking, the key driver to adoption was simply owning a smartphone. That’s a critical statistic given that in 2017, U.S. smartphone penetration exceeded 80%.
2. Rewards Programs Encourage In-Store Mobile Purchases
Some retailers have integrated in-store mobile payments with loyalty programs, incentivizing customers to earn points every time they make a purchase. E-commerce platforms are gaining a larger share of retail spending each year, partly due to the lack of friction during the purchasing process. Since brick-and-mortar stores cannot compete with the sheer convenience of online purchases, any effort to reduce the friction of in-store purchases will be rewarded. Part of that reward comes from the convenience of contactless payments, and part from discounts or coupons earned by visiting the store initially.
3. Contactless Payment Terminals Are Now Widespread
Fueling the rise of mobile payments is Near Field Communication, or NFC. Ultimately, NFC allows two electronic devices to exchange small pieces of data. When a customer holds a smartphone near a checkout terminal, the NFC chip in the terminal subtracts the amount of the purchase from the card tied to the smartphone. The smartphone uses a one-time code in lieu of the actual credit card number, adding an extra layer of security during account verification. At no point in time is the actual credit card number ever exposed. The simplicity and security of NFC technology underpins virtually all contactless mobile payments today.
4. Consumers Are Growing More Comfortable With Mobile Bill Payment
Mobile bill payment has become a preferred method of banking for many Americans. By 2016, 47% of Americans reported using their mobile phones for payment processing. This has allowed banks to expand the number of services offered on mobile devices to include check deposits, cash transfers, currency conversions, and more. We are rapidly reaching the point where virtually any service that was once provided in a retail branch can be provided in a simple, easy-to-use app. As smartphones become more advanced, banks will be able to offer ever more complex, value-added services that empower their customers. However, at least 15% of the U.S. population remains unbanked. According to one study, this subgroup has a preference for using cash, as it is typically the form of payment they receive from their jobs.
5. Biometrics Offer Added Security
Biometric security technology has been around for decades, but it has only become common in consumer products in the past few years. Thanks to the introduction of the fingerprint scanner on the iPhone 5 and facial recognition on the iPhone X, biometric recognition is fast becoming a standard feature in consumer products. Biometric technology adds another level of security to mobile payment systems and can speed their adoption. Once installed, these systems eliminate the need for a password; credit card payment processing can be authorized with a fingerprint or, in some cases, just a glance.
6. AI Can Now Handle Routine Transactions
Artificial Intelligence software has rapidly improved over the past several years and can now handle routine customer interactions. One of the most common applications of this technology is “chatbots” that have been developed to address customer needs normally met by a call center. When it comes to mobile transactions, chatbots can prepare and execute basic transactions with customer approval. Financial chatbots can provide basic financial snapshots and transfer funds to other customers based on simple voice commands. AI can also handle verbal instructions, allowing consumers to provide routing number verification or complete ACH payment processing without ever having to speak to an agent.
7. The Internet Of Things Further Reduces Transaction Friction
The Internet of Things (IoT) has opened up another entirely new avenue for mobile payments. While many IoT devices are in-home appliances such as “smart” refrigerators or thermostats, some are specifically optimized for mobile payments. Home assistants such as Alexa can make purchases on command using credit card information already on file. Other devices may be less complex but can process simple commands such as repeating a previous order or renewing a subscription. IoT devices will only become more prevalent in the marketplace, and one day they will effectively eliminate any friction that exists during the purchasing process.
With consumer adoption of mobile payment technology growing rapidly, technological advances can add even greater service in the coming years. AI, IoT, and biometric security will make mobile payments seamless. Security will need to keep pace, but mobile payments are poised to capture an ever larger share of the consumer payment space.