Engineering Blog

Impediments to Mobile Wallet Adoption

Cayan has a long-standing tradition of buying watches for employees who hit their 5-year anniversary. I'm a Linux guy, so I chose an Android Wear watch for my anniversary. It's a fun new toy, and I love that it's got integrated mobile payments right on the watch. I find that it's so much more convenient to pay with my watch than my phone. You just hold your wrist up to the terminal for half a second, and a gentle buzz lets you know that you've paid. You avoid the hassle of pulling the phone out of your pant pocket and unlocking it. Over the past few weeks, I've done what what any good payments technologist would do, and tried to pay with my watch everywhere. The results from my informal survey so far have been mixed. It's especially disappointing when I encounter a Verifone or Ingenico terminal that I know has a NFC radio inside, only to find that the feature's not supported by that merchant.

Back in 2016, we wrote about how mobile payments (Apple Pay, Android Pay, Samsung Pay, and friends) weren’t exactly taking off in the US. To generate the data behind that post, Cayan ran a simple A/B test. On the control group, we kept the default “Genius by Cayan” splash screen on our terminals. On the test group, we uploaded a “Pay with Apple Pay” splash screen. We demonstrated that, relative to the control group, this small reminder changed how people paid at the cash register – we saw a rise in NFC based payments from around 1% in the control group to about 5% in the test group.

In a separate test, we worked with some of the above vendors to offer discounts to customers who paid with their phones – say, a $5 coupon good toward your next purchase if you paid with your phone. In this trial, we saw a similar 400% growth in mobile payment adoption when the incentive was in place. Perhaps unsurprisingly, in both cases, mobile payments usage returned to baseline/control levels after the reminder was removed. These tests showed us that repeat customers are still paying with their “top of wallet” physical cards, rather than their phones, if they aren’t reminded that the store accepts mobile payments - even though these customers know that your store accepts mobile payments.

In some ways, we're caught in a catch 22. Paying with your phone/watch isn't autonomic in part because merchants don't uniformly support mobile payments. And merchants aren't in a rush to support mobile payments because customers aren't demanding it.

Cracking this nut could be a multi-trillion dollar opportunity in the United States, where 70% of its $20 trillion dollar economy is driven by consumer spending. If we look to the East, we see China’s $5.5 trillion mobile payment market, dominated by Alipay and WeChat. The situation is inverted from the US - in China, traditional payment cards are in the minority.

Mobile wallets have been around for years now, and industry experts have called them The Next Big Thing in payments for their entire existence. But adoption rates have never quite matched up to the enthusiasm and excitement—while mobile wallet share is increasing month to month, it's still dwarfed by physical card transactions.

Of course, no one is giving up on mobile wallets just yet. The question remains: Is there still a tipping point ahead?

Mobile wallets speed up your checkout experience and can be more secure than even EMV chip based transactions, due to their use of tokenization – both of which benefit merchants and customers alike. But to see a massive boost in use, mobile wallets need to be more appealing both to customers and merchants. It's not merely a matter of simpler technology, because mobile wallet developers have been working diligently to make the technology as friction-free as possible. It's also a question of benefit. Both consumers and merchants need to see a bigger benefit in using the tech more often. Now, as mobile wallets begin to include more loyalty capabilities tied in with offers and rewards, many are wondering if this could be an area of mutual excitement for both consumers and merchants—one that could lead to fast growth in use.

Other impediments lie in the way of mobile wallet adoption. Spotty support for mobile payments at the checkout is a big challenge – why would a customer try to pay with her phone when fewer than 50% of merchants accept mobile payments? Perhaps this will be changing soon, as the major card brands are making a concerted push for merchants to adopt contactless card-based payments, as are popular in Europe. Wearable tech, such as smart watches, may also help reduce friction, eliminating the need to pull out your phone to pay.

Retailers who had the highest level of growth spend almost 600% more on enterprise IT than the below-average retailers. They also spent 400% more on store IT. Those who fell behind had stuck rigidly to an old business model and generally stuck with the same method of determining IT spend—take last year’s IT spending level, and raise it 1% or 2%. Yet for those who were open to evolution, 2017 was an exciting, successful year.

New technology has a chance to create a better customer experience. Customers can now find you wherever they want—and, in fact, you can go and find them, too, wherever they are. In this multi-channel world, an exceptional customer experience is defined by the ability to move seamlessly between the online, mobile and physical world. The future of retail belongs to those who reinvent their customer experience. Retailers of any size can thrive if they're willing to adjust and adapt to today’s environment.