Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

(Updated )

Apple, Google and Samsung are all-knowing and all-powerful companies. But so far, none of these Great Powers have succeeded in coaxing masses of Americans to use their smartphones to pay for merchandise.

Instead, the only U.S. company that has cracked mobile payments is Starbucks, whose best "innovations" are made-up names for coffee drinks.

Starbucks says about 21 percent of all transactions in its company-owned U.S. retail stores take place through its mobile app, which lets people point their smartphones to a scanner at the cash register rather than pull out cash or a credit card. Customers can also place orders and pay for them ahead of time from their phones and skip the line once they arrive.

Ditching the Wallet
America is a backwater when it comes to consumer use of smartphones to pay for merchandise. At Starbucks, however, more than one in five transactions happens through the company's mobile app.
Source: Starbucks
Data reflects transactions at Starbucks-operated retail stores in the U.S. Quarters are for Starbucks' fiscal year, which ends in September.

Getting one out of every five orders through its smartphone app is an impressive feat for Starbucks, considering mobile payments accounted for just 2.1 percent of U.S. retail sales last year, according to estimates from Mercator Advisory Group. 

Samsung and Google also haven't lured the masses with their digital wallets. And despite the collective struggles for smartphone stand-ins for cash, tech news publication the Information recently unearthed evidence of Facebook preparing to pitch its Messenger app for mobile payments.

Tech giants intent on pitching mobile payments could use a rudimentary sociology lesson: Changing habits is hard. It's not enough for Apple CEO Tim Cook to tell people how amazing it is to use a phone or watch as a wallet. You have to prove repeatedly why a smartphone is better than cash or credit cards, until the behavior sticks.

So what did Starbucks do right, and how can the tech companies take cues from them ?

Bribery works: A big allure of the Starbucks mobile app is a connection with the company's loyalty program, which doles out goodies like free coffee once people buy a certain amount of Starbucks menu items or merchandise. Even though people complained about a recent change Starbucks made to its rewards program, bribery is incredibly effective at changing human behavior. 

The lure of discounts worked for Wal-Mart when it tried to hook people on its mobile price comparison app. What if Apple or Facebook also added loyalty rewards? Let's say Apple gave people who used Apple Pay a $1 credit or a free iTunes song download for each $20 of merchandise purchased through Apple Pay . That would persuade a lot of newbies to try Apple Pay and then use it repeatedly. 

Focus on situations where speed matters: For caffeine addicts, using a phone to order and pay for a Venti caramelized honey latte and then skip the line to pick it up is a chief benefit of the Starbucks app. 

Climbing, But Still Small
This year, a fraction of all Americans -- or 38 million people -- is expected to use a phone to pay for merchandise in a store.
Source: eMarketer, Oct. 2015 estimate
Data is for Americans age 14 and older who used a mobile payment service in store at least once in the prior six months.

But the speed benefits are less obvious in other settings. Using Samsung Pay to buy a pastrami sandwich, for example, isn't significantly more convenient or faster than handing over a $20 bill or swiping a credit card. Imagine if Samsung concentrated instead on situations where stripping away annoyances makes a big difference. Work out exclusive deals with Whole Foods or concession stands at Wrigley Field to create a dedicated line for people checking out with Samsung Pay. Or, how much would you love Samsung Pay if you could get out of a taxi without having to fumble for money or a card, just as people do when they take an Uber car? 

Focus on online: This lesson isn't one taken from Starbucks. But not long ago, I bought a movie ticket on Fandango, and instead of pecking my personal information and credit card info into tiny text boxes on my phone, I used my fingerprint to buy with Apple Pay. It was the first (and only) time I have used Apply Pay, and the experience made me think smartphone purchases -- rather than in-store transactions -- are the real selling point for digital payments. Apple does seem to be learning this lesson. Soon, the company is expected to expand use of Apple Pay to customers who buy merchandise on mobile websites, according to Re/Code and other publications.

Tech companies want to use mobile payments as a way to hook people on their smartphones and Web services. Job one is doing a better job of convincing consumers why they should bother. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Updates fourth paragraph with figures for mobile payments' share of U.S. retail transactions.)

  1. Facebook Messenger already permits people to send money to other people within the app. 

  2. It's also hard to get banks on board with mobile payments services. I'll focus on the other side of the equation, which is getting people to use it. 

  3. Samsung has done some promotions to give new Samsung Pay users offers or prizes. To change behavior, however, the efforts have to be sustained.  

  4. Unfortunately, smartphone purchases are a fraction of the merchandise bought in stores.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net