My Phone Is My Wallet
On Mobile Payments, Can the U.S. Catch Up to Kenya?
First there were coins, then paper money, then checkbooks, then credit cards. Each new method of payment was more convenient, not to mention lighter. The next frontier in payments is lighter still — the software and data in a smartphone. Mobile payments have been common for a decade in some countries, like Japan and South Korea, where a phone can be used to pay for subway fares. In Kenya, where banks are rare but 89.5 percent of the population has a cellphone, mobile payments aren’t the future but the present. U.S. consumers have been slower to make the change. But in the last two years, Apple's Apple Pay service has made major strides, and now has tens of millions of users globally and is adding 1 million new customers a week. Banks and retailers, many of which also support Apple Pay, are rolling out their own mobile wallets as competition to replace the leather wallet intensifies.
This summer, retail giant Wal-Mart Stores rolled out its Walmart Pay service nationwide. In October, Kohl's launched Kohl's Pay, a mobile-payment service that lets owners of the chain-branded cards to pay for purchases, redeem coupons and accrue loyalty points in store with a single step. Pharmacy chain CVS and banking giant JPMorgan Chase are starting their own in-store mobile-payment services as well. In the next year, most large retailers and restaurants will launch their own mobile-payment services to increase customer loyalty. A particular focus will be services like the order-ahead function that already lets customers order and pay for a mocha at Starbucks and pick it up later, without standing in line. The nifty feature is one of the reasons Starbucks' mobile wallet now accounts for about 25 percent of transactions in the chain's U.S. stores; the company expects that figure to rise to more than 50 percent in a few years.
While startups had tinkered with phone payment systems for years, it took the widespread adoption of increasingly capable smartphones to make them practical. Mobile wallets are essentially apps that let consumers make purchases at regular checkout counters in brick and mortar stores. In Apple Pay, a technology called near-field communication lets consumers pay by waving a smartphone near a credit-card terminal. Walmart Pay lets consumers pay by scanning a form of barcode at checkout. A hybrid form of mobile commerce involves devices like Square that attach to phones or tablets and turn any sales clerk or taxi driver into a roving cashier able to accept credit or debit cards.
While adoption of all mobile-payment services has picked up, only some 28 percent of smartphone users reported having made a mobile payment — be it in store, in app or online — in the previous 12 months, according to a Fed survey. Many consumers don't yet see any obvious benefits to using mobile payments. To overcome that obstacle, many mobile-wallet providers are now trying to go the extra mile in convenience. Apple Pay is increasingly starting to work on transit in countries like Japan. Rival Android Pay, from Google's parent company, Alphabet, tested its own loyalty program in early 2016. Another competitor, Samsung Pay, offers users the ability to search, save and redeem coupons at select retailers directly within the app. Meanwhile, retailers and restaurants are trying to replicate Starbucks' success by tying their own loyalty programs to mobile wallets. As the competition intensifies, millions in swipe fees are at stake. Apple is betting that many consumers will balk at the idea of retailers tracking their every move. But it’s possible that retailers could still come out ahead, if some mobile wallets’ extra convenience leads consumers to buy more stuff just because it’s easier to buy it.
The Reference Shelf
- A Bloomberg Businessweek reporter paid for a trip around Kenya entirely with his phone.
- Report by eMarketer on mobile payment’s prospects.
- The Economist takes a slightly skeptical view of mobile payments.
- Business Insider article on Starbucks and its mobile payment app.
- Bloomberg News article on the forecast for mobile payments.
First published Oct. 20, 2014
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