Americans may have been first to put a man on the moon, but when it comes to mobile payments, the United States takes a backseat to countries such as Finland, China, India, and the Philippines, where mobile phones are used regularly to pay for common, everyday items such as public transportation, snacks from vending machines or street vendors, expressway tolls, and newspapers.
Studies by Juniper Research predict that mobile payments for digital goods will exceed $300 billion per year globally by 2013, while mobile payments for low-value purchases will exceed $75 billion for the same period. The leading regions contributing to this phenomenon included China, North America, and Western Europe. Other studies project that widespread adoption of mobile payments in the United States will occur more slowly, taking at least another five years. Factors such as the U.S. payments infrastructure and concerns over security have stalled its adoption, but recent pilot programs for mobile payments offer signs of gaining momentum.
Creating the perfect catalyst for mobile payments
As part of a broader plan to introduce mobile payments into the United States, mobile phone companies and service operators are increasingly looking at untapped market areas and age demographics where mobile payments may spark consumer interest. Recently, we noted such interest with how funds were raised for the Haiti Relief Fund via the mobile phone. Other opportunities for mobile payments growth can occur at popular annual events such as Austin's South-by-Southwest (SXSW). The event attracts thousands of attendees (of various ages) from around the globe with an interest in music, film, and technology.
Mobile phone studies regularly reveal that most users of smartphones fall between the ages of 25 and 34, while all other age groups are close behind. And according to Javelin Strategy & Research, smartphone owners are more likely to try mobile banking and payments than basic cell phone users, making SXSW a prime opportunity for service providers to introduce the latest in mobile payments technology to mass audiences.
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Fittingly, SXSW served as a venue for testing out Apple's latest iPhone application: TabbedOut. The app allows users to order, review, and pay for tabs at participating restaurants and bars in Austin during SXSW. TabbedOut allows the consumer to retain control of the entire transaction: when to pay, review, and order food or drinks. The instant a tab is opened with a participating merchant, the stored payment information is provided upfront, and the user is able to view the tab directly from the venue’s point-of-sale system. Another mobile payments app gaining popularity, and also available in Austin, is Taxi Magic. This app allows users to reserve, pay for, and track their taxi through a mobile phone. The reservations are directly integrated with the dispatch systems of participating taxi companies.
Winning over reluctant consumers
For the value proposition of mobile payments to strike a chord with U.S. consumers, all participants—carriers, manufactures, financial institutions, and retailers—must work collaboratively to successfully establish mobile payments as another trusted and secure payment channel. Yet in the past couple of years, consumer demand for mobile payments has been minimal.
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Is the low consumer demand an indication that consumers are waiting for the resolution of the interrelationships between ease and convenience with security and reliability, and calling for a convergence among industry stakeholders?
Envisioning the future for consumers
The continued progression of mobile payments in the United States is dependent not only on consumer demand, but also on consumer confidence that mobile payments are an effective and reliable method of payment. Pilot programs offering expedient payment ease and efficiency must also effectively address these consumer concerns. Ingenious apps and timely deployment of pilot programs that allow the use of a mobile device as a form of payment are certain to pique consumers' interest, but until the United States is closer to transitioning from cash, debit, and credit cards to mobile payments as the preferred way to pay, mobile payments will remain a novelty and less of a necessity.
By Ana Cavazos-Wright, payments risk analyst in the Retail Payments Risk Forum at the Atlanta Fed.