What Will the Mobile Payments Landscape Look Like in a Year?
2015 has already been a significant year for mobile payments as more companies have outlined their plans for making gains in this fledgling market.
iPhone 6 owners show a growing interest in Apple Pay while Samsung, Google, and others have announced their own plans to offer alternative solutions.
These moves are setting the stage for bigger changes in 2016, which is shaping up to be a major year for growth in mobile payments volume in the US.
A recent Aite Group report forecasted that in-store mobile payments would nearly triple in the US from $7.5 billion in 2015 to $22.4 billion in 2016. From there, volume will roughly double each year through 2020, when it will hit $487 billion, Aite predicts.
2016 will be the launching pad for several years of aggressive growth in consumer adoption and use of mobile payments.
By the end of 2016, one of the biggest barriers to adoption will largely be resolved, and more players in the payments ecosystem will commit to different solutions and invest more resources towards improving the consumer experience for in-store mobile payments.
Prediction #1: NFC infrastructure will no longer be a major barrier
One of the major reasons to think 2016 will be a huge year for change in mobile payments is that the largest merchants will have installed NFC terminals. Retailers have been slow in upgrading terminals, but the EMV liability shift coming later this year is pushing the largest retailers to upgrade.
Verifone’s CEO predicted earlier this year that 90 percent of the top 200 retailers’ POS terminals will be EMV compliant by October 2015, when the liability shift takes effect.
Nearly all EMV-compliant payment terminals shipped since the beginning of 2014 are also NFC-capable. This means that nearly all of the big box retailers’ locations will be NFC-capable by the end of this year. These big box retailers make up 82 percent of the retail market in the US, according to The US Department of Energy.
So although there will still be millions of payments terminals at small businesses that can’t take payments via NFC, the busiest payments terminals that handle the most transactions – those at major retailers – will be ready for mobile payments. That will open the door for consumers to start making mobile payments as part of their daily lives.
Prediction #2: There will be many more solutions and players in the market
The number of mobile wallet solutions will increase dramatically over the next year. Android Pay and Samsung Pay will be released in the second half of this year.
CurrentC will have a limited release this summer, possibly leading to a wider release later in the year.
PayPal acquired Paydiant (the maker of MCX’s CurrentC solution) earlier this year, and is expected to court large retailers as mobile payments partners.
NACHA is developing a platform for banks and credit unions to offer mobile payments. Issuers can then integrate payments into their mobile banking apps, turning their apps into one-stop shops for all of their customers’ finances.
Prediction #3: Apple, Google, and Samsung will lead the charge
Even though the market will be crowded with new players next year, the early lead will belong to Apple Pay, Samsung Pay, and Android Pay.
Samsung and Android will be battling it out in the Android market. Each has a distinct advantage over other solutions, but both will depend heavily on sales of new handsets to succeed.
Android Pay and Google Wallet will coexist to serve different payment functions. Android Pay will be used for in-store and online transactions, while Google Wallet will pivot to become a person-to-person transfer service.
But Android Pay only works on devices running KitKat or later versions of Android’s software, which is less than half of all Android handsets on the market. And only a small fraction of those handsets running KitKat or later are NFC-enabled. So Android Pay’s adoption will rely on the sale of new NFC handsets from those carriers that pre-load the app.
Samsung Pay is only available on two phones – the Galaxy S6 and S6 Edge. Samsung has yet to announce sales figures for those handsets, and it will need them to sell in large numbers for Samsung Pay to take off.
However, Samsung Pay can be accepted at retailers that haven’t upgraded to NFC terminals, thanks to its acquisition of LoopPay. Samsung Pay users could pay for more of their transactions with it than Android Pay, since it will be accepted at more locations.
Apple Pay doesn’t look like it will have to worry about handset adoption.
iPhone 6 sales have been beating expectations, and use of Apple Pay among iPhone 6 owners has steadily risen since its release. A recent survey found that 46 percent of iPhone 6 owners have used Apple Pay, up from 42 percent in a similar survey in March. And 63 percent of the respondents who had used Apple Pay now use it on a weekly basis, according to the survey.
This shows that Apple Pay users like the experience and trust the product. Plus, in a major win for Apple Pay, big box retailers participating in MCX that had turned off NFC are now lining up to accept Apple Pay.
Prediction #4: Marketing will be the big battle in mobile payments
Apple, Samsung, and Android each have distinct benefits that set them apart from other solutions, but that doesn’t mean that they will keep that lead. It just means that they’ll have won the first round.
The big battle for mobile payments market share in 2016 will be about who will market their solution best.
The debates over technology and business models that have held mobile payments back for years will mostly be settled. But customers are still confused over where they can pay with their phones. The number one reason iPhone 6 owners didn’t use Apple Pay for their holiday shopping last year was because they didn’t know where it’s accepted.
There is a great need for customer education on this issue, and another player could eventually move ahead of Apple, Samsung, and Android if they can fill that need and offer customer rewards or other benefits.
The winners in mobile payments beyond 2016 will be the providers who most effectively educate their customers about their solutions’ benefits and where they are accepted.
Paul Schaus is the President, Chief Executive Officer and Founder of CCG Catalyst a highly respected financial services industry management consulting firm. He leads a team of banking subject matter experts spread across North America. Paul has been a banker, management consultant and strategist for over 35 years, which includes over 10 years in consulting, and more than 25 years of executive management experience in the banking industry. Contact him at firstname.lastname@example.org or 1-800-439-8710.