Today’s wallet looks a whole lot different than it did ten, even five, years ago. How we pay and are paid is changing, and even more importantly, how, what, and where we buy is changing, and the world of fintech is reinventing itself to keep abreast of the changes in how money moves through the hands of businesses, consumers, and across borders. So while “instant money” and “mobile wallet” don’t mean winning the lottery or your purse in the hands of a pickpocket, there are fundamental changes in payments happening and on the horizon, that we as consumers, merchants, and those facilitating those transactions, need to be aware of. Let’s explore what the future of payments looks like.
Mobile Wallet Penetration
Mobile payments are the new norm. Truth or fiction? In fact, the countries with the highest rates of mobile wallet penetration are actually India, Thailand, and Indonesia, each with adoption rates of roughly 50% of the population. Perhaps not what you expected, but the truth is that developing economies have been able to “leap-frog” the established payment systems of their more developed economic counterparts. In fact, research showed that regular usage of mobile payment systems was only about 20% of US smartphone holders. According to a separate PYMNTS study, even Apple Pay, the most widely used mobile payment system in the US, was only used by 6.8% of people with the application during their last purchase. (Actually, the most widely use mobile payment system in the US is the Starbucks mobile app, through which a reported 30% of their orders are now processed. Take that, Apple.)
There are a plethora of reasons why mobile wallet adoption rates lag, but the key ones include that a mobile “acceptance structure” isn’t universally in place, and there remains a cloud of security concerns shrouding consumers which holds them back from regularly utilizing a mobile wallet’s functionalities.
To take a step back, mobile payments require first, the payer to have mobile payment functionality on their device, and second, on the payee side, a contactless device to accept this payment, typically powered by near-field communication (NFC - a cousin of RFID technology). The reasons why retailers may not adopt it are oftentimes linked to the costs of upgrading both the hardware and software required to process these types of transactions. So frankly, it’s a bit of a chicken and the egg problem. Consumer adoption lags, but it’s also not universally available. What has taken off widely, however, is peer-to-peer payment applications. Whether it’s Venmo, Paypal, or Zelle, the use case for consumers in P2P has been intuitive and thus, much more widely adopted. Splitting the dinner bill seven ways, or receiving your roommate’s share of the rent is easy, fast, and in most cases, free of charge.
And as far as the aforementioned security concerns of consumers, well, that deserves a deeper dive.
American Express’ 2017 Digital Payment survey revealed just how much a concern security was to consumers when it comes to utilizing digital payments. They found that, “37 percent of users abandon online purchases when they do not feel secure, but on the other side, 58 percent of merchants who experienced an online sales increase said that enhanced security features played a very significant role.” With recent data breaches at retailers including Adidas, Forever 21, Whole Foods, Saks, and many others, it’s no wonder consumers are just a wee bit nervous to adopt new payment technologies, when even traditional credit card payments haven’t proven safe. So for retailers, auditing and tracking where existing data is in their overall data infrastructure as well as encrypting data that is “at rest” (or no longer in use) is critical to ensure that consumers’ payment information is secure. One interesting fact that while consumers say that they would consider not shopping at a retailer where their information was stolen, most retailers haven’t seen their sales or valuation decrease over the long run, when there has been a case of hacked customer records. As one Bloomberg article aptly pointed out, “What incentive do retailers have to beef up their security operations or invest in security-related innovation if there are no consequences when they mess up?” We’d argue that consumers ought to hold the retailers they give their business to accountable for keeping their information under impenetrable lock and key.
But the real future of payment security? It’s Blockchain. And while I won’t be the 1,000th person to try and explain exactly what Blockchain is, it will, however, make payment processing more transparent, less costly, and less hackable, due to the fact that it removes the need for central “authority” (or third party) to manage transactions. It’s a technology already in place behind cryptocurrencies and some B2B transactions. Where it will go in the realm of consumer payments remains to be seen. But with the cost of credit card data breaches estimated to reach $33 billion by 2021, companies better wise up and invest, sooner rather than later.
Enjoy Now, Pay Later
If you’ve shopped online recently, you’ve likely noticed that there are a lot more options, not just at checkout when it comes to payment, but also on the product page. You’re considering that beautiful handbag that comes with a hefty price tag, yet you don’t really want to put the full price on your credit card. And here’s precisely where companies like Affirm and Afterpay come into the mix, to minimize consumer hesitation and friction when it comes to purchases both big and small. These companies enable the consumers to make small, fixed payments on purchases, in ways that these companies argue are “more transparent” than traditional credit card companies. And this 21st century layaway is a big business, with Afterpay reaching a valuation of $1.5 billion, just four years after launching. It’s a means of payment that has proven very relevant to credit-cautious millennial consumers, and very meaningful to retailers who have seen their sales lift, after offering the service.
So if there’s anything that can be said about the changing landscape of payments, it’s that the future is one in which the consumer holds much more of the power and is less veiled behind the doors of the big (bad) banks.
And as a retailer, don’t think of the payment as the last step, think of it as a way to differentiate and bring lasting brand value.