The State of Mobile Payments: Trends Shaping the Technology’s Future

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At the end of 2019, 46 percent of smartphone purchasers in the Asia-Pacific region used mobile payment options through their phones. While adoption has been slower in places like the U.S., mobile payments gained momentum throughout the COVID-19 pandemic, and their growth is expected to increase.

The next step in mobile payments will be to improve customers’ awareness, trust and access. Contactless mobile payment options will expand into new arenas and establish these options as secure, simple ways for consumers to pay.

 

New Technologies Will Drive Mobile Payments

Mobile payments gained traction during the pandemic due to their contactless nature.

Many mobile payment options rely on Near Field Communication (NFC) in order to transmit information from payor to payee. Mobile payment adoption is increasing as NFC use expands.

When customers are given the option to use NFC-based mobile wallets like Apple Pay or Samsung Pay at more locations, they’re more likely to use the technology. NFC is expected to be part of nearly all POS terminals by 2022; the technology is also included in nearly all new smartphones as well, Craig Guillot at The Financial Brand writes.

NFC-based mobile payment options, however, are already facing challenges from other mobile payment technologies. These include a rise in QR code-based wallets, according to one report from Juniper Research.

QR codes offer certain benefits over NFC technology. NFC technology tends to have a much smaller radius, for example. In some cases, a smartphone may actually need to touch a pad or other device in order to transmit payment information, making the benefits of contactless transactions moot. QR codes, by contrast, can be read at a distance.

QR codes may also be more flexible in their use cases, which means mobile payments can be offered to customers in more settings.

“QR codes are able to be used in scenarios where NFC is more difficult to implement, such as in restaurants or bars where the payment device isn’t typically brought to the customer,” says Nate Hirshberg, vice president of marketing for Shift4 Payments Inc. QR codes can also be used to encode and share other information, such as membership in a loyalty program.

Demand for purely contactless payments has in turn driven interest in QR-code based mobile wallet use.

“[PayPal] accelerated the efforts around QR codes ... because our consumers and merchants are demanding and requesting contactless payments,” says Jeremy Jonker, senior vice president at PayPal.

Currently, many electronic payment options still require some contact, such as between a human and a PIN pad, or between a smartphone and an NFC pad. QR codes, however, allow for mobile wallets to handle payments without any physical contact between the phone or its user and anything at the point of sale.

 

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Mobile Payment Options Will Enter More Fields

To date, mobile payments have been more popular in Asia and Latin America than in the U.S. In 2019, the U.S. ranked sixth in the world in adoption of mobile payments, Yoram Wurmser at eMarketer writes. Only about 16 percent of smartphone buyers in North America were using mobile payments at the end of 2019.

Use of mobile wallets for in-store purchases has been particularly slow. Apple Pay, the most commonly used mobile wallet, was used in only 5.1 percent of in-store transactions in 2020, according to a report by PYMNTS. To encourage the use of mobile wallets, mobile payment companies will need to think outside the box, making the technology more readily available at every point at which customers might need to pay for a product or service.

Consequently, mobile payment options are likely to expand into unexpected areas, such as toll booths, parking garages and drive-thrus.

Currently, some startups are already working on tools that will allow customers to make digital payments at such stops. The GoToll app, for instance, allows for digital payments on a number of toll roads in Virginia and other states.

Mobile wallet options at toll booths, however, may offer even greater convenience. Rather than having a dedicated app for paying tolls, drivers could use the same mobile payments option they use for other purchases.

Currently, debit payment of tolls is the norm in only two states, Kait Scirri at First Quarter Finance writes. This technology will both normalize mobile payment options and provide more convenience for customers, particularly in states that do not accept debit cards at toll booths. Mobile wallet technology can also make it easier for customers to navigate drive-thru windows, get in and out of parking garages and car washes, and make other purchases from their vehicles.

Mobile payments are expected to expand global purchasing and trade, as well. An increase in vendors in China and India that accept mobile payments means one less hurdle for shoppers in the U.S. and other countries, a BusinessWire report on mobile payments points out.

In the U.S., demand from businesses is expected to drive both the spread of mobile payment options and the development of new technologies, as companies seek ways to make their customers’ shopping experiences easier and more secure, says Chuck Fagan, president and CEO of PSCU.

Expansion into new areas, ease of shopping across national borders and demands from merchants for better technologies will all continue to drive the development of more effective and secure mobile payment options.

 

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Mobile Payment Companies Will Focus on Trust

Trust continues to be a concern for customers seeking electronic payment options.

In a 2019 Speedpay report, for example, a mere 24 percent of survey respondents said they would consider paying bills through a mobile wallet because it was the most secure way to do so. Only 15.8 percent thought mobile wallets were a more reliable way to pay their bills than other options.

Concerns about security and reliability tend to turn customers away from mobile payment options, even when standbys like paper checks and cards are more vulnerable to exploitation. And when card and cash systems tend to work well enough for everyday transactions, people have little incentive to make the switch, says Will Graylin, CEO of OV Loop and a former executive at Samsung Pay.

“Security is the most crucial element when it comes to payment,” writes Nikunj Gundaniya, product manager at DigiPay.guru. “People will always prefer using a payment method that has a high security. That’s the reason why payment technologies won’t be able to go forward without developing a top-grade security.”

To build trust among customers, mobile payment companies will need to build excellent security into their systems. They’ll also need to communicate their commitment to security to customers. With a better understanding of the security involved, people can embrace mobile wallets and other mobile payment tools with more confidence.

“When the security comes integrated within the mobile payment platform, customers can be fearless in providing their sensitive payment details,” writes Sahid Mansuri, cofounder of Peerbits.

Customer adoption of mobile payments, driven by the recent pandemic, nevertheless lags behind use of cash and cards. By thinking creatively about the uses of mobile payments and how to build trust with customers, mobile payment companies can leverage existing trends and build a stronger future.

 

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