ETA Expert Insights: Mobile Payments – A Year in Review

By the ETA Mobile Payments Committee

2018 was an inflection point for digital payments in the U.S. – from the introduction of contactless cards into the market to the spread of mobile payments acceptance at merchants of all sizes, there was a sustained interest in new ways for consumers to pay. 3.5 million new shoppers tried paying with their mobile devices last year. All told, consumers tapped their phones to spend over $64 million via mobile point of sale payments in 2018. Below, the ETA Mobile Payments Committee reflects on some of the highlights from the last year.

Q: What were the biggest achievements (events, announcements, technologies) for mobile payments this year?

• Contactless payments are reaching an inflection point, and large merchants like CVS, 7Eleven, and Safeway have activated contactless payments at the Point of Sale. Target is expected to activate right after the holidays.
• The biggest achievement in 2018 was acceptance of mobile payments becoming almost ubiquitous in the United States. Over 50% of physical retail locations accept mobile payments. Plus, long-standing holdouts like CVS, Costco have gone live and Target announced support for contactless payments in their retail stores. In the online space, more and more websites are supporting mobile payments, and the adoption in apps is even greater. What was once a new and disruptive technology in the payments space is now commonplace, with awareness and adoption of mobile payments becoming familiar to all consumers.
• The continued re-terminalization – that is, installing new, upgraded terminals – of the merchant base due to the EMV migration has gotten a large number of contactless capable devices into the field, especially amount the SMB market. Now, we need to do a better job educating merchants and consumer on mobile payments.
• The PCI Security Standards Council PCI SSC) officially rolled out its standard for Software-based PIN entry on Commercial Off-The-Shelf devices (SPoC or Pin on Glass for short). This technology allows a consumer to enter their PIN on a commercial mobile device, such as a tablet or smartphone – meaning the merchant doesn’t need to buy a separate PIN pad. This rollout, plus the fact that the PIN assessor program was moved from the card networks to PCI SSC, signals the importance of merchant support for PIN as a CVM to combat fraud.

Q: When will the industry reach ubiquitous adoption?

As of June 2018, Visa reports that 50% of in-person transactions on its network occurred at contactless-enabled locations. Additionally, 95% of new terminals shipped can accept contactless payments – mobile or card.

• Gas stations remain holdouts, but hopefully with the EMV migration deadline for petro/fuel in 2020, we will see more merchants in this vertical incorporate contactless into their systems.
• Tap and pay is increasingly common at gas stations on the West Coast but switching out swipe card readers for EMV/contactless terminals is much more expensive for gas pumps. Additionally, buying gas is a habit, and consumers tend to stick with one option. It’s important to work with their preferences and not introduce too many new decisions or inputs.
• We’ll have ubiquitous mobile payments acceptance when, as a consumer, I can feel comfortable leaving my house for the day without my wallet and not giving it a second thought. Today I take out my Visa/Mastercard card at any merchant and am 99% sure they will accept it and I need to have the same level of confidence presenting my mobile device (or watch or ring or whatever I have).

Q: Where did we make the most progress in growing mobile payments adoption?

• We’ve seen steady growth in the number of merchants who have enabled NFC (Near Field Communication) acceptance, meaning they can accept most mobile wallets and contactless cards. 79% of Quick-Service Restaurants (QSRs) accept contactless payments, according to Visa. Drug stores and pharmacies are close behind, with 77% of merchants in this vertical accepting contactless payments.
• The EMV mandates have gotten a lot of contactless-enabled devices out into the field without the need to sell contactless as the sole reason to upgrade hardware. This has been an advantage for contactless payments, because upgrading hardware always poses a challenge. There are also much lower-priced consumer-facing solutions on the market that used to be relegated to large retailers that are now more commonplace for SMBs. These present better opportunities to educate consumers with signage. Shoppers can more easily try to make a payment with their phones without the merchant having to show them how.

Q: What were the biggest challenges our industry faced?

• While merchant acceptance has grown, consumer adoption/use of mobile wallets in the US is growing at a painfully slow pace. Mobile payments users as a percentage of the total U.S. population grew just 1% from 6.9% in 2017 to 7.9% in 2018, and is projected to grow 0.9% from 2018 to 8.8% in 2019. Of course, this 0.9% increase means there will be 3.2 million new people using mobile payments in 2019, creating a total user base of nearly 30 million people. And not only are more people using mobile payments, but they tend to be spending more – average annual spend per user grew from $2,018 in 2017 to $2,477 in 2018. In 2019, it’s projected to cross the $3,000 mark.
• In 2018, awareness continued to be the biggest challenge mobile payments faced. With the number of merchants enabled crossing 60%, the odds of a merchant accepting mobile payments is now greater than 50/50. However, not all merchants promote that they support mobile payments, nor are the staff trained to understand that they support mobile payments. This lack of awareness is more prevalent with SMBs, which is where it is often needed the most. Customers who do their weekend shopping in their neighborhoods or have daily routines that include stops at local merchants like coffee houses, quick breakfast stops, or regular lunch spots oftentimes want to pay with their phone – but are not always sure they can do so at these SMBs. Something as simple as a sticker on the window or near the POS is usually all that is needed to effectively communicate to a customer that they can use Apple Pay, Google Pay, or Samsung Pay. We need more stickers.
• The average small or medium business (SMB) does not see enough value in mobile payments without additional functionality (loyalty, coupons, upselling, etc.). To them, it’s just another way to take a credit card. The larger retailers and chains are more capable of building services and checkout workflows around mobile payments but to an SMB with a terminal or a very basic POS, it’s challenging to do the same.

Q: What do you expect will be the most talked about topic in mobile payments in 2019?

• Is consumer adoption of mobile wallets accelerating? Are we approaching a knee in the curve where adoption accelerates? What can be done to further encourage adoption? Will the issuance of contactless cards help drive consumers to tap phones and cards?
• I think awareness will be the most talked about topic in mobile payments in 2019, at least internally within the industry. Big merchants are good with signage and training, but the SMBs will continue to lag in communicating to their customers that they can use mobile payments to pay. Customers will still be confused as to where they can tap and pay. Contactless cards may help, as customers may start tapping their cards, but awareness as to where they can tap will likely still be a challenge. What will be interesting to see is whether customers tapping their cards will translate into these same customers realizing they can also tap their phones just as easily (but also much more securely).
• The two newest acronyms fighting for attention are SRC – Secure Remote Commerce – and SCA – Strong Consumer Authentication. These will occupy many news and marketing cycles and will likely create a fair amount of confusion and paralysis.  As an industry, we need to educate and clear the air to avoid this.
• For SMBs, the trend will likely be contactless cards and how they relate to their ability to accept mobile payments. For large retailers and eComm specific verticals, SRC (Secure Remote Commerce) will likely be common topic.
• I project that a major issuer will begin supporting chip-and-PIN in the United States, creating initial ripples as chip-only merchants realize their lost/stolen chargebacks are no longer shifted and scramble to recertify their EMV for PIN.

Reflection

There’s no doubt we’ll continue to talk about mobile payments – whether we’re fretting about slow consumer adoption or eagerly anticipating new retailers that enable contactless acceptance – well into the new year. The mobile payments space made a lot of progress in 2018, and that progress has created momentum. It’s up to us – the members of the payments ecosystem – to figure out how to leverage that momentum and push for a future where mobile payments are ubiquitous.