A friend of mine shared a Facebook meme showing a normal heartbeat, a flat-line… and a panic attack heartbeat when you misplace your phone. Everyone empathized.
That is how connected to our phones we now feel. They carry everything from photo libraries to calendar reminders to every phone number we’ll ever need to call (that we have failed to memorize). Our phones are both intimate and global. These miniature and ever-more-powerful portable computers have become the go-anywhere technology we increasingly can’t do without.
The smartphone is the device of choice for millions of people. We use our devices for a wide variety of activities, including reading news, streaming videos, playing games, locating nearby activities or services, taking and sharing photos, texting, posting to social media, and conducting business transactions… oh, and occasionally making or taking a call. Now imagine a world where cash has vanished, and plastic is obsolete… because we can pay with our phones.
Our growing reliance on smartphones and related smart technology is why retailers need to understand and integrate into planning mobile payment, a.k.a., proximity payment. It’s also important for direct-to-consumer (DTC) businesses, and of course, banking and financial services clients will need to understand how mobile proximity payment will change customer interactions and transactions.
The Card-to-Phone Switch
Credit card companies moved to embed computer chips—named EMVs for the original developers, Europay, Mastercard and Visa—to improve card security and build in card owner identification. That technology now allows us to “tap to pay” rather than insert or swipe a credit card to make an in-person payment. The technology is called near field communication (NFC). Many retailers delayed upgrading older credit card processing systems because they knew NFC was coming. Today, retailers have largely switched over to NFC-compatible scanners, but credit card companies are still switching customers to NFC-enabled cards. They aren’t hurrying, because many people are already leap-frogging to mobile payment, in which users can make a point-of-sale credit card payment using an app by holding your phone within four inches of a card scanner.
EMarketer reported that global adoption of mobile proximity payment varies widely. In China, adoption is already at 81 percent, while adoption in Germany (12.5%), Mexico (10.2%) and Argentina (14.5%) is just beginning. The U.S. tracks at 29 percent adoption, behind nations like Denmark (40.9%) and India (37.6%). In the U.K. (19.1%), studies indicate that contactless card payment (tap to pay) is far more popular—72 percent of Internet users prefer it, compared to 29 percent preferring mobile payment. But the COVID-19 crisis has made no-touch payment enormously attractive. Many new adopters are embracing mobile payment to avoid contact with possibly contaminated keypads and scanners.
Ease Can Be Habit-Forming
EU efforts to reduce potential card fraud may actually promote mobile payment adoption, since newly mandated strong customer authentication (SCA) standards aren’t necessary for mobile. Mobile payment apps already use higher-level authentication, including biometric data like fingerprint scans and facial recognition, and aren’t subject to card-spending limits imposed by the EU.
Remote mobile payment (via SMS text or mobile websites) has been in use for a while, so getting people to switch to using their phones rather than digging out a physical credit card is mostly about changing people’s behaviors. We already tote our phones around, so this should be easy, right? Perhaps it’s easy for younger users less accustomed to hauling around wallets and credit cards, but for older people with legacy habits, the switch is less seamless.
Interestingly, Visa has learned that if we can convince people of the convenience of mobile proximity payment for an everyday need, like paying for public transit, adopting proximity payments for other everyday spending categories, like quick-pay restaurants (coffee shops, convenience stores and drive-thrus), gas stations, grocery stores, vending machines, and car parks will happen naturally.
Mobile payment should also be kept top-of-mind for B2B clients, who are finally seeing benefits to online, real-time transactions, too.
Proximity payment will also be supported by the growing adoption of mobile wallets. A mobile wallet is an app that stores payment card information, coupons and reward club points on a mobile device. Security features (pins, key codes, QR codes or personal I.D.) are built-in for each item in the wallet; some mobile wallets add additional encryption. Retailers need to have a point-of-service (POS) terminal capable of receiving near-field communications to allow a customer to use a mobile wallet.
In addition to storing credit and debit cards, a mobile wallet can store digitized driver’s licenses, social security cards, health information cards, loyalty cards, hotel key cards, and even transportation tickets.
The benefits to card companies are that, soon, they won’t need to issue plastic cards at all—your card info and authorizations will be stored (securely, we hope) on your smartphone), reducing company costs and greatly boosting their profits. For users, the speed and convenience of proximity payments means not having to carry cash or identification because it will all be stored in your phone.
The fact that credit card spending is “invisible”—we tend to underestimate how much we spend when using a card, while we overestimate when we use cash—also means card companies may enjoy greater contactless card use, boosting their profits. We’re sure mobile proximity payment has that same “invisible” aspect that may encourage people to spend more than they realize. That is not a benefit for users, who already have assumed substantial credit card debt. Consider yourself warned.
The U.S. Census Bureau reports that 2020 credit card debt accounts for 36% of average unsecured debt in the U.S., and over the past two decades, has risen faster than total revolving debt (all debt that consumers or businesses continually receive and pay off, like lines of credit and credit cards). The average American today holds 52% higher credit card debt than they did in 2010. Yet wages have been slow to increase, and the Federal minimum wage has not been increased since 2009.
By the way, data shows that women carry 22% less mean credit card debt than men because they prefer to use debit cards over credit cards when making payments, and men tend to spend more per month. (Some of those differences may be because of the pay gap, but still… a bit of trivia for your “Jeopardy” appearance.). There are also debt differences between ethnic groups, with white and Asian people carrying the highest credit card debt.
The coronavirus crisis has spurred retail disruption, shifted many reluctant consumers to online purchasing, and increased acceptance of new technologies. Understanding this shift can help you assist clients with how they merchandise and enable in-store sales.