Successful contactless markets: Victims of their own success?
In July 2016 RFi Group launched the 3rd edition of its Global Payments Evolution report, which focuses on the way payments markets are developing around the world. The report draws upon surveys with more than 30,000 banking customers across 16 markets – Australia, Brazil, Canada, China, France, Hong Kong, India, Indonesia, Malaysia, Mexico, New Zealand, Singapore, the UAE, the UK and the US.
As in previous years the research shows that consumers are moving away from cash (gradually). On the one hand, when asked if they can imagine a cashless society, consumers are increasingly able to visualize such an environment. In fact, across the markets, the study found that the percentage of consumers that can visualize this scenario has grown from 36% to 42%. Admittedly, there is some way to go before they catch up to Sweden, where 900 of the country’s 1,600 bank branches do not take cash deposits, merchants are allowed to refuse cash and - according to the Riksbank - cash represents just 2% of the value of transactions. In churches there, the congregation can make donations via electronic payment – In Sweden, it appears, even God accepts Visa (and MasterCard and American Express).
A cause and consequence of the drop in cash usage that we are seeing has been the adoption of contactless payments across these different markets. The sometimes rapid adoption of contactless payments has served as a case study in overcoming barriers to uptake and usage of any new payment mechanism, with speed, security and convenience being the three central pillars of success.
One of the conclusions that has been drawn in the past is that those consumers that are early adopters of contactless card payments, will be the first to take up mobile payment solutions. This is an easy conclusion to draw, because when consumers are asked how likely they are to try new ways to pay, contactless users are in general approximately twice as likely to say that they would try.
Based on this, it’s not too much of a stretch to imagine that the markets where contactless card payments have taken off, would also be the markets where mobile payments will take off. After all, the infrastructure is all there from an acceptance perspective, and consumers have adopted an NFC-style payment.
However, when we looked across the 16 markets, those that had seen the greatest success in contactless uptake – Australia, Canada, New Zealand, Singapore, Taiwan and the UK - have seen among the lowest uptake of mobile wallets. The chart below shows these countries’ mobile wallet uptake vs other countries.
Indeed, a correlation of contactless usage and the appeal of mobile wallets shows a very neat inverse relationship between the two – as illustrated below.
So what should we conclude from this? Our hypothesis is that a desire to try new payments is not enough to get consumers to actually make the leap in form factor at a large scale. In fact, when it comes to mobile wallets, contactless card payment markets are a victim of their own success. Contactless payments have proven so convenient and easy, that the next thing really does have to live up to any promise of incremental benefit.
The problem is that mobile payments do not yet do that. In many markets, the offerings from the providers are patchy, with many consumers being shut out of usage for lack of access to the right phone/ card account/ combination.
In addition, the landscape is confusing for consumers – should they use a bank’s proprietary wallet? Android Pay? Samsung Pay? Apple Pay? All of them?
Further, there are still too many instances of the mobile wallets not working at point of sale – the terminal is not set up for Amex contactless payments, the phone doesn’t seem to register proximity, the merchant warns that mobile payments have been ‘crashing’ the system etc. – which can result in potentially embarrassing situations when at the head of a queue and pulling out your phone to make a payment.
So what does the future hold? Our belief is that open loop transport networks can provide something of a fillip to mobile wallet uptake. In a situation where I am tapping onto and off of a transport system, I would need to physically remove a card from my wallet in order for it to work, because I am likely to have more than one contactless card in my wallet. In this instance, the mobile wallet truly is more convenient and this should encourage uptake. The report explores the impact an open loop system in London has had on mobile wallet usage and it bodes well for the future of mobile payments.
Ultimately, the success factors for mobile payments will be identical to those of every preceding payment mechanism, from cheque and cash to contactless cards – speed, security and convenience. Unless consumers are suitably convinced of the security, or can experience the speed and convenience that ultimately erode security concerns then they will not adopt en-masse. Incentives are one way to encourage uptake and this has been used to good effect around the world by issuers, schemes and transport networks. Once incentivised, if the proposition stacks up, then consumer usage becomes habit and the evolution continues.
For more information on RFi Group’s report Global Payments Evolution 2016, please contact: