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The future of mobile payments

17th Feb 2017
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In the last month, the adoption of mobile payments took a leap forward on both sides of the Atlantic. Target announced an upcoming roll-out of the technology at its 1,800 US stores, meanwhile Tesco revealed that its PayQwiq app will be coming to every UK store despite its mixed reviews. This follows the launch of Amazon Go; the world’s first check-out free store, in Seattle in December. The pioneering concept brings the offline and online experience together to transform the way customers pay in-store and we could see them arrive in the UK soon now that the UK trademark has been registered. These are just a few examples of the many technological developments in mobile payments that have been announced. As we look to the future of buying, we say goodbye our wallets and instead look to our smart-phones.

In the past, PayPal led the way in innovation as they invented a means for consumers (and businesses) to send and receive money online. In recent years, tech giants Apple and Android have made their mark in the growing payments market with the development of their mobile wallet apps Apple Pay and Android Pay. In the USA, Samsung has also entered the mobile payment scene, joining Apple and Android with Samsung Pay and its launch in the UK is now imminent. Samsung Pay works similarly to Apple Pay, with no limits to your choice of credit/debit card, unlike the Android model. With all these different apps for different mobile brands, all bases are covered. Contactless and mobile wallets are ensuring that wallets are becoming a thing of the past. But how are consumers responding, and what’s next for the future of mobile payments?  

Consumers in the UK were quick to take advantage of the convenience of contactless cards and mobile wallets. Data from The UK Cards Association has revealed with 125 payments made every second in the UK, now a quarter of all card payments are made via contactless cards. I suspect this growing ease with contactless is because consumers have an existing relationship with their banks, and the experience isn’t so different from the traditional chip and pin method.

It’s clear that Apple Pay has started to become a norm in retail, with giants such as Boots, Argos and Marks & Spencer taking the necessary steps to ensure it is a viable payment option for their consumers. Starbucks Mobile Order and Pay app are also on the rise, with a panel of experts granting it an impressive 3rd place in our 2016 Digital Innovations Retail Report. However, although the concept of mobile payments is widely recognised in society, usage is still proportionally low. Why is this? Well, as we all know, a consumer’s trust is not easily won.  

Unfortunately, data hacking scandals grace our headlines regularly, so it’s understandable that customers are wary to share personal, financial information. Research by Recode found 40% of consumers were reluctant to add their credit/debit card details to their smartphones because of security concerns. This reluctance is wholly understandable; in the instance a consumer loses their phone, they do not want its finder to have access to financial details. Tech companies and researchers across the world are working hard to combat these concerns. Whilst voice, fingerprint and face recognition are now typical security measures on smartphones, the future lies in iris scanning. There are 225 different comparative features in an iris, compared to a fingerprint’s 40. Students at California State University Fullerton are exploring this with their biometric research into how retinas and 3D face images can push the boundaries of password-based mobile security.

Providers of mobile payments understand this hesitancy and are constantly reforming features to reduce uneasiness. Apple Pay prizes privacy and security at the core of its technology; to tackle unease they have matched the maximum £30 contactless card payment that can be made for any one purchase. Additionally, cashiers will no longer see the customer’s name or card details upon use of the app in-store. This feature helps to reduce the potential for fraud. Likewise, Android Pay is keeping on top of needs for privacy of personal and financial information. It now uses virtual accounts, which means real credit or debit card numbers aren't sent with payments. But hesitancy exists for other reasons too. Many people have claimed contactless payments make it harder to resist temptation due to the ease of the transaction. This is particularly in regards to unhealthy foods and is making some people hold back on contactless.

We’re also seeing payments become mobile in other new and alternative ways. Monzo, launched in 2015 but set for domination amongst consumers in 2017, is a bank designed specifically for smart-phones. Consumers can link the mobile app directly to their card and after each payment receive an instant payment notification and balance update from Monzo. In addition, users of the app can manage a monthly or weekly budget. The app places each payment under its relevant category, groceries, eating out, transport, bills, clothing and more, for users to monitor how much they’ve spent on each one.

Alternatively, for retailers, the next natural step is combining loyalty schemes with mobile wallets. From our Unfaithful Consumer research we know that one of retailers’ biggest challenges is keeping their customers loyal. However, when they’re in a hurry, it’s easy for customers to pay and simply forget about their loyalty card. Online shopping, with all its distractions, can provide an equally disconnected experience. US company Cardberry have already acted on this, creating an app that allows consumers to store all their loyalty cards on one single card.

It’s clear the opportunity to improve customer loyalty and retention with mobile payments should no longer be sidelined.  Apple Pay has just taken a step to encourage consumers’ engagement with loyalty programmes on their mobiles by partnering with gift and prepaid company Blackhawk Network. Additionally, Tesco’s PayQwiq app lets customers pay instore using their phone and register Clubcard points automatically, incentivising them with up to 500 extra points when they first sign up.

In today’s fast-paced world, consumers crave ease and convenience more than anything. Indeed, our research found 55% of UK consumers rate convenience as the most important consideration before shopping. As we find our time increasingly stretched, this lighter, leaner approach to life is something consumers will no doubt embrace if businesses can offer it in the right way.

The mobile wallet has the potential to offer customers a more individualised, convenient shopping experience. It could become a powerful new marketing channel and make society to kiss goodbye to wallets. Yet, we cannot predict how consumers will react to this growing technology. Are they confident enough to ditch their plastic credit/debit cards and loyalty cards in favour of something more mobile?

Customer retention and loyalty are top of retailers’ priorities and developing mobile technology represents an opportunity for companies to achieve them both. The shift to mobile benefits consumers too and could help create a process that meets the existing demands for a more convenient, hassle-free and quicker shopping experience.

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