Ten years from now, when we’re ready to make a purchase, more of us will reach for our phones than will reach for credit cards.
That’s the time frame pegged by the World Payments Report 2011 which projects that mobile payments will make up 15 percent of all credit card transactions in 2013 and are poised to overtake plastic card payments in a decade.
The annual report is produced jointly by the nonprofit Efma association, Capgemini consultants and The Royal Bank of Scotland.
The U.S. has come late to the mobile payment party, but 2011 is shaping up to be the breakthrough year, experts say.
“Stars are really starting to align in the U.S. market,” says Deborah Baxley, principal, banking at Capgemini. “As we’ve seen with Apple and iTunes, once a big flashy player makes a play, then everyone jumps on board.”
Several heavy hitters are stepping into mobile payments this year. Google just launched its Wallet this week, which is available on the Sprint Nexus S 4G phone. Initially, the Google Wallet app will let consumers pay by tapping their Citi MasterCard account, but the service will soon support Visa, Discover and American Express.
Isis, a mobile payment joint venture formed by AT&T, T-Mobile and Verizon, announced in July that Visa, MasterCard, Discover and American Express are backing the venture. Isis will get its first big trial during the first half of 2012 in Salt Lake City. Visa and other companies are scrambling to get their digital wallets to market and industry experts expect Apple to announce something soon.
The World Payments report also found:
- Mobile payments are expected to grow globally from 4.6 billion to 15.3 billion transactions between 2010 and 2013 — at a rate of 48.8 percent per year.
- Globally, cards remain the preferred method of non-cash payments, with a market share of more than 40 percent in most markets.
- In contrast, check usage around the world continues to drop, accounting for just 16 percent of all non-cash transactions in 2009.
The growth in mobile payments translates to big business for companies that figure out how to make it convenient, safe, simple and exciting to use the devices.
According to the research firm Gartner, in just one year the value of payments made via mobile devices worldwide has increased by 75.9 percent, from $48.9 billion in 2010 to $86.1 billion in 2011.
The U.S. has not been a leader in mobile payments, due to its lack of mobile payment infrastructure. But Visa’s move in August to speed up the adoption of EMV technology in pay networks in the U.S. will be a big driver for switching to mobile payments, Baxley says.
“It’s possible that by being late with EMV, the U.S. may have a chance to leapfrog ahead for a change,” Baxley says.
“The card chips are at the lowest price point they’ve ever been. All of the readers are already done. You can’t even buy a POS reader that is not EMV-capable. We’ve waited long enough that it’s really changed the business case,” Baxley says.
Baxley, who is attending the NFC World Congress in Nice, France this week, says all signs say consumers are ready.
Pilots have shown “universal excitement and acceptance” by consumers for mobile payments. The caveat is they worry about security, Baxley says.
“The reality is that NFC payments are a lot more secure than magstripe,” she says. People worry about losing their phone, but that may be better than losing your credit card. For one, thing, the phone can be disabled remotely and it is more likely to be PIN-protected, she says.
Nick Holland, a senior analyst with Yankee Group Network Research, says the projection of a 10-year tipping point for switching to mobile payments is too much too soon.
“There’s no ubiquity,” Holland says. “The number of places where you can use your phone and tap it and use NFC are negligible. Plastic is so entrenched.”
He says the contactless readers and NFC technology will likely be in place “within five or six years” but consumers and merchants have to be convinced that there’s added value in making the switch rather than just a novel new way to pay for goods.
“You don’t have to sign a signature for many things now so the actual swiping is no faster than tapping a phone. Really, where the value proposition lies is in the ability to get more real-time, location-based services. The actual process of paying for something is a very small part of the retail experience.”
Ron Hirson, president of the global mobile payment company Boku, agrees that consumers still need added value to switch, but says the 10-year time frame for a mobile majority is realistic. “Ten years from now most of us will not be carrying magstripe cards,” Hirson says.
“In 10 years, I will be able to tap my phone and choose which account I want to charge from,” he adds. “It will apply the coupon that is most relevant and it will store the receipt into an online locker that will match against my budget.”
That added value for the user as well as technological advances and cost effectiveness will be the tipping point for mobile, Hirson says. “It can’t just be a replacement of payments.”