The evolving consumer is perhaps the biggest single driver for change. This new, global consumer — connected, smartwatch-wielding and always on — is having a profound impact on the banking ecosystem. To better understand this new behavior, we surveyed approximately 500 U.S. smartphone-using consumers in early 2016 to understand how frequency, convenience and security are playing a role in reshaping the mobile payment market – and what that means for banks.
How consumers are using mobile payments
Our research reveals extensive usage of mobile payments. The survey found that mobile payment usage continues to grow year after year, with more than half of respondents (56 percent) now using mobile payments. Among the 56 percent who now use mobile payments, in-store adoption jumped from 36 percent to 80 percent from 2015 to 2016 — a growth that is most likely linked to increasing feasibility, access and comfort.
In terms of driving forces, convenience is the number one reason why respondents use mobile payments. As a new alternative, developers and merchants must increase the accessibility and acceptance of mobile payments if they want to capture those consumers looking to make the switch from their traditional cash and credit methods. A secondary motivation (after convenience) was rewards, discounts or promotions.
While some of our survey respondents understand that mobile payments have arguably better security, other consumers do not. Security is often cited as a major barrier to mobile payment adoption and it was the most frequently cited barrier in our study, followed by acceptance/availability.
In fact, according to our research, banks — with higher consumer trust (43 percent) than any other player in the ecosystem – hold strong potential for growth and leadership in the mobile payment category. Our survey found trust to be the major impediment to retailers and technology companies becoming go-to sources for mobile payments. Only 1 percent of respondents cited retailers as the most trusted, while banks led the pack with 43 percent, followed by alternate payment service providers (such as PayPal and Square).
However, to avoid being sidestepped by novel players (e.g., technology startups) entering this lucrative space, banks will need to take several steps. They must:
- Partner more closely with retailers and technology companies who offer direct payments.
- Develop unified payments, integrated reward and loyalty programs, personalized offers and even GPS and in-venue navigation, all in a single and compelling payment experience.
- Place the customer in the center when designing user experiences and be more agile in order to better engage new generations of payment customers.
How brands can prepare for the payment (r)evolution
No single brand has solved for every aspect of the payment experience. But, as technology and business model innovation change, bank executives must develop solutions that prioritize more real-time, convenient, contextual and intelligent functionalities.
The Fantasy Payment Team
The following is a Fantasy Payment Team made up of the best-in-class payment solutions from each category.
Banks can learn from leaders in each category and integrate those features that matter the most to their customers in a way that’s true to their brands. Here are the 4 key trends from across the board:
- Anticipate needs and provide contextual experiences Triggering contextual experiences based on where and who people are, and what and how they are doing, will elevate the value that payment solutions can provide. The largest opportunity is for brands to target a behavior we call “down-timing,” when customers transition between experiences, whether “captive” on a bus or simply unwinding at the airport. This could involve serving up welcome reminders to complete financial tasks and make the most of “dead” travel time, triggered as a location-based service.
- Move faster and be nimbler with payment investments Fueled by venture capital investment, payment apps today are better, faster and cheaper than generic white label payment solutions. For example, banks must make payments easier with fewer steps and less attention required. Potential tactics include biometric authentication (e.g., fingerprint, voice or facial), conversational interfaces like chat bots and natural language recognition and predicting needs through machine learning and saved preferences to automate decisions and make better recommendations.
- Join the conversation What if, instead of investing all that time and energy in persuading customers to download your app, you could have an instantaneous, seamless and personalized way to engage them in conversation? With over 2.1 billion active users on messaging apps like Facebook Messenger, Line and WeChat, the promise of a conversational user interface is already here. As messaging platforms threaten to become the new “operating system” — the one app to rule them all — other payment providers need to quickly decide how they will partner, compete or integrate these new (and inevitably dominant) payment distribution channels.
- More than money With rising competition from innovative startups, payment providers also need to ask themselves how they can provide value beyond the transaction and in the context of the end-to-end customer journey. The automated splitting of bills in peer-to-peer payments; integration with already-existing networks of consumer gift cards, memberships and loyalty features; and cardless-enable ATMs are just a few of the opportunity areas.
Banks can even use technology like artificial intelligence. A simple example is a digital wallet, like Wallaby, that automatically selects which credit card maximizes rewards at the point of sale, avoiding the need to remember which category accrues the most points.
To be the primary way that we pay, mobile payments need to become easier and more top-of-mind than pulling out cash or a card. Indeed, while comparing data from 2015 to 2016, we discovered that convenience remains the biggest motivator, with one of the biggest deterrents being that few retailers even accept mobile payments.
The vision of a unified, cashless, global payment experience is a long way off, but banks need to make progress toward that goal if they wish to remain relevant in the eyes of future, ever-smarter shoppers.