With the announcement of Apple’s iPhone 6 this week there is renewed interest in smartphone technology, including trends in mobile payments. We have been reading the news this week and are seeking some interesting, and even contradictory trends.
A report in Wired points to the new iPhone as a “credit card killer,” noting that a new chip will make these new smartphones scannable at checkout counters. Apple is banking that its iPhone wallet will take the place of credit cards. Quoting Ben Milne, CEO of Dwolla which is working on a web-based credit card alternative:
"Apple's already got a great mobile wallet. You use it all the time when you buy something on iTunes. They already have 800 million cards on file. They're going to give people a better experience that's arguably, probably more efficient and more simple with hardware they control.”
The argument is that using services like iTunes or an “iWallet,” the credit card behind the transaction is already hidden. Why not eliminate the card altogether and use Internet transactions instead?
If anyone has the market penetration to make a smartphone wallet work it’s Apple. The company has already reached agreements with American Express and Visa so plastic may give way to smartphones.
This week the Washington Post also reported that 6 out of every 10 Millennials don’t have a credit card. Bankrate.com conducted a telephone poll and determined that 60 percent of shoppers don’t use credit cards because of aversion to debt. Many of these consumers are struggling with student loan debt and are reluctant to accumulate more.
However, the poll also revealed that younger consumers like debit cards; they save a trip to the ATM and take the cash right from their account without accumulating debt. This is another argument for using digital wallets, since the transaction is debited immediately without incurring debt.
And there was another report in Mobile Payments Today on a study by Packaged Facts that prepaid card shoppers, especially younger adults, are more prone to use mobile payments.
The study shows that 89 percent of consumers in “underbanked” households own smartphones, and even 64 percent of “unbanked” consumers have a smartphone. And the tendency is for shoppers between ages 18 and 34 tend to carry on average 2.3 prepaid cards in their wallet. These are the same consumers who are more likely to use mobile payments.
Surprisingly, American Express has admitted that its mobile wallets have seen “fairly limited adoption.” Speaking at the Barclays Global Financial Services Conference in New York, Josh Silverman, Amex's president of Amex’s consumer products and services, voiced the opinion that mobile wallets are essentially a solution in search of a problem. "It's my opinion that the swipe isn't especially broken," he told the audience. Merchants haven’t been willing to invest in new point-of-sale terminals, and consumers aren’t interested in downloading another app, so without critical mass the new Amex mobile wallet has failed to take off.
Which is why it makes sense for American Express to align itself with Apple, a company that does have critical mass with mobile users. Apple Pay is already taking hold in the banking community with Wells Fargo and six major banks aligning themselves with the new Apple digital wallet. U.S. Bancorp and Target are the latest companies to jump on the Apple Pay bandwagon.
So what is the future of mobile pay for banking? Will banks be able to offer their own mobile ATM, giving them an opportunity to charge additional fees and maintain customer loyalty, or will banks have the same experience as Amex and have to rely on Apple, Microsoft, and others to power their mobile wallet programs? What do you see as the future for the mobile wallet?