Use of Mobile Tap and Pay Will Double in the Next Year, but Mainstream Mobile Wallet Adoption is Far Off

Photocredit: Paymentmax, Flickr.

Last month, the stock prices of credit card networks jumped after Google announced the expansion of its Google Wallet. Google added Visa, American Express, and Discover to its mobile payment system, which already included MasterCard.

With Google’s digital wallet, consumers can pay for goods and services by tapping their Smartphone to capable terminals, instead of swiping a credit card. Wall Street apparently likes the idea of the digital wallet, but when will they see the financial return on their investment? How long until investments in mobile payments pay off? Our recent assessment of consumer use and interest in the mobile wallet indicates that the payoff is years away.

6 Million US Adults Currently Using Mobile Tap and Pay

When it comes to using a phone as a form of payment, consumer options aren’t limited to Google Wallet, which relies on NFC technology. Consumers also have mobile apps available to them. For example, I’m a regular user of the mobile Starbucks card (check out this interesting article on the “social currency” of the Starbucks card at Marketing Profs Daily Fix), which allows me to scan my phone to buy cappuccinos (very dry, extra shot of espresso, thank you). Recently, we surveyed consumers about their current use of and interest in both services.

We learned that about 68% of mobile device owners (Smartphones and tablets) were aware of the mobile tap and pay service, but just 6.6% of them were currently using their phone to make purchases in place of another form of payment. With Smartphone ownership in the US hovering around 37% of adults, that works out to be roughly  6 million US consumers currently trying out mobile tap and pay services.

Interest in Mobile Tap and Pay Down the Road: Expect Use to Double in Next Year

There are numerous barriers to widespread mobile wallet adoption including infrastructure, devices, and consumer behavior. As far as infrastructure and devices go, very few retailers have the technology to accept near field communication payments or mobile app payments (for example, not even all Starbucks can accept payments with their mobile Starbucks card). In addition, Google Wallet is currently only available on a single device from Sprint. And, of course,  it is still a minority of consumers that even own Smartphones or tablets at this point.

From a consumer behavior perspective, we also hear from mobile device owners who are familiar with the service that they are not all that likely to adopt the service soon.  Of the approximately 87 million US adults who own Smartphones, 26% said they had never heard of mobile tap and pay services (e.g., using your phone to purchase good/service at the point of sale). 12% said they were very or extremely likely to start using the service in the next 3 months. That works out to be roughly 7 million US adults likely to adopt mobile tap and pay in the near term, which would roughly double today’s usage.

Mobile Tap and Pay is Peaking on the Hype Curve

So where does that put us today in terms of mobile wallet adoption? Well, if you take a look at Gartner’s technology hype curve below, you’ll see that we’ve reached the peak of inflated expectations. Mass media hype is prevalent and early adopters are trying out the services. If you follow the Gartner curve, we’re still 5-10 years away from mainstream mobile wallet adoption. That gives retailers (and consumers) time to prepare for the change.

Gartner’s Technology Hype Curve

Source: Gartner

Bridging the Gap between Mobile Awareness and Adoption: A Few Things That Will Work

The gap between mobile tap and pay awareness and use is huge (68% vs. 7%). Yet our research shows a higher rate of Smartphone usage to check bank account and credit card balances. This suggests consumers are consulting and managing accounts before making purchases during the shopping process, further demonstrating how the mobile device is increasingly becoming part of the in-store shopping process.

One of the notable takeaways from our research is that marketers need to focus on building incentives and a use case to motivate consumers to try out mobile tap and pay. It appears to be a worthy investment because once consumers adopt mobile services, consumers use them frequently (see frequency of use in our Mobile Money whitepaper).
Using a mobile device to manage a reward program had one of the lowest adoption and awareness levels, and represents a significant opportunity for card issuers and retailers to connect rewards with in-store shopping.

A great example of this type of partnership is Google Wallet and American Eagle Outfitters teaming up in AEO’s Times Square flagship store. Purchases via Google Wallet at AEO pick up an automatic 15% discount, additional reward points, and special “surprise offers.” AEO also addresses the device barrier by allowing customers to borrow a Sprint Nexus S 4G NFC phone so they can try out the service. Partnerships like this one – where card issuers and retailers provide real-time rewards and incentives while the consumer is shopping – provide the incentive consumers need to try the technology; This kind of partnership is likely to emerge as a key trend.

On a final note, as always, funny and entertaining advertisements help, too. If you haven’t seen it, check out George Costanza – Google Wallet’s first customer.

Want to know more? Check out our newest whitepapers on Mobile Credit CardsMobile Money and Mobile Banking

About Jennifer Canfield:
Jennifer Johnston Canfield is a Senior Associate in Financial Services at Compete. Jennifer is responsible for providing competitive analysis to financial services clients. Before Jennifer joined the Compete team she was a social media marketing consultant. Connect with Jennifer on Twitter (@jbjcanfield) or LinkedIn (