Opinion



By Olga Kharif


My Phone Is My Wallet




Posted on March 07, 2016


FIRST THERE WERE COINS, then paper money, then checkbooks, then credit cards. Each new method of payment was more convenient, not to mention lighter. The next frontier in payments is lighter still -- the software and data in a smartphone. Mobile payments have been common for a decade in some countries, like Japan and South Korea, where a phone can be used to pay for subway fares. In Denmark, more than a third of the population uses mobile payments for everything from apples to hashish at least once a week. US consumers have been slower to make the change. Apple hopes its Apple Pay service will do to leather wallets what the iPod and iTunes did to CD collections, though in its first year adoption was slow and Samsung and Google have piled in with competing products. But mobile payments are likely to have the biggest impact in emerging markets, particularly in Africa. In Kenya, where banks are rare but 82% of the population has a cellphone, mobile payments arenít the future but the present, with the funds flowing through phones equal to about a quarter of the countryís economic activity.

THE SITUATION
In February 2016, Samsung reported that it had signed up 5 million users for its Samsung Pay service, which it had rolled out in the US in September; Google’s Android Pay service, which debuted at the same time, is by one estimate used at least once a month by 5 million people. Apple Pay has an estimated 12 million users. Apple Pay got a boost in February 2015 when the White House announced that users of federal-payment cards will be able to use the service for things like Social Security and veterans benefits that are paid out via debit cards. Then the next month came word that some banks were changing their procedures for activating Apple Pay accounts after people tried to use stolen credit-card numbers to make purchases. Many of the nation’s biggest retailers are participating in a mobile-payment venture, CurrentC, that would bypass the big credit card companies that have partnered with Apple Pay, while PayPal’s Braintree service lets businesses accept payments through their own apps. Wal-Mart is rolling out its own wallet nationwide, and banks such as JPMorgan Chase are preparing their own in-store wallets as well. Despite all the activity, many US retailers still cannot accept mobile payments, many consumers’ phones cannot make them and only a tiny fraction of consumers who could use mobile wallets actually do so (see graph).



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THE BACKGROUND
While start-ups had tinkered with phone payment systems for years, it took the widespread adoption of increasingly capable smartphones to make them practical. Mobile wallets are essentially apps that let consumers make purchases at regular checkout counters in brick and mortar stores. In Apple Pay, a technology called near-field communication lets consumers pay by waving a smartphone near a credit-card terminal. A hybrid form of mobile commerce involves devices like Square that attach to phones or tablets and turn any sales clerk or taxi driver into a roving cashier able to accept credit or debit cards.

THE ARGUMENT
A survey in March 2014 found that 82% of those who used mobile wallets reported the process to be easier than using a credit card.

But a Federal Reserve study published in 2015 found that only 22% of US smartphone users had made a mobile purchase in the last 12 months. Many consumers don’t see any obvious benefit, a feeling cited in surveys of iPhone customers that found no great rush to try Apple Pay. That’s why Starbucks tied its mobile app to a loyalty program, making it easier to earn discounts -- and now more than 22% of transactions in its company-run US stores are going through its mobile app. That kind of customer engagement is one reason that more stores rolling out their own wallets or backing CurrentC, as they may wish to resist Apple Pay. Millions in swipe fees are at stake. Apple is betting that many consumers will balk at the idea of retailers tracking their every move. But it’s possible that retailers could still come out ahead, if mobile payment’s extra convenience -- Starbucks has rolled out a feature that lets customers order coffee en route and pick it up with a wave of the phone -- leads consumers to buy more stuff just because it’s easier to buy it.

BLOOMBERG