Apple Pay and the Mobile Wallet Tipping Point: It Will Come Down to the Retail Experience
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Alex Washburn / WIRED
Since Apple unveiled Apple Pay, the response suggests that it may represent a quantum leap towards the tipping point in the adoption of mobile wallets. The common expectation is that Apple will move the needle in getting a wide swath of consumers to TRY mobile payments. But is it a fool’s errand to expect that the current generations of consumers are all of a sudden going to flip the switch and become mobile payers? How much Apple Pay will hasten consumers’ decision to pick up mobile payment versus swipe a card will be interesting to watch.
The payments industry has been predicting the mobile payment tipping point for five years, as major companies have steadily invested in mobile capabilities. The harsh reality is that we are no closer to broad consumer adoption of mobile payments than we were five years ago. Granted, technology required to facilitate payments has progressed quickly in that time but consumer interest has not kept pace. Consumer mobile transactions hardly represent a rounding error in the grand scheme of merchant transactions today.
We’re easily another 3-5 years away from a tipping point with tier 1 (i.e. big box) retailers, and 7-10 years with tier 2 merchants (e.g. my local dry cleaner and coffee shop). Consumers won’t see enough value in utilizing mobility to transact unless products are designed that actually address consumer issues and add value to their transactions in the form of a value-added shopping experience.
What It Will Take To Reach the Tipping Point
What’s slowing down adoption is the lack of ubiquity in deploying the technology, the lack of understanding and education on both sides of the point-of-sale as to how and why to use that technology, and the time until we get a generation of shoppers (i.e. those now entering high school) that are actually looking to make transactions using mobility versus consumers that are being convinced to try it.
Technology ubiquity. From a technology perspective, the tipping point will come when consumers believe there is a universally ubiquitous way to transact on the smartphone. The industry has largely focused on building the best mousetrap and filling technology gaps, rather than working to develop consumer products that deliver value. Understanding what consumers are looking for is the first step in good product strategy and Apple has a knack for this.
What will take another three to five years to work through is that the large movers like Apple, MCX, Google, PayPal, Square and Amazon are all drawing battle lines in the market. It’s becoming a game of exclusion that will affect consumer ability to use one method of payment anywhere and in doing so, creates friction and stifles interest in mobile payment. Pulling out a credit card is just easier.
Consumer understanding and education. The reality at this moment is that the vast majority of consumers feel that the three seconds it takes them to swipe their credit card (or pay with cash) is not broken. Mobile payment has nothing to do with the payment; rather it has everything to do with the consumer experience before and after the transaction. This is where the value to consumers is created, and loyalty is reinforced.
From a consumer marketing standpoint, who will take the lead: the industry or retailers? The industry doesn’t have a great track record and retailers (besides the major brands) can’t afford advertising campaigns that reach 300 million consumers. Collectively, we need to educate the market in a way that is 1) valuable; 2) approachable and 3) clear enough so that my father can understand what reason there is to use his phone to pay.
Retail experience. The vast majority of merchants – those with 100 or fewer locations – operate on razor-thin margins. Right now a merchant’s ROI on accepting mobile payments is negative. It takes time and money to install and train employees on how to use it. It most likely doesn’t integrate with the point of sales system’s data, causing an accounting nightmare, and it doesn’t alleviate concerns about processing fees.
The tipping point for retailers will come when the marginal benefit of mobile payments far exceeds the marginal cost. It all comes down to experience, which plays into loyalty, but there are all kinds of value that can be built on a mobile wallet that create the tipping point in the minds of consumers. For example, a merchant’s app can integrate both with Apple Pay and its inventory management system, so if I am shopping in-store and it doesn’t have what I want, I can snap the bar code, pay right there on the phone and have the item drop-shipped to my house. That’s a value-added experience that will get consumers over the hump.
What are other factors that will create the tipping point? How long will it take to get us there?
Andy O’Dell is co-founder and Chief Strategy Officer at CLUTCH.
