Currently, one-quarter of consumers with an eligible smartphone use mobile pay, according to recent research by Auriemma Consulting Group (ACG). These users are more often male, employed, affluent and/or hold a college degree. Among this desirable group, one-third recall being offered an incentive, a significant bump compared to the one-fifth who responded similarly earlier in 2016.

Incentives, whether applying discounts or earning points for spend, seem to be resonating with the vast majority of those offered — a whopping 86 percent claim an incentive at the point of sale, using them both in-store and in-app.

Incentives typically provided by merchants

Throughout most of 2016, incentives were primarily offered by banks. ACG's fourth quarter Mobile Pay Tracker report, however, revealed a near 20-point decrease in the proportion of banks offering incentives to their customers, making way for merchant-funded offers, which comprised nearly half of consumers' reported incentives. And regardless of who offered the incentive, nearly eight in ten respondents say their offer was for a specific merchant.

Currently, one-quarter of consumers with an eligible smartphone use mobile pay, according to recent research by Auriemma Consulting Group (ACG).

Although 32 percent of mobile pay users have been offered incentives, it appears most users aren't actively seeking them out. Instead, they report passively receiving them through emails, letters or in conversation with a friend. Those who use incentives are more likely to do so at stores they already shop at, but research points to incentives increasing spend frequency in-store and in-app — both integral to developing brand loyalty.

Incentives increase mobile pay spend momentum

Consumers who are offered incentives, unsurprisingly, use mobile payments more frequently than those not offered — the incentive clearly influencing their choice of payment method at checkout. Over a one-week period, for example, those who received an incentive to use mobile pay in-store did so 4.6 times, compared to 3.1 times for those not offered an incentive. The same is true of in-app purchases, with incented shoppers purchasing four times in a week compared to 2.4 for those not offered an incentive. The accompanying increase in purchase frequency doesn't just promote mobile pay adoption; it also impacts spend and loyalty with retailers as well as spend on an issuer’s card, particularly for those whose card is most frequently used in the mobile wallet.

Incentives benefit stakeholders

In effect, issuers, retailers and Pay providers all gain something from incentives offered — whether funded by them or another member of the payments ecosystem. Because the main draw of incentives revolves around the merchant or merchandise tied to the incentive, it makes sense that more merchants are offering them. Spend encouraged through merchant-funded incentives, however, is equally advantageous to issuers in the mobile wallet, who get the additional spend without funding the rewards. Incentives also help introduce some users to mobile payments and may even assist with routine engagement. This is especially true of tech-savvy millennials, who are more amenable to mobile pay overall.

"I was driven to take advantage of every promotion offered through Apple Pay. The app never would have become part of my routine if offers for various stores hadn’t given me a reason to use [it]…" said one surveyed millennial. "Now I am using the app everywhere I see an Apple Pay sticker. I am pushing all of my friends to make the switch, too."

As the mobile pay user population grows, it will become increasingly important to be the most frequently used card in the mobile wallet. Interestingly, two-thirds of mobile pay users say that the most frequently used card in mobile pay is also their most frequently used card overall. While cards used in the mobile wallet benefit from merchant- and Pay-funded incentives in the short term, those not already being used could miss out, especially as mobile pay grows. Issuers in this position may want to offer card-driven mobile pay incentives.

As the mobile pay user population grows, it will become increasingly important to be the most frequently used card in the mobile wallet.

Limitations of incentives

Incentives can help increase transaction volume, spend and habitual use of mobile pay, but much of its benefit depends on the goals of those offering. Issuers may want to become the most frequently used card in the mobile wallet. Retailers may hope to entice current and new customers to make a purchase in store and in-app. While incentives have the potential to reach both goals, the biggest impact will be seen with loyal shoppers and current mobile pay users. Retailer's mobile pay incentives, for example, are successful in getting loyal customers into their stores, but they are not as successful in acquiring new business. The same can be said of mobile pay usage more generally as the strong majority of users are simply reinforcing their habit, having used mobile payments prior to claiming an incentive.

Future look

Issuers and merchants should be welcoming of Pay apps — by all indications, they very well may be the future of payments. And even on this smaller scale (with 25 percent of the eligible population currently using), getting consumers to associate a card or brand with mobile payments could be a worthwhile long-term investment. Incentives have the power to get consumers in the habit of using a particular card or shopping at a particular store with mobile pay. Issuers and retailers who have taken advantage of incentives are positioning themselves for greater success as mobile payments become more commonplace.