Payment Apps

Payment apps gain ground but are they really necessary or just a fad?

“While emerging payment technologies and mobile payments provide people with more choices than ever before, traditional payments remain highly relevant. Debit, credit and cash continue to be consumers’ preferred ways to pay,” notes the TSYS 2017 U.S. Consumer Payment Study which indicates that large segments of the population are likely to be dipping their credit and debit cards for years to come.  

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To App or not to App? That is the question

May 7, 2018

Payment Apps

Payment apps gain ground but are they really necessary or just a fad?

“While emerging payment technologies and mobile payments provide people with more choices than ever before, traditional payments remain highly relevant. Debit, credit and cash continue to be consumers’ preferred ways to pay,” notes the TSYS 2017 U.S. Consumer Payment Study which indicates that large segments of the population are likely to be dipping their credit and debit cards for years to come.

Yet this study also makes it clear that a significant percentage of people under the age of 45 are now embracing payment apps, including operating-system specific options like Apple Pay®, Android PayTM and Samsung Pay®, as well as retailer-specific apps and Peer-to-Peer (P2P) payment apps. For example, the study revealed that 42% of people between 18-24 and 45% of those between 25 and 34 have used a P2P payment app, as compared to 37% or less for all older age brackets.

In other words, younger generations are more receptive to emerging payment options, a trend that is likely to accelerate as consumers—not to mention merchants—get more and more comfortable with the new technologies. You can also expect the major card brands to continue to move us away from the trappings associated with traditional payments. In No Signature Required, the TSYS blog highlighted how cards brands are eliminating (or making optional) the signature requirement at the point of sale. More on point, Visa® and Mastercard® have mandated that POS terminals in Europe be contactless-enabled by Jan. 1, 2020, a standard that may eventually be applied in the U.S. as well.

It’s also clear that younger consumers are generally more familiar with payment apps and more likely to utilize banking apps, the latter of which are often used to pay bills. The TSYS Consumer Payment Study states that 85 percent of those in the 18-24 age group and 88 percent of people in the 25-34 age group are familiar with in-app mobile payments, as compared to 66 percent of consumers overall. Meanwhile, 44 percent of consumers are now using banking apps, up 10 percent from 2016.

At the same time, it appears consumers have only a vague sense of how payment apps work, leading them to speculate about whether these apps are safe. Is the concern warranted? A recent article in Security Intelligence argues that “mobile payments are more secure [than consumers] think,” noting that Apple Pay, Android Pay and Samsung Pay all “use tokenization to represent the credit card number rather than the actual number,” which “helps prevent the cardholder’s data from being exposed.”

The article’s author also believes U.S. retailers are playing a role in the slow pace of adoption. “Most retailers lack training in mobile payment technology, which certainly isn’t helping its current and future growth,” he writes. “Many don’t even know which buttons to push on the register when someone asks to pay via mobile. [And] some retail employees insist they don’t have mobile payment capabilities even when the contactless logo is displayed on the terminal.”

Yet another issue may be the perception that in-app payments don't offer enough of a benefit to incentivize consumers to change their behavior. Never mind the arguments that contactless payments are faster, more convenient and allow consumers to dispense with carrying a physical wallet, not to mention all the benefits that accrue to merchants.

In an effort to change the status quo, some credit cards have been offering bonus rewards for making mobile payments, an effort to be ‘first in wallet’—that is, the default option in a mobile wallet or payment app. Similarly, Samsung Rewards lets users “earn points for every purchase using Samsung Pay,” points that can be redeemed for rewards like gift cards—the kind of incentive that could help speed adoption rates.

It’s undeniable, though, that some brands have had great success getting loyal customers to pay with their own apps, including Starbucks® Mobile Order & Pay app was so successful that it led to significant in-store congestion, which in turn, required operational adjustments on the part of the chain’s physical stores. Lots of people have found P2P apps to be valuable as well, insofar as they makes it easier for people to pay friends—or for friends to pay a card user back (“I’ll Venmo you”). Never mind that an app like Venmo® can potentially lead to challenges of a different kind —like not getting paid, or having to send an invoice to a friend, or having a Venmo transactions subject to public scrutiny.

The bottom line, though, is that more and more people are getting comfortable with and utilizing payment apps, which in turn should encourage more and more retailers and brands to accept and incentivize their use. And despite the fact that there are some security risks, those risks (like losing a phone, malware and the risks associated with using public Wi-Fi) can be mitigated. At this point, the decision to use or not use payment apps is really a matter of personal choice.

Apple Pay is a trademark of Apple Inc., Android Pay is a trademark of Google Inc., Samsung Pay is a trademark of Samsung Electronics Co., Ltd.  All trademarks contained herein are the sole and exclusive property of their respective owners. Any such use of those marks without the express written permission of their owner is strictly prohibited.

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