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Why 2015 will not be the tipping point for mobile payments

The growing chorus singing the praises of Apple Pay and calling 2015 the tipping point for mobile payments may be premature as ongoing challenges with fragmentation, availability and perception promise to dampen adoption.

A recent report from Deloitte predicted that the use of mobile phones for making in-store payments will increase 1,000 percent this year. The bullish outlook was echoed in a statement last week from the CEO of Prentice Capital Management, who anticipates in-store mobile payments will reach critical mass this year as retailers flood the market on the heels of Apple Pay’s launch.

“Each of the last 5 years were deemed to be the ‘tipping point’ for mobile payments and clearly that has yet to occur,” said Jordan McKee, senior analyst for mobile payments at 451 Research, New York. “Perhaps as an industry we’re not all that great at identifying tipping points.

“However, a confluence of factors do make 2015 a pretty good candidate for promising momentum,” he said. “Apple Pay, the US EMV liability shift and the emergence of host card emulation in the Android ecosystem are three elements simultaneously catalyzing movement in what has been an otherwise slow moving sector.

“While mobile will not displace traditional means of tender for many years, I see 2015 as the year the foundation for mobile payments begins to move into place, setting the scene for future growth.”

Problem solved
Every year for the past few years, a handful of industry watchers claimed mobile payments were poised to take off in a meaningful way. However, these predictions have repeatedly fallen flat.

Several factors have prevented mobile payments from taking off in the past, including that the user experience did not provide a meaningful advantage over using a credit or debit card, too few phones had NFC chips embedded in them and very few retailers were set up to accept mobile payments.

These issues did not stop Starbucks from launching its mobile loyalty and payments solution, which has proven to be extremely successful, underscoring that consumers are interested in mobile payments with the right solution.


The CurrentC payments app

Some of the challenges facing mobile payments are starting to disappear.

For example, the combination of Apple Pay and Touch ID begins to deliver on the promise of a seamless mobile payments experience.

Also, NFC payments are now available from the latest iPhones as well as a number of Android phones. And, with the EMV deadline approaching later this year, many retailers are transitioning to contactless POS systems.

Google’s potential acquisition of Softcard could also establish a strong contender for Android-based payments, filling the current leadership void.

Ongoing challenges
However, despite these advances, other challenges remain that are likely to keep mobile payments adoption growth at a torpid pace in 2015.

A recent report from 451 Research found that the number of consumers likely to make mobile payments has increased just 2 points in the past year for a total of 24 percent.

The root cause of low consumer adoption for mobile payments, per the report, is the lack of a mobile alternative perceived to be better than current payment mechanisms based on consumer interest in security, ease of use and wide acceptance is (see story).

The biggest gains in mobile payments this year are likely to be with retailers, as a number of big players – such as Macy’s, McDonald’s and Sephora – have already jumped on board with Apple Pay. Other retailers such as Target and Wendy’s are preparing to pilot CurrentC, a mobile payments solution developed by a consortium of retailers.

Same time next year
Once enough retailers are offering mobile payments that consumers are able to use their phones to pay for most of their daily purchases, they will be more likely to leave their wallets at home and use their phones as their primary payment mechanism.

However, retailers will need to do more than simply accept mobile payments. They will need to aggressively educate consumers on the security of mobile payments, which offer many of the same security measures as plastic cards with additional measures layered on top.

“While the volumes will still be tiny compared to the traditional market, there’s no doubt that mobile payment adoption will accelerate in 2015,” said Drew Sievers, founding partner at fintech investor Operative Capital.

“Will it hit a tipping point? I don’t think so,” he said. “We will need another year of merchant adoption, phone churn, and increased market interest.

“I see the tipping point coming at some point in 2016.”

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York