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The future of mobile payments is here, it’s just not evenly distributed

Consumers are ready for tap-to-pay, but retailers and banks need to catch up to demand.

A consumer uses Apple Pay on the Apple Watch at a McDonald's in Beijing, China.
VCG / Getty

A version of this essay was originally published at Tech.pinions, a website dedicated to informed opinions, insight and perspective on the tech industry.

If you’re anything like me, and you’ve made a payment at retail with your smartphone, you’ll feel this is the future of payments. But as the famous quote from William Gibson says, "the future is here. It is just not evenly distributed." After conducting some research in the United States, the United Kingdom and Australia, it would be hard to find a more appropriate phrase for mobile contactless payments.

Last fall, the U.S. went through a drastic disturbance in consumer retail stores thanks to the EMV shift, which moved us from swiping our credit cards to inserting them into a terminal and waiting for the transaction to complete. With the average transaction time still taking between five and 10 seconds — down from 15 seconds six to eight months ago, U.S. consumers have had friction added to their checkout process.

It is with this retail experience in mind that we were hopeful, last fall, that mobile contactless payments would take off. Toward the end of 2015, roughly 17 percent of iPhone owners had used Apple Pay, and 7 percent of Android owners had used Android Pay. Part of this had to do with less than 50 percent of the iPhone installed base in these markets having devices that are Apple Pay-capable. An even smaller number of Android-based devices in use are NFC-capable. Here we are a year later, with exponentially more smartphones in the market NFC-capable and, interestingly, not a lot has changed.

When it comes to tap-to-pay terminals, the U.S. is well behind markets like the U.K. and Australia. While we are still in early days with consumers paying with their smartphone in those markets, as well, a majority of consumers there are already using tap-to-pay on a regular basis, using their bank-issued card with an NFC chip in it. We decided it would be interesting to study consumers in the U.K., Australia and the U.S. in order to see the contrast between mature contactless (tap-to-pay) payment markets and one like the U.S. where it is all brand-new.

We asked consumers in the U.S., U.K. and Australia if they have ever used a form of contactless payment, defined as tapping to pay with your bank-issued card or mobile phone.

As you can see, when it comes to contactless tapping to pay behaviors, markets like the U.K. and Australia, with bank-issued cards that have tap-to-pay functionality and the vast majority of merchants accepting tap-to-pay, it paints a very different picture than the U.S. market. Where ~80 precent of consumers in the U.K. and Australia have used a tap-to-pay method, 80 percent of consumers in the U.S. had not. Part of this has to do with minimal acceptance of contactless methods at U.S. retail, compared to many merchants accepting it in the U.K. and Australia.

To further highlight the stark differences of the U.S. market compared to the U.K. and Australia, where a form of contactless payment is a normal transaction behavior, 61 percent of U.S. consumers said they are not that familiar or not familiar at all with any kind of contactless payment method. One solid conclusion from our research is that we still have a lot of educating to do on the U.S. market.

Room to grow for mobile payments

After studying all three markets, what I found most interesting was, first, the disparity between consumers using contactless in the U.K .and Australia and those not using it in the U.S. as outlined above. The second thing that stood out was how all three markets were remarkably similar when it came to usage of mobile contactless payments —meaning using something like Apple Pay, Android Pay or Samsung Pay.

The chart shows the types of contactless transactions consumers have tried in all three markets. Interestingly, while tapping to pay with your credit/debit card is an established behavior in the U.K. and Australia (more than 50 percent of the market uses this method on a weekly basis), consumers in those markets have yet to fully transition their contactless payment behaviors from their credit/debit card to their smartphone, even though it is accepted almost universally in their country.

When it came to which mobile contactless payment was most popular among those who said they have used their mobile phone to tap and pay, Apple Pay is the most common form of mobile payment, with 62 percent usage share of mobile contactless methods, compared to less than 30 percent for Android Pay and Samsung Pay respectively.

While we are still new to paying for goods and services with our smartphones, the future seems bright. Our research found that consumers who have used Apple Pay, Android Pay and Samsung Pay had high satisfaction levels with the experience, with speed and convenience the biggest factors in their satisfaction, and a high propensity to use it more often in the future.

Security is still the largest barrier for non-users

The sleeper story for consumers is security. While this happens to be one of the single most important reasons to adopt contactless payments, it is also the one that is least understood by consumers. In all three markets, 40 percent of consumers listed security concerns of adding their credit/debit card to their smartphone as the main reason they have yet to try it, while 29 percent said not trusting the transaction was secure as their main reason.

In an era of heightened awareness of identity fraud, merchant breaches of credit card data and more, it is not surprising security concerns came up time and time again in our study. Yet, a data point that stood out was that 45 percent of consumers stated an increase in willingness to use mobile contactless payments if retailers and banks helped them understand the security benefits of using something like Apple Pay, Android Pay or Samsung Pay. This was listed as the single biggest thing retailers and banks could do to get them to use mobile contactless payments.

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As I analyzed the data of more than 50 questions between all three markets, and the responses of 1,761 consumers, I’m convinced as ever mobile payments are the future. As more banks support it, merchants accept it and consumers understand the security benefits, I’m convinced we will get to an era where paying with our smartphones is the normal and most common behavior. However, our research strongly suggests that it is not consumers standing in the way of adoption. It is retailers and banks that need to make the appropriate moves to bring this safer and more secure way to pay to their customers.

I’ll be presenting the full findings of our research at a VIP event hosted by NXP in Las Vegas on Oct. 24. If you are coming to Money20/20, or are a VIP in the banking and transaction industry, or in the media, let me know if you would like to attend.

Ben Bajarin is a principal analyst at Creative Strategies Inc., an industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Reach him @BenBajarin.

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