The use of mobile payments among U.S. consumers has grown dramatically in the past year, an IDC Financial Insights study released yesterday has found. A third of consumers — 33.9% — make purchases with their mobile phone, according to the survey of 2,663 U.S. adults. In the same survey last year, 19.3% of respondents had made a payment using a mobile device. (The study was conducted online, which skews the respondents toward tech-savviness. IDC makes sure its base reflects the U.S. population in terms of demographics and income ranges.)
Like Gartner, IDC uses a broad definition of mobile payments that includes Amazon, iTunes, App Store and PayPal payments that happen to be conducted on a mobile device. In fact, the most popular mobile payment providers, according to this study, are PayPal Mobile (56% of consumers say they've used it), Amazon Payments (41.2%) and Apple's iTunes and App Store combined (39.8%). Google Wallet, however, also has a healthy 21.3% adoption, which is strong considering it's only a little over a year old.
Some of the growth in mobile payments can be chalked up to growth in smartphone adoption, the ongoing popularity of mobile apps and the growth in tablets.
This growth is not making a big impact on the financial system so far, says Aaron McPherson, practice director, financial services for IDC Financial Insights and author of the report, Business Strategy: Results from the 2012 Consumer Payments Survey. "At present, it doesn't really matter because most of those payments are pass-throughs — they're typically passing through a bank credit card or debit card," he observes. In the case of iTunes, Apple is paying the interchange fees. "If anything, this is probably contributing to growth for the banks, because it's increasing the amount people are buying without cash." For instance, one of the top grossing apps on iTunes is Comixology, which sells digital comic books. "People were going to a store and paying cash for comics, now they're downloading them onto their tablets," McPherson observes. "That represents a decrease in the use of cash and increase in the use of cards."
The survey also identified an increase in prepaid card usage, especially in benefit cards. "We have seen consistent and substantial growth in the past two years in benefit cards," McPherson says. "That's driven mainly by the fact that the federal and state governments have been moving more and more of their benefits to cards."
Payroll cards are flat — "they've reached their maximum audience," McPherson says. "They won't go higher unless someone comes up with a new hook. The role of the payroll card has always been to close the last mile between direct deposit and the paper check, so it's inherently limited."
The study found that the majority of U.S. adults — 73.5% — use some kind of online bill payment, either biller direct or consolidated. [Again, this number may skew high because of the online audience.]
One idea McPherson takes away from this research is that although industry observers, banks, merchants and other players in the payment system care about what form mobile payments take, consumers don't. "I don't think the consumer cares much whether it's an NFC chip or a mobile wallet — I suspect a lot of people who have NFC chips in their phone don't know they have them," he says. "Just like a lot of people who have contactless cards don't know they have contactless cards."
The true mobile wallet does net yet exist, in his view. "The mark of a true wallet is that it would allow you to choose your funding mechanism at the time of purchase," McPherson says. "Presumably it would allow you to trigger that based on the kind of purchase it was. That's still to be developed."
One surprise in the survey, for McPherson, was the finding that Square had very low penetration, despite the massive amounts of press the payment dongle provider has received. "Square has impressive merchant numbers, but if you swipe your card on someone's phone, you wouldn't know it was Square you were using. It's instructive that the companies that get the most press are not necessarily the ones that get the most volume."
The survey also made clear the fact that consumers are not yet paying much attention to mobile payments and don't clearly understand which services they're using, McPherson says. "Because I'm a payments analyst, I like to bother my relatives, friends, and coworkers with questions about what they use. Most of the time people say, 'I don't know' — they're just not focused on it. The average person on the street doesn't care. "
Although the hype around NFC has reached the mainstream press and consumers are now aware that it exists, but they don't get why it's a good idea," McPherson says. "The NFC camp still has a ways to go in terms of convincing consumers that it matters. Should banks be worried? My answer is no, I don't think consumer awareness is high enough yet that it will affect their choice of financial institution or card or anything else. It's all just on the back end."
"This is a case where I think for banks, waiting is the right way to go, because there's no first-mover advantage," he says.