The volume of payment apps is reaching critical mass. From retailers to coffee shops to airlines, companies across virtually every industry have developed a mobile app to make the payments experience simpler and faster for their customers – and to gather more data on who they are and how they spend their money.
It’s certainly proven an effective approach, with companies like Starbucks and Net-A-Porter using their mobile apps to raise the standard of convenience and service in their respective industries.
There is a catch, however. With so many merchants rolling out their own mobile apps we’re arrived at the point where volume is beginning to outweigh convenience. When a consumer has to scroll through pages and pages of icons on their mobile or tablet to find a specific merchant’s app, the mobile payments experience loses much of its lustre.
Recent research from Bain and Company reveals the average consumer is only willing to use between two and three payment apps on their mobile. With the exception of the apps offered by their “favourite” merchants, people simply prefer to make a traditional card payment than to take up more space on their phone with services they will rarely, if ever, use again.
It’s hardly surprising under these conditions that universal, merchant-agnostic payment technologies like Apple Pay and Android Pay are gaining so much attention from both consumers and online merchants.
These services are attractive to shoppers, who want no-hassle mobile payments without needing to download a new app from every business they buy from. These technologies also address peoples’ growing sense of app fatigue by delivering one secure platform through which they can make mobile purchases from any merchant, provided it has bought into the service.
Open payments platforms also take pressure off merchants, who no longer need to invest their companies’ time and money into developing, rolling out, and updating their own payment app to deliver on the expectations of their mobile customers. At the same time, the business models underlying platforms from vendors like Apple and Google seem to be based on taking a kick-back from the card issuers on each transaction made, so the merchant is not paying the same transaction fees they might encounter using another payment type.
Uptake so far has been strong by many accounts, but it’s fair to say adoption is still in its early stages. When it comes to Apple users, for example, many still use older devices that do not support Apple Pay and it remains to be seen whether this feature is enough to make them upgrade.
Merchants have also been slow to get on board, with many unsure of which technology is the best option for them.It’s also entirely natural for them to be hesitant about the risk of alienating a particular group of users by choosing to support one app over another.
The fact that the maximum value of Near Field Communication (NFC) transactions is still limited in most markets – the UK cap remains £30, for example – remains a limiting factor as well. Higher value transactions are slowly being introduced but for now the existing cap makes NFC less attractive to merchants in a number of industries.
It’s also worth remembering that NFC payments are still only available in a limited number of countries. Outside some APAC markets, the US, and the UK, consumers around the world are still waiting for the technology to hit their shores. Until these services become more widely available and get buy-in from businesses in these markets, limited penetration will continue to stand in the way of widespread consumer adoption.
Apple Pay does have a head start in this regards, recently announcing it plans to go live in Australia and Canada this year, followed by Spain, Singapore and Hong Kong in 2016.
Whether these technologies take full command of the mobile payments market remains to be seen, but with consumers losing patience for the growing number of apps crowding their phones and draining their batteries, a merchant-agnostic approach does tick at least one important box for most people.
The options available to shoppers aren’t limited to Apple, Samsung and Google. E-wallet providers including PayPal, Amazon, AliPay, V.me and MasterPass are also battling for position in the war of the wallets. It’s worth noting that given the need for a ubiquitous solution only those providers that can deliver their service on a wide-enough scale will have a chance of coming out on top.
To add further choice to the mix, banks are also throwing their hats into the ring. Most recently, Capital One became the first American Bank to support NFC payments via its Android mobile app. While the service is limited to the bank’s account holders, it does give users the peace of mind of knowing the institution they trust with their finances is also overseeing their mobile payments. This differentiator may yet prove appealing to the NFC-curious waiting to see the technology proven on a wide scale before trying it for themselves.
What does this mean for the future of merchant-operated apps? With more businesses buying into universal payment platforms, standalone apps need to do more than just allow people to browse and pay for goods and services on their mobiles. They must deliver a user experience that gives consumers reason to use a single app over a number of easy-to-use alternatives, and over traditional cards.
Starbucks has been particularly effective with its mobile payments approach. It recently rolled out a pre-pay feature on its smartphone app allowing customers to avoid queuing at the till or waiting by the counter for their coffee to be prepared. Nearly 20% of all Starbucks’ transactions in the U.S. take place through its mobile app.
The harsh truth, however, is that this may be easier for companies like Uber or Lyft, whose payments systems are ultimately part of what makes their services so popular, than for retailers and online merchants confined to more traditional selling models.
For most businesses, earning a coveted spot in their customers’ top few mobile payments apps will not be easy. With both global technology vendors and financial institutions rolling out offerings that simplify the mobile payments experience across the board, launching a competing closed-loop app that resonates with consumers has become an even taller order. Limited acceptance for vendor and bank-owned payments technologies is levelling the playing field for now, but as more and more merchants buy into universal platforms, their customers are sure to follow suit.
Kevin Dallas is chief product officer for global e-commerce at Worldpay in London.
