Are mobile payments the next big trend?
It should be no surprise to anyone that we are hurtling toward a more digital future. This is already being felt in the world of payments, where there’s an increasing focus on innovation.
Right now, innovation is being increasingly driven by mobility and contactless payment methods. In a word, the new trend in payments is digital.
Digital payments as a term is quite vague and broad, but generally refers to digitally native payment methods. These are being facilitated using a variety of different devices, with mobile being the most obvious example.
This makes sense really, as they are almost ubiquitous these days – recent data suggests that there are currently 7.1 billion mobile users worldwide [1].
This, combined with their highly connected and digital nature, make them an ideal and convenient candidate for making and accepting payments.
This leaves us asking: are mobile payments going to be the next big trend? Let’s explore.
Mobile culture
As mentioned, there are literally billions of smartphone users out there. With such a high penetration rate, mobile devices are being increasingly targeted by new and innovative players in the payment space as the platform for digital payments.
So, this ‘mobile culture’ has made mobile payments the latest battle ground for payment companies. As for what is causing this, there are a few reasons:
The payment market
As mentioned, there is a wide variety getting involved here. This includes the payment giants like VISA and Mastercard, as well as tech companies like Google and Apple. Then there is the spate of new fintech companies making their presence known in the market.
These companies are currently investing heavily in their IT infrastructure and service delivery [2], helping to bring about a more customer-centric approach. One such way to make things more favorable for customers is by providing convenience – one of the major strengths of mobile payment.
One of the ways payment companies are are approaching this is by creating mobile apps. These help to make payments straight forward, often acting as digital wallets where the customer makes payments using contactless terminals.
Blockchain is also worth mentioning here, with cryptocurrencies being seen by some as the truly digital payment solution. It may be a while before a more widespread solution is available though, with limited acceptance being seen as of now.
One more thing worth mentioning here is how mobile payments are integrated into other platforms. For example, on your next business trip, you may need to make use of an app to help you get around on public transport. Think about Mobility-as-a-Service and other similar mobile super apps where a major part of their popularity comes from the integrated payments.
All together, they are pushing their efforts into the digital side of things, with mobiles being front and center in most cases.
Generation Z
‘Generation Z’, namely those born from 1995 onwards, are often referred to as digital natives. Growing up, they have had access to computers, mobile phones and the internet. This exposure from a young age has influenced their attitude and usage of the technology.
As they begin to make up a larger share of the market, they are now increasingly becoming the target of these new developments. This presents a challenge, as the payment market needs to catch up in order to serve them in a way that addresses their high usage of digital devices.
The impact can already be seen actually: Gen Z has the lowest cardholder participation in the US at only 70%, compared to 85% of Gen Xers [3].
The main thing that this generation brings to the table is awareness. They are familiar with online transactions, often making in-app purchases or shopping online using digital payment methods. Now that mobile payment is becoming more viable and widespread, there is some movement in that direction.
34% of Gen Z consumers have used a mobile wallet, compared to 26% of other consumers – with a further 14% doing so regularly [4]. In general, they’re leading the way when it comes to alternate payment methods, and mobile wallets are a big part of that.
The pandemic
The impact of the pandemic was felt heavily in the payment space. As the virus spread primarily through contact, customers were advised to move away from cash and cards. Instead, they were encouraged to use contactless payment methods.
This can be in the form of a contactless-enabled cards or mobile payment platforms like Google Pay or Apple Pay. Moving forward, we may also see a trend towards cashierless payments - and, of course, invisible ones.
As for the near future at least, we know that 74% of people globally will continue to use contactless even after the pandemic is over.
This year, it is expected that over 100 million proximity-based mobile payments will be made in the US [5] – a notable increase brought about by the pandemic. By 2025, over half of smartphone users are expected to use mobile payment.
It’s fair to say that digital payments, with a particular emphasis on mobile, are on the rise. For comparison, how about we now take a look at a country in which mobile payment is now firmly entrenched: China.
Mobile payments in China
Mobile payments are big in China. Today, the country has one of the most advanced digital ecosystems in the world, becoming a global leader in consumer technologies. So, what is the payment landscape like there?
In China, you can pay for almost anything using a smartphone. From departments stores and online marketplaces, to the local grocery shop and even the small independently owned fruit stand by the street, you’ll find a QR code which can be scanned in order to facilitate the transaction.
These days, it is even common to send traditional red envelopes digitally too. This really highlights the shift away from cash. In fact, a massive 83% of all payments were made via mobile payment methods in the country back in 2018 [6].
How mobile payments work in China
The process is pretty seamless too – no need to fumble about with cash, or even have a dedicated card terminal. You can print out the QR code on a piece a paper and stick it up nearby. When the customer scans it, they can input the amount they owe which will then get sent to the store’s account.
Alternatively, the customer can show the QR code for their account, and the merchant can scan that, deducting the specific amount. Again, no cash or cards are needed.
There are a few things at play here that make this possible.
Penetration
Of course, number one is the high penetration of smartphones and mobile devices in the country. It stands at over 63%, which translates to more than 910 million users [7].
Accessibility
The accessibility of the devices is also key. Smartphones come in at all price ranges, from the cheap and basic to premium models. Many of these can be used to download the main payment apps and so make purchases.
M-commerce
Then there is e-commerce… or more specifically, m-commerce. Many people on the country use their smartphone as their main digital device, and so do everything through it.
This has led to the development of a robust mobile commerce market. Paying through your mobile on mobile commerce stores was a natural progression of this.
There are far more intricacies at play here, but it goes to show that mobile payments in China are an essential method of transaction in the country.
Will the West follow the path of China?
China offers numerous interesting insights into the digital future. Mobile payment may just be one of them. It is difficult to say how alike mobile payment adoption in the West would look compared to its implementation in China, but there will certainly be a few overlaps.
Knowing that mobile phone penetration is actually higher in the US, for example, there is certainly an opportunity here. It all comes down to the infrastructure and education. The latter part should work itself out as Gen Z – the digital natives – and Millennials increase their usage of the payment method.
In terms of the infrastructure, the payment companies are getting on that by investing more in innovations, while the pandemic is forcing their hand further.
Many stores already accept contactless payment with which some digital wallets and mobile payment platforms are compatible with. That’s a good start, but still presents a hurdle for smaller businesses who may not be willing or able to invest in it.
Knowing this, it would be a fair assumption that mobile payments will be a part of the next payment trend. We’ve seen how fast things moved with the onset of the pandemic, which has helped change attitudes towards the practice, so we are already going in that direction.
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Banner photo by David Dvořáček on Unsplash
[1] https://www.statista.com/statistics/218984/number-of-global-mobile-users-since-2010/
[2] https://www.paymentsjournal.com/fintech-trends-everyone-should-look-for-in-2020/
[4] https://www.paysafe.com/en/blog/is-generation-z-shaping-the-future-of-payments/
[6] https://daxueconsulting.com/payment-methods-in-china/
[7] https://newzoo.com/insights/rankings/top-countries-by-smartphone-penetration-and-users/
