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Mobile Payments Is Shaking Up Finance - What Will Apple Pay Do?

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A new Accenture survey reports that 40 percent of North American consumers have used their smartphones to make a payment at a merchant location, up from 16 percent two years ago. Pay by mobile is even higher among households with income of at least $150,000, at 55 percent, than among millennials, where 52 percent reported paying with mobiles.

Still, the research found, millennials were the strongest mobile payment users among age groups — who knows what the results would look like if Accenture had found enough millennials making $150,000 or more to create a statistically significant result?

“Our research shows that millennials are most likely of any age group to use a smartphone to make a mobile payment, and are in fact driving the adoption of new payments technologies,” said Matthew Friend, managing director and head of Accenture Payment Services in North America.

Among the 60 percent of consumers who have never used their mobile phones to pay merchants, 57 percent cited security worries and 45 percent said privacy was their concern.

The study found an impressive interest in digital currencies, which were defined as a form of currency or medium of exchange that is electronically created and stored. Accenture reports that:

“Millennials are more likely than any other age demographic to use digital currencies now and in the future—13 percent use them today and 26 percent project using them
by 2020. High income consumers are more likely than other income brackets to use digital currencies now and in the future. Nineteen percent of these consumers use digital currencies today and 32 percent expect to use them by 2020.”

Dave Edmondson, senior managing director and head of Accenture’s Banking practice in North America. said the survey shows consumers are embracing alternative forms of payment, something banks have to pay attention to.

““As payments technologies continue to evolve, financial institutions will need to upgrade their middle- and back-office legacy systems in order to support customer demand for faster, more real-time digital payments.”

Consumers are driving the changes in payments and the financial institutions have to adapt, Accenture concluded.

Somewhat surprisingly, the survey determines that checks would continue while the use of debit and credit cards will decline slightly.

“To proclaim that a cashless society is nearly upon us is premature. By 2020 a cashless market will not even be close to reality in either the United States or Canada. However, consumers do expect to use cash less frequently in the future—with two thirds using it today and just over half using it for transactions in six years.” (see the skepticism that greeted my recent article on Cash Is Not King…)

“…consumers use cash today and will continue to do so in the future for the convenience of completing person-to-person transactions and where electronic payments are not accepted. Some consumers will always prefer cash for its perceived ease of use, convenience and security.”

Is this touching naiveté on Accenture’s part, or is the consultancy going out of its way not to appear in favor of illegal activity? Certainly key uses of cash include illegal activities such as drug purchases and also tax avoidance on otherwise perfectly legitimate transactions. Really, has no one at Accenture ever paid a house painter, caterer or lawn maintenance person in cash?

“The survey also found that Millennials and high-income respondents will be the first to adopt “the next big thing” and will potentially be willing to pay for it.”

That’s interesting because part of the debate over a real-time payments network in the United States to replace the relatively slow ACH is whether banks will see any return on the substantial investment a new infrastructure would require. Some advocates of a real-time payment network have argued that at least some consumers will pay for faster payment and settlement.

At the Chicago Fed’s Symposium on payments in September, some panelists argued that new, as yet unforeseen uses would justify the investment. Others said that the decision to support or oppose a new infrastructure came down to attitude — does an individual think of scarcity or abundance. Notably missing were any hard numbers to justify the billions a new system will cost.

Just over half of the mobile users surveyed  said they would increase their usage if faster transactions were possible, something Simple and Moven have built businesses around.

Accenture says that “Apple’s entry into the mobile payments arena has shaken the industry to its core.” But it is far too early to say what the results will be, but mobile payments have been growing.

“Consumers report that they commonly use mobile payments for quick service food/ drink transactions and grocery transactions.”

The report sees opportunity in educating consumers on what their phones can do.

“Eighty-seven percent of customers regularly use a smartphone, and yet 41 percent of consumers do not think their phone is equipped with mobile payments technology. This presents a marketing opportunity for payments providers.”

Merchants can encourage smartphone owners to use their phones for payments, which will entail overcoming some opposition, opposition that looks more solid than it really is:

“A significant number of non-users (44 percent) insist that they would not consider using their phone as a mobile payments device….While this view cannot be ignored, it may not be so absolute. Past experience with adoption of online shopping, online banking, mobile device use—essentially any emerging technology—suggests that there are always self-proclaimed skeptics who eventually become fast followers as the market matures and external factors naturally eliminate barriers to entry.”

The survey found 72 percent would like to use network card providers — credit card companies like Visa, MasterCard and Amex. However, while network card providers have a lead for now, 70 percent said they use PayPal. Mobile users find discount pricing and coupons based on past purchases attractive (79 percent) while 29 percent said they were willing to be tracked by trusted merchants, rising to 37 percent among millennials.

Millennials are very different from their parents, and by the end of this decade in the U.S. they will account for 30 percent of sales, the report concludes. A chart showing millennials compared to respondents 55 and older is striking:

  • Use smartphone as a payment devices  52/16 percent
  • Extremely interested in using wearables as a payment device 30/7 percent
  • Expect to use PayPal at least weekly by 2020    29/7 percent
  • Use digital currencies today daily or weekly    13/1 percent

Accenture lays out the choices for payment providers and says the business is the card networks’ to lose. Consumers prefer cards for now.

“But can network providers innovate swiftly enough to keep this preferred status?”

And an issue that looks to becoming critical in the Apple Pay vs. MCX debate:

“Merchants have driven the use of closed loop payment systems, but they do not address customers’ one-to-many relationships.”

Some of these issues will arise at Money2020 beginning Sunday.