Why mobile payments are not taking off in the US

America isn't ready to move from credit cards to mobile payments, say experts.
28 June 2018

The US is not ready to give up credit cards just yet. Source: Shutterstock

Cash and cards still dominate the US payments market.

According to Statista, 60 percent of respondents use cash, credit, or debit cards daily. In comparison, only around 15 percent said they use mobile wallets on a weekly basis.

On the other end of the globe, research firm eMarketer predicts that close to 80 percent of users in China will be making mobile payments by 2021. In contrast, only 23 percent of US users are predicted to do the same.

The numbers show a huge difference in consumer behavior towards mobile payments in the two countries; a lot of it is chalked down to a very different payment culture in the US.

In an exclusive interview with TechHQ, Andrew Jamison, CEO of digital payments platform Extend, exclaimed, “We are 10 years away from ditching physical plastic.”

Unlike in Asia, where QR code payments and peer to peer (P2P) transfers are very prevalent, the US doesn’t share the same enthusiasm. Even corporate companies are still using credit cards where they can.

“We’re on a journey for digital payments. It’s slow because we are undoing an ecosystem that has been around for a long time,” he explained.

The credit card journey

Credit cards were an easy way for consumers to pay a whole host of merchants. It was designed for small vendors or merchants who don’t want to deal with cash of a thousand people walking into their stores. It was simple and efficient – swipe a card and it’s updated on the ledger.

In Europe, Jamison observed that NFC enabled tap and pay cards are more popular than mobile payment solutions like Apple Pay.

“The reason for that is pretty well publicised, it doesn’t solve a real problem,” Jamison said. “The idea that I can tap my card or tap my phone, it’s not a real problem to solve.”

In the US, only 12 percent of vendors are accepting mobile payments. On a merchant’s end, there are virtually no benefits from implementing a system that accepts Apple Pay. The wallet still needs to be linked to a card, and beyond charging a nominal fee for the transaction, card issuers have limited benefits for enabling the system as well.

This is because technology providers like Apple Pay don’t understand consumers the way card issuers do. What merchants are looking for, are companies who understand their customers, and can help them learn about their customers.

“At the end of the day, merchants want companies who understand how to bring their customers in more frequently through different times of days through different offers,” the former Amex executive remarked.

Consumers are drawn to offers and discounts. In the US, card issuers have created a culture of rewards and cash back, which is the primary driver of the industry. Having a new technology to enable payments is a novelty; mobile payments have yet to replicate the economics of cards.

In the US, where there are 7,000 banks, coming to a cohesive understanding of best practices to roll out mobile payments is a huge hurdle.

While there are a handful of major banks, most of America is run on small businesses, who trusts local banks. With little mandate that is being pushed by the government, mobile payments will remain slow.

The corporate story

Having said that, credit cards aren’t the optimal solution moving forward, especially for businesses, Jamison warned. Many technology solutions today are still trying to leverage credit card rails, the reason being many companies still rely on paying with corporate credit cards.

“When you are dealing with payments that are not US$1000 but US$100,000 you can’t apply that level of interchange,” he advised.

Although Extend’s services is used to speed up card payments in corporations, Jamison suggested that technology for corporate payments should move off credit card rails.

“You need to create an ecosystem that can price dynamically and give access to funds at all time,” he suggested. “People who manage the invoice and accounts are not the people who decide the funding of the company. That’s a disconnect.”

Right now, there are various technologies available that are attempting to change payments. However, Jamison noticed that companies are still very accustomed to the cards ecosystem and don’t feel secure setting up accounts other than with banks.

The next step

“Like it or not people trust their banks. The next wave of fintech is about how to make technology interact better with bank and bank customers because banks are sticky,” Jamison predicts.

It will be a long time yet before the current systems would change. Suppliers and solution providers would have their work cut out for them before they are able to implement QR codes or drastically change the payment system.

“It’s not about changing technology but also changing the mindset,” he noted.

Customers are still very accustomed to certain perks they are enjoying with credit cards. If customers and merchants feel that they can gain the same benefits from mobile payments as they currently do with credit cards, maybe then change would happen.