Between the switch to EMV in the United States, the success and failures of mobile payment apps from major corporations, and the debut of Walmart Pay, 2015 was a pivotal year for the payments industry. New innovations and technologies have led to a shift in consumer expectations when choosing payment providers.
With the rise of mobile payments, consumers are starting to look beyond payment transactions for more personalized payment experiences that offer incentives and convenience in exchange for their loyalty. As the digital payments evolution continues, payment providers will start to leverage mobile wallets as a way to enhance customer loyalty and add value and personalization for consumers. This will likely lead to a battle for the consumer wallet as more and more large brands come onboard with alternatives to traditional payment methods. With the rise of plastic and cash alternatives, we'll also see a reduction of cash in the market. Finally, as mobile payments catch on, we'll begin to see several more providers embracing tokenization as a way of increasing security and gaining consumer trust in the New Year.
Here are the major trends in payments and digital currency that will shape the market in 2016.
Battle for the Consumer Wallet
The launch of propriety payment systems like Walmart Pay will create a battle amongst retailers as they compete for the consumer wallet. Over the next year, we'll start to see more retailers encouraging customers to pay for purchases using a dedicated mobile app. However, because it’s not feasible for consumers to have a unique payment app for each store they shop at, not every retailer will find as much success with their app as Starbucks has, for example. Given this, the market will be fragmented for the next year or two, giving every retailer the chance to get a slice of the pie. Only time will tell who the winners and losers of the battle are.
Greater Security Built Into Mobile Payments
For any of these services to really take off, there needs to be advancements within security and privacy across all card networks. To address these issues, more platforms will start embracing tokenization, the process of replacing a traditional payment card primary account number (PAN) with a unique numeric digital token. This requires no critical financial information to be passed from consumer to merchant, therefore adding new layers of fraud protection and privacy to the mobile payments space. As more platforms embrace this new technology, the mobile payments space will become more secure and consumers will be more likely to participate in mobile commerce.
Overall Expansion Into Mobile Loyalty Offers
While better security will be necessary for the rise of mobile payments, consumers are also looking for more loyalty rewards. According to Accenture's 2015 North America Consumer Digital Payments Survey, 79 percent of users would make more mobile payments if offered discount pricing and/or coupons based on past purchasing behaviors. Additionally, 78 percent would increase usage if they received reward points.
Consumers’ interest in rewards presents a huge opportunity for mobile payment providers to not only offer incentives for adoption, but also to reinvent how they build and reward customer loyalty. In order to entice customers to download and continue using their apps, retailers must look beyond simply offering mobile payment solutions to providing value for customers. If brands can provide value to their customers by offering reward points and location-based discounts, then they might have a real shot at retaining customers and driving loyalty over the long term.
Early adopters of mobile payment systems like Wal-Mart, Dunkin Donuts and Starbucks have already figured this out. These brands recognize that loyalty and engagement must be tied into the app. If they only offered mobile payments, there would be no differentiator between other retailers’ apps and no reason for customers to use their mobile wallet over platforms like Apple Pay.
Cash Reduction in the Market
As a direct result of the increase in proprietary mobile wallets, 2016 will bring a reduction of cash in the market. This trend is also tied directly to the increase in availability of digital currencies, and the fact that services like Apple and Android Pay are going to make huge strides in the coming months. While companies like Apple and Android will work to engage consumers with convenience and ease of payments, retailers like Wal-Mart will entice customers through loyalty programs and personalized offers designed to deepen relationships.
Rise of P2P Payments
Over the past year, peer-to-peer (P2P) payment apps have shown a high level of adoption among consumers, which we’ve witnessed with services like Venmo and Chase QuickPay. With the speediness and convenience of these real-time transactions, there's no doubt that P2P payments could increase adoption of mobile payments. However, there's still a huge opportunity to introduce more of the population to this form of payment.
This trend will take off globally in 2016 as mobile wallet providers start to incorporate P2P payments into their current offerings. In addition to paying retailers via mobile apps, platforms such as Apple and Android Pay will start offering consumers the ability to send money to their friends and family using the same app, adding a whole new level of convenience.
It might be some time before mobile wallets and P2P payments become international, but this will be the year that regulators work to catch up on initiatives that address mobile and digital payments. While we're far from becoming a cashless society, we'll continue to see a steady increase of consumer awareness and adoption of mobile payment systems in 2016, with a focus on convenience, loyalty and security.
Laurence Cooke is the CEO and co-founder of nanoPay, a fully integrated loyalty and mobile payment platform.