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Can Apple Resuscitate U.S. Mobile Payments?

This is the latest in LSA’s Skate To Where the Puck is Going series. Running semi-weekly, it examines the moves and motivations of tech giants as leading indicators for where markets are moving. Check out the entire series here.


Mobile payments have been one of the great disappointments of the smartphone era. Though they’ve gained some traction, they’re far behind expectations set in the circa-2012 hype cycle. They’ve become a classic “hammer in search of a nail,” seldom addressing true pain points… at least in the U.S.

The latest evidence comes from Bain Consulting which reports that major mobile payment apps have less than 10 percent adoption rates in the U.S., despite smartphone penetration of 81 percent. China, by comparison, has reached greater than 80 percent penetration for consumer mobile payments.

And the story is similar in several developing countries such as India and parts of Africa. In fact, the absence of established credit infrastructures in these countries has created fertile soil for mobile payment adoption. Legacy financial systems in the U.S. have conversely dampened hunger for alternatives.

That goes back to the hammer/nail analogy. The biggest value proposition for mobile payments in the U.S. has been to replace cash and credit cards for a lighter wallet. This is has been a product marketing fail as using cash or credit wasn’t a prevalent pain point, with the exception of millennials’ aversion to cash.

Besides having easy access to cash, debit and credit, no one in the U.S. was complaining about the atomic weight of thin plastic cards. And for the wallet replacement proposition to fly, you have to replace the entire wallet. most U.S. consumers still need to carry a driver’s license and other wallet-bourne fare.

Furthermore, the incremental benefit of mobile payments (tap versus swipe) isn’t enough of a jump in value to justify changing an entrenched habit. Beyond the inherent challenge in getting consumers to change any habit, we’re talking about a specific action that’s anchored in security and comfort levels.

Creating additional headwinds, U.S. consumers are loyal to their rewards programs. Whether it’s your Chase Saphire card, Southwest Rapid Rewards or any other rewards system, you’re either happy or locked in and invested in a point balance. Add it all up and there’s little motivation to adopt something new.

There’s a chance Apple Card could jumpstart that motivation. And that could be a sort of training wheels or gateway drug (as it’s likely intended) to use mobile Apple Pay at the point of sale. Apple’s Halo Effect has accomplished greater feats and the card itself is compelling as Neal Polacheck recently examined.

But the real strategy will have to shift from the hammer/nail approach to something that addresses real pain points. For U.S. consumers, that means money and time. The former could be accomplished with reward programs a la Apple Card. But the latter is where mobile payment providers should focus.

In fact, one of the most successful mobile payments plays in the U.S. is Starbucks. The reason people love it is that it lets them skip the line, thus saving time. It’s a tangible benefit to be able to order your coffee and egg-white sandwich in advance (though terribly overpriced) then breeze through to pick it up.

This is a winning formula for consumer tech. Uber, Slack, Tinder…. they all took existing behavior and removed friction. If anyone can strike that convenience note with mobile payments on a larger scale, it’s likely Apple. Apple Card has a sleek Apple-esque mobile front end for personal finance management.

As for what this means for SMBs? fortunately for them, laggard U.S. adoption has meant a reprieve from structural transformation. But that could unwind if Apple accelerates the path to greater U.S. mobile payments ubiquity. Consumer adoption will have to come first, in tandem with large retailer adoption.

Once a critical mass of consumer adoption is reached, behavior and expectations will cause a tipping point for SMBs’ imperative to adopt. That means POS overhauls and widescale implementation. It could take a while, but it’s a looming and still-unfulfilled opportunity for startups who can help SMBs get there.

Until then, just for fun, here are two LSA analysts batting around the topic on stage during a previous life

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