Like most Americans, when Vanessa Hand Orellana makes purchases, she reaches for her old-fashioned wallet, which contains cash, credit cards and debit cards. However, she also makes payments for lunch, groceries and movies with her Apple and Samsung smartphones.
Orellana’s smartphones contain mobile-payment systems that are referred to as mobile wallets (also called digital or virtual wallets), which are mobile apps that link to her credit and debit cards. She accesses the desired app and passes the phone within an inch of a payment terminal. The digital wallet and terminal authenticate her payment information to complete the transaction instantaneously.
“I’ve used both Samsung Pay and Apple Pay, and both seem to work seamlessly,” Orellana says. “The biggest hurdle has been convincing the person behind the register that the transaction was legitimate, because a lot of people still don’t know about it.”
That’s changing. Accenture, which is a consulting company, reported in 2015 that the proportion of Americans who are aware of mobile payments increased about 10 percentage points since 2014, reaching 52 percent. Although cash and credit and debit cards still comprise the majority of payment methods, experts say the rapid rise in familiarity signals a shift, although no one with whom we spoke could say when, or whether, mobile payments will become dominant.
Experts say security worries that often are cited as a reason for slow adoption are misplaced—at least as far as transactions are concerned. Mobile-payment security, they say, is safer than is the outgoing method of payment—credit and debit cards that have a magnetic stripe—and similar to the chip cards that are replacing those cards.
MOVING UP. When it comes to convenience, mobile payments stack up against chip cards, which were introduced in October 2015 to provide superior authentication than what magnetic-stripe cards provide.
As anyone who used a chip card has noticed, chip cards take longer to process than do the conventional magnetic-stripe cards. The inconvenience that chip cards entail creates “a huge opening for mobile payments,” which are instantaneous, says James Angel, who is a finance professor at McDonough School of Business at Georgetown University.
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Angel, who works on Federal Reserve’s Faster Payment Task Force, says the move to chip cards is understandable to reduce fraud, but mobile wallets are as safe, and they’re more convenient. Over the course of a year, consumers will spend at least an hour more staring at a payment terminal than they did before, he says, because of the length of time that it takes for a chip-card transaction to process.
James Burroughs, who is a managing director of Accenture, says retailers will offer reward points or coupons to encourage consumers to test speedier mobile payments. Look no further than Starbucks, he says, which generated customer loyalty through its mobile-payment rewards program. Starbucks says 16 million customers use its app, which in 2015 was used in 21 percent of the company’s transactions.
Bryan Yeager, who is an analyst for eMarketer, which is a market-research company that focuses on digital commerce, says that at the end of 2015, at least 23 million Americans used mobile payments, which increased 41.4 percent from 2014. He expects that 2016 will see the number of smartphone users who opt for mobile payments reach 37.5 million, or 19 percent of smartphone users. By 2019, the number of mobile-payment users is expected to reach about 70 million, which is 31 percent of smartphone users, according to eMarketer.
In their annual Digital Money Index, which was published in January 2016, Citibank and Imperial College London affirmed that trend: The United States was third in the world in 2015 in the use of mobile payments, which is up from seventh in 2014.