Proximity Mobile Payments – Finally getting it Right in the US
May 16, 2016
Challenges Temper Initial Adoption
Mobile proximity payments, in which the mobile device can be used to pay for goods and services purchased (in-store?) at retail locations is not a new service. A combination of short range wireless communication technologies, cloud-services, security mechanisms, and POS acceptance technologies are used to support proximity mobile payments. However, challenges such as retail point-of-sale (POS) technology compatibility issues, limited handset support, lack of participation by retailers, and a disjointed consumer experience have tempered traction in the US. However, all that is set to change.
Two Distinct Approaches
In the US, the two leading approaches for proximity mobile payments include: 1) payments that are supported by on-device credential storage on a secure element (SE), and 2) cloud-based mobile payments with Host Card Emulation (HCE) and Tokenization. These two distinct implementation types may share common elements such as Near Field Communications (NFC), and authorization mechanisms such as fingerprint scanning.
Aggressive Growth Opportunity
Frost & Sullivan believes that the US proximity mobile payments market is all set to grow at an extremely aggressive pace. The key drivers for this growth include:
- Introduction of mobile payments solutions by leading device and OS providers
- Increasing penetration of advanced devices that support mobile payments
- Migration to the EMV standard
- Strong support of leading payment networks and merchant acquirers
- Increasing familiarity levels with mobile payments
Frost & Sullivan anticipates that more than 80 percent of smartphones will support contactless mobile payments by the year 2020 in the US. By introducing technology platforms that can be used by other ecosystem participants to execute on their digital payments strategy, the payment networks have also played an important role in driving adoption of new, standards-based payment technologies. Consumers are increasingly becoming familiar – and comfortable – with using their mobile devices for payments, which is a growth driver as well.
Usage Trends & Conclusion
In the early stages, consumers may not purchase big-ticket items by using proximity mobile payments. However, there will likely be a steady increase in the average transaction amount for proximity mobile payments in the next few years, which will drive the expected spending to the tune of hundreds of billions of dollars in retail payments from mobile devices. Eventually, there may be no difference between the trends in usage (frequency as well as the average transaction size) between mobile and plastic cards-based payments. Proximity mobile payment mechanisms enable consumers to leverage existing financial relationships to make payments at retail stores. Therefore, the growth in proximity mobile payment transactions could lead to a decline in plastic cards-based retail payment transactions. Overall, these are extremely exciting times for mobile payments in the US. To learn more about the dynamics of the US proximity mobile payments market, please read the Frost & Sullivan report “An Insight into the US Mobile Payments Market”.
Fourteen years of product marketing, research, and consulting expertise, which includes supporting clients’ needs through more than 140 syndicated market research deliverables and consulting assignments. Particular expertise in Assessing next-generation telecommunications trends, technologies and market dynamics; Helping clients develop and execute their go-to-market strategies; Providing continuous inputs to clients into new market developments and helping them understand the strategic implications.