Forecast: US mobile contactless payments to reach $79bn in 2019
May 29 2019
by Jordan McKee
The push for mobile contactless payment adoption in the US has been a decade-long journey entailing a multibillion-dollar investment in wallet development, POS hardware and consumer marketing. To date, the results have been underwhelming, with payment methods like Apple Pay and Google Pay accounting for just 1.6% ($78.6bn) of US brick-and-mortar retail sales this year.
451 Research's Global Unified Commerce Forecast projects B2C purchase volume by sales channel over a five-year period across 63 individual countries. In this report, we focus on key US contactless mobile payments insight from the forecast for 2019, complemented by recent findings from our upcoming 2H 2018 Representative Survey.
The 451 Take
Consumer payment habits die hard, and without a measurably better value proposition, habitual behaviors like reaching for a card from a leather wallet will beat out mobile alternatives every time. Despite the challenges, we remain optimistic about the long-term mobile contactless payments opportunity in the US. As contactless acceptance in friction-prone areas like transit, parking and ticketing grows, we expect more consumers to form muscle memory around reaching for their smartphones to complete transactions. This should help to catalyze merchant activity for contactless loyalty and couponing as more of their customers begin tapping to pay, serving to enhance the overall value proposition for contactless wallets.
Mobile payments remain a small but growing component of in-store retail sales
According to our Global Unified Commerce Forecast, US brick-and-mortar retail sales will reach $4.8 trillion in 2019, up from $4.7 trillion in 2018. Despite the market hype about emerging payment methods, traditional tender types like cash and plastic cards compose the overwhelming majority of this volume. In fact, mobile contactless payment methods like Apple Pay and Google Pay will account for just 1.6% of US brick-and-mortar retail sales this year, reaching $78.6bn in total transaction volume.
While volume remains modest, mobile contactless payments are growing quickly, exhibiting a 28% CAGR from 2019-2022. This growth rate exceeds that of even e-commerce and m-commerce during this period. By 2022, we anticipate mobile contactless payments will rise to 4.1% of overall US in-store retail sales. Still, this is a drop in the ocean compared with overall in-store transaction volume.
Figure 1: Contactless mobile payments
451 Research Global Unified Commerce Forecast, 2018
The reasons mobile contactless payments have yet to become a breakout success are many:
Lack of a measurably better value proposition than plastic cards. Currently, contactless wallets are solving for a problem most people don't have – issues using traditional payment methods at the point of sale (POS). Plastic credit and debit cards aren't broken, and while it can be argued that contactless wallets are slightly faster than an EMV transaction, it's not enough to move the adoption needle for the average consumer. According to our 2H 2018 Representative Survey, the top two reasons consumers aren't using mobile payments are 'a preference for using traditional payment methods' and 'no need/not interested,' which together are cited by 50% of nonusers. Until wallets become a noticeably better way to pay than what already exists, take-up will struggle to cross the chasm from early adopters to mainstream consumers.
Limited merchant buy-in for value-added services. The acceptance network for contactless mobile payments in the US continues to grow, in large part thanks to the transition to EMV that began in 2015. Today, more than 60% of Visa's US transactions occur at a contactless-enabled merchant location, and 80 out of Visa's top 100 merchants by transactions in the US currently offer customers the ability to 'tap to pay' at checkout. While acceptance is growing, merchants have been slow to implement value-added-services capabilities offered by the like of Apple Pay and Google Pay, which enable single-tap redemption of loyalty and rewards during a contactless transaction. This requires both software updates to the POS terminal and mobile development work, which merchants have not prioritized, largely due to the relatively low usage of contactless mobile payments among their customers. Our survey reveals that the ability to 'receive discounted offers on products/services' is enough to encourage nearly one in three non-digital-wallet users to adopt.
Security misconceptions. Since 451 Research began tracking consumer mobile payment sentiments nearly a decade ago, security concerns have continuously registered as a top factor throttling adoption. Just one in four consumers believe that digital wallet transactions are very secure, and little more than one in three think they are more secure than traditional credit cards. Furthermore, 'security against fraud that is better than traditional payment cards' ranks as the top reason cited by nonusers that would encourage them to use a digital wallet. This is somewhat perplexing, given wallets like Apple Pay bring to the table technologies including biometrics and payment tokenization that significantly enhance their security compared with plastic cards. The onus is on all value chain participants – including wallet providers, card issuers and payment networks – to enhance consumer education and dispel lingering misconceptions.
Despite the slow start, we remain optimistic about the long-term prospects for contactless mobile payments in the US. For one, the enabling infrastructure, which was arguably the biggest challenge for the industry up until now, has finally fallen into place. Our consumer research shows that 94% of US iPhone owners have an Apple Pay-compatible device, and Visa data shows the majority of US card volume is now flowing through contactless-enabled POS terminals. With a foundation for growth in place, the focus must now shift from enablement to value.
The migration of major transit systems, including New York's MTA and Boston's MBTA, to open-loop contactless ticketing will be an important inflection point for contactless payments. Instead of having to guess transit-card balances and wait to load funds at outdated machines located in metro stations, many consumers will soon be able to utilize a credit or debit card linked to their contactless wallet to move through the turnstiles. This is already a reality in Portland, Oregon, and Chicago. Transit is an important use case because it elevates mobile as a superior way to pay by minimizing friction, and it is a high-frequency, habit-forming activity that may encourage consumers to use their wallets at different types of merchants.
We are also encouraged by the work Apple is doing to expand use cases for near field communication (NFC) beyond payments. For instance, Apple has partnered with Ticketmaster on contactless ticketing and PayByPhone for parking to eliminate the need to enroll in an app. Furthermore, it is engaging merchants like Dairy Queen and Caribou Coffee on NFC tags that streamline signup for their loyalty programs. These types of nonpayment use cases are important developments that enhance the overall value of contactless mobile wallets and increase consumer comfort with NFC technology.