If you’re a consumer who has tried to use Apple Pay at CVS, or a merchant who can’t decide which—if any—of the competing electronic payment systems to install, or a newbie to electronic payments facing a dizzying array of choices and technology, apps, and features, you know how bewildering the landscape is.
Or, you may be totally unaware any of this is even happening. In that case, you will soon enough.
The competing platforms have created a fragmented market for mobile and online payment systems, with consumers favoring some methods over others.
That leaves merchants whipsawed with the varying (and sometimes expensive) choices of whether to offer customers limited or multiple options on how to purchase their goods and services electronically. All this is happening after owners have been forced to replace the fast and familiar credit card swipe machines with more complex, time-consuming, and costly chip card readers.
The race for a place on consumers’ smartphones and on store counters by companies with products like Apple Pay, Google Wallet, Samsung Pay, Master Pass, Visa Checkout, Android Pay, Amazon Pay, Walmart Pay, PayPal, LevelUp, Square, CurrentC, and many others has created an incredibly disjointed market, especially for merchants trying to determine which systems to invest in.
“One size does not fit all,” said Debra Smith, director of deposits for Rockland Trust. “While ease of use, speed, and security are staples in choosing any technology, it is imperative that businesses understand their particular customers’ preferences when considering whether or not to adopt a digital payment strategy.”
For now, no one system really dominates, said Smith, though that could change. For example, some businesses did not jump on the Apple Pay bandwagon right away and waited to see if consumers would accept it, she said.
In that sense, the fractured landscape has put consumers in the driver’s seat, making their choices the determining factor in whether merchants will play along.
“I don’t believe there is going to be any one winner,” said Brendan Miller, an analyst with Forrester Research in Cambridge. “There will be multiple ways in which consumers will pay for their goods and services, and merchants will have to adjust accordingly.”
Miller estimates that U.S. consumers will increase their spending with mobile payments from $83 billion in 2016 to $142 billion by the end of 2019.
While buying goods and services online has been gaining wide acceptance—led primarily by PayPal—the road to mobile payment acceptance has been a somewhat bumptious one for both consumers and merchants.
Burgeoning credit card fraud in the U.S. sparked EMV, the technical standards authority made up of leading credit card companies, to play catch-up with European and Asian standards that require electronic chips on all cards to secure purchases. But retailers and banks squabbled over chip-and-signature vs. chip-and-password methods. Issuers mailed out new chip cards en masse but merchants had to upgrade their payment terminals with more expensive devices and some who have done so still haven’t activated the chip readers. Consumers, meanwhile, are annoyed by the increase in transaction times of the chip readers and, not surprisingly, have looked for other ways to complete electronic in-store payments.
Enter NFC, or near-field communications devices. Paying by phone or other in-person electronic means has been around for a while, but has actually been slow to find consumer acceptance.
“Consumers are finally beginning to turn to their smartphones when they need to pay merchants, billers, and other individuals,” said Forrester’s Miller. “New mobile payment systems like Android Pay and Apple Pay will make mobile payments safer and more convenient, which in turn will drive more consumer use.”
Apple Pay’s launch in the fall of 2014 ramped up efforts by a consortium of major merchants called Merchant Customer Exchange, or MCX, to introduce a competing system. Called CurrentC, the system was backed by Walmart, Best Buy, Target, CVS, 7-Eleven, and others that together accounted for more than one trillion dollars in annual sales. Many of those retailers disconnected their NFC-based payment systems to block Apple Pay because their exclusive contracts with MCX forbid supporting competing payment systems. That’s why Apple Pay won’t work at CVS.
But CurrentC, which was announced in 2012, still has not launched. Best Buy broke ranks and said it would start accepting Apple Pay, while both Walmart and Target said they would develop their own proprietary electronic wallets.
“It may be too late for MCX,” said Miller. “It’s probably not their fault. Having a consortium of so many retailers has got to be like herding cats.”
A spokesman for MCX, based in Waltham, said the consortium continues on course.
“MCX is currently conducting a beta for CurrentC in Columbus, Ohio, with the app available for use at nearly 200 locations there,” said the spokesman. “Our focus is on learning as much as possible to help us continue to enhance our platform for consumers.”
Meanwhile, mobile pay methods primarily designed for smaller merchants—like the Cambridge-based LevelUp, Square, and others—continue to make inroads with consumers and merchants who want to offer mobile payments now.
Along with convenience and speed, consumers want to be assured about security and many wrongly believe that the standard magnetic strip swipe method is safer and more reliable than paying with a communications device.
“People are used to handing over their credit cards that have information on an old magnetic strip, which is 70s technology,” said Forrester’s Miller. “It’s like listening to music on an 8-track.”
Phone systems, such as Android Pay and Apple Pay, are much more secure, Miller said, because they are utilizing tokenization, biometrics, and digital identity information that are far more sophisticated than the old magnetic strip.
“The merchant and the bank, and sometimes even the consumer, can’t access the personal information,” said Miller. “It’s that secure.”
Still, some merchants continue to require a signature or PIN with mobile transactions—steps the NFC payments were supposed to bypass—and some even ask to see the physical card or even a phone’s device ID number before completing the sale.
“None of that is supposed to happen,” said Miller. “You’re supposed to be able to wave and go. It shows that merchants are still catching up.”
When the dust settles and everyone is paying retailers through their phone, what’s next?
A Forrester research report titled, “How merchants should unlock more value from NFC payments in 2016,” authored by Miller last month, suggested that merchants:
Beyond this, he and other analysts believe the future for digital mobile payments lies in the Uber model.
“With Uber, your payment is made automatically so you don’t have to fiddle with paying when your ride is over,” Miller said. “It will be that way in stores. You’ll scan in your products yourself, the payment will be made, and you’ll go on your way. No checkout lines.”