Mobile Payment Adoptions Slows, But Loyalty Programs May Offer A Way Forward

Editors note: This is the free edition of Payments Insider, a briefing on all things payments produced by BI Intelligence.

Click here to subscribe to Payments Insider and receive it in your inbox everyday.

U.S. CONSUMERS UNDECIDED ON MOBILE PAYMENTS TECH: Last week we reported on a new survey from IDC Financial Insights showing mobile payments adoption growth has begun to slow in the U.S. We have now seen the survey in full. Here are the key takeaways:

- Consumers are undecided on their favored mobile payment method for point-of-sale transactions. Consumer interest is split in roughly equal shares between native apps, mobile browsers, contactless payments (like those powered by near-field communications, or NFC), and SMS text messages. Mobile payment providers are wise to spread their bets until a clear technology winner emerges.

- Growth in mobile payment adoption has slowed to a crawl. Thirty-seven percent of U.S. consumers reported using a mobile payment method of some kind last year, including both mobile commerce and point-of-sale purchases. That means there was only a three percentage point increase in adoption in 2013, compared to a 14.6 percentage point increase in 2012. Signs are mounting that early adopters' enthusiasm for mobile payments has been tapped, and that deeper market penetration will hinge on concrete consumer benefits.

- "Zero friction" is the favorite industry mantra for success in payments, but it may be overemphasized as a way to fuel adoption. Of course, mobile wallets have to be convenient and easy to use. But several studies point to consumer enthusiasm for a more old-fashioned feature: rewards and loyalty programs. The IDC survey found that a full three-quarters of consumers say rewards play some role in their selection of payments methods, a message echoed in studies last year from McKinsey and Accenture.

PAYPAL AND QIKSERVE PARTNER FOR RESTAURANT ORDERING: UK-based Qikserve announced that its mobile ordering app can now be integrated into the PayPal app to allow customers to make PayPal payments at restaurants and other hospitality businesses, according to a blog post from the company. "Nobody likes queuing for a drink at the pub or waiting for the bill to arrive - especially when it's crowded. Our collaboration with QikServe ... can reduce customer waiting times and enhance their overall experience ... simply by using their smartphones," says Rob Harper, head of retail services at PayPal UK. In a recent chart we showed that restaurants are quickly adopting mobile technology and that apps like Qikserve could eventually eventually reduce the need for legacy payment terminals.

PAYPAL PILOTS 'WEARABLE WALLET': PayPal is using the coffee shop located on its corporate campus as a test environment for a new payment method that uses beacons and wearable devices. The beacon detects when a customer enters the store, sending a push notification to the person's device (PayPal is only using Samsung devices for the test). The customer is then checked in and can tap their smartwatch to buy their coffee or redeem an offer. PayPal says it's a natural progression in beacon-enabled payments.

A post from PayPal President David Marcus said the campus coffee shop where the new technology was being tested was a Starbucks, which created confusion over whether Starbucks might have been involved in PayPal's wearable wallet initiative. We reached out to PayPal and a spokesman confirmed there is no partnership, and that the on-campus coffee shop just happens to sell Starbucks-brand coffee. PayPal also edited the blog post.

QUOTE OF THE DAY - Starbucks CEO Howard Schultz speaking about the company's success with mobile payments during the earnings call last week: "We've been approached by tech companies and national retailers as to whether or not we would consider licensing or white-labeling the Starbucks' mobile platform. Most of the national retailers did not invest ahead of the growth curve. They do not have the capability in-house at this point to really execute this and to fully understand it. Tech companies themselves obviously have the tech background [but] they do not have the interface on the physical side with the consumer to execute it. So we are in a very unique position having kind of solved, [the] chicken and egg problem of both, the digital technology and obviously the interface with the consumer."

CUSTOMERS LESS POSITIVE ON RETAIL BANKING. Globally, the retail banking experience is getting worse for the first time in three years, according to a new report from Capgemini. A quarter of the 32 countries surveyed showed a decrease in positive customer experience. One explanation for the decline is the growing base of younger customers which reported less positive experiences than others as a group. Retail banks will have to begin to cater to Generation Y, in which there is a high demand for mobile banking solutions, if they want to retain existing customers and acquire new ones.

BANKS ARE USING FACEBOOK TO TARGET CUSTOMERS: A number of financial institutions including U.S. Bank are using anonymized data provided by Facebook to learn about potential customers and develop offers to target them, according to American Banker. One unnamed financial institution used data from Facebook to develop a new credit card, for example. The theory behind this new approach to developing payment and banking products is that people are honest on social media and so the data collected from social media sites is reliable.

The full version of this briefing is available to BI Intelligence members. Sign up for a free trial here.

Here's what else BI Intelligence members are reading...