Global spending via mobile wallets is expected to increase by nearly 32 percent this year, reaching $1.35 trillion, according to a study from Juniper Research.
In the United States alone, the mobile payments market will more than triple in the next five years, from $80.7 billion in 2015 to $282.9 billion by 2021, representing a 20 percent compound annual growth rate, additional data from Forrester Research revealed.
In the new forecast, Forrester measures three types of mobile payments: mobile remote, mobile in-person, and peer-to-peer (P2P) payments. Of those, mobile in-person will increase the fastest, growing 6.8 times its size through 2021. Peer-to-peer payments will continue to have the smallest market share despite quadrupling during the next five years.
The surge is being driven largely by the integration of payments into mobile apps and web experiences, Forrester concluded.
Among the other factors influencing this increase is near-field communications (NFC), a technology that enables short-range communication between devices. Forrester’s study found that 50 percent of retailers had already implemented or were planning to implement NFC technology by the end of 2016, with an additional 22 percent planning to implement it in 2017.
Second, more merchants are allowing consumers to add cards to their virtual accounts, a practice that eliminates the need to enter payment credentials during mobile checkouts. According to the report, 49 percent of online adults in the United States are comfortable keeping cards on file with the retailers they frequent, up from 37 percent in 2015.
Finally, the research found that merchants are accepting a wider variety of third-party mobile wallets, often integrating these payment methods into their own apps.
The lines are blurring between in-store payment experiences and remote payment experiences, and retailers looking to implement mobile pay solutions need to be thinking about both, according to Brendan Miller, principal analyst serving e-business and channel strategy professionals at Forrester.
“Retailers should not be thinking in terms of just mobile payments, but rather digital wallets. Consumers are not looking for a better way to pay, but they are looking for better buying experiences. Digital wallets wrap payments and consumer convenience features, including offers, loyalty, order-ahead, security, and customer service, that cannot be achieved from just a card swipe or dip,” Miller says.
For consumers, the appeal and immediate value proposition is reducing the friction at checkout, Miller adds. “Digital wallets enable consumers to bypass all the checkout form fields on their mobile devices. This convenience factor alone has massive potential to increase conversions on the mobile web,” he says.
For retailers, though, the value proposition for in-store mobile payment is still developing. “Savvy retailers are looking at leveraging digital wallet functionality to bypass the checkout lane altogether with mobile scan-and-go technology, order and pay ahead, and pay with loyalty points features, which will allow them to ultimately deliver a more convenient, contextual, and personalized buying experience,” Miller says.
According to the Juniper study, China currently dominates mobile wallet usage due to the success of Alipay and WeChat, both of which have more than 400 million active users. China’s sharp increase in smartphone adoption and related surge in mobile commerce has also been a major factor in this phenomenon, according to Windsor Holden, head of forecasting and consultancy at Juniper. “Mobile rapidly became the primary means of Internet access in China, where fixed broadband penetration lags behind Western Europe and North America,” he says. “The key to [Alipay’s and WeChat’s] success has arguably been the way in which they have managed to digitize many aspects of payment beyond online purchase, including bill payment and money transfer.”
The United States will be a key battleground for mobile wallet technologies, according to Holden. In this country, contactless card ownership is still negligible, and consumer response to chip cards has been neutral at best, he points out.
“The beauty of contactless transactions is that they reduce friction at point of sale, and with no real competition from cards at present, Apple, Samsung, PayPal, and Google are seeding the market. For many U.S. consumers, their first contactless payment will occur via the smartphone,” Miller concludes.