The State of Mobile Pay and Why It Matters

The moment of transaction is critical for mobile experiences. Any technical or user experience issue has the opportunity to derail a sale. Fortunately, developers no longer need to roll their own payment solution, as a number of highly capable and trusted third-party services exist. Several recent acquisitions and partnerships have shaken up the mobile pay space, resulting in consolidation and competition between a few large competitors and a shift in how enterprises should approach mobile payment in the future.

Here are the key players in mobile pay today:

Apple Pay: Apple Pay was launched in 2014 as an iOS-based digital wallet and mobile payment system that allows users to make payments via their apple device, including contactless payments via NFC-enabled terminals. Apple says its mobile payment solution accounts for two of every three dollars spent on Visa, MasterCard, and American Express in the U.S. using contactless payments and that it’s adding more than 1 million new users per week. Apple Pay now works in more than 2 million locations in the United States. Additionally, a partnership with Sony will allow Apple Pay to be utilized in Japan, expanding its reach to nine total countries.

Piper Jaffray survey from earlier this year of more than 500 merchant processing channel partners revealed that as merchants integrate the use of mobile wallets in their stores, Apple Pay is the most requested at 67%. Android Pay was second at 18%, followed by PayPal at 8% and Samsung Pay at 7%. We should expect Apple to continue its momentum and dominance in the mobile pay market, buoyed by the popularity of iPhones and the iOS platform.

Android Pay: Launched in September 2015, Android Pay copies Apple in that it is a mobile payment system that makes credit card payments via near-field communication (NFC)-enabled point-of-sale terminals while also enabling easy and secure in-app-purchases. Android Pay is accepted at more than one million stores in the U.S. and has ties to select loyalty programs such as Walgreens Balance Rewards and Coke MyRewards. All major U.S. banks  support it, as do major credit cards MasterCard and Visa. It’s a perfectly capable system that just hasn’t seen the same traction as Apple Pay. The Android space is also more diverse, so Android Pay faces additional competition from ecosystem partners, such as…

Samsung Pay: Following its acquisition of LoopPay, Samsung launched Samsung Pay in mid-2015, putting it in direct competition with Android Pay on Samsung’s Android device line-up. With LoopPay technology, which emits a signal that mimics the magnetic stripe on a typical credit card, Samsung Pay enables mobile payments at nearly every point-of-sale system in the U.S. and is not limited to NFC terminals. This wide point-of-sale compatibility was the foundation of an aggressive consumer marketing push, which also included a Referral Rewards Program for consumers to earn points with every transaction to be exchanged for gift cards, Samsung products, and for merchandise with various U.S. retailers. Samsung occupies a proprietary niche within the broader Android footprint.

PayPal: PayPal has been busy positioning itself as a major player in all types of digital payments. In 2014, PayPal acquired payment processing startup Braintree and its digital wallet app Venmo, which provides a frictionless way for friends to make and share payments. In 2015, PayPal split from eBay and acquired digital money transfer provider and mobile wallet competitors Xoom and Paydiant. It also greatly expanded its merchant base. PayPal also formed a partnership with MasterCard in 2015 wherein PayPal cash can be used to purchase goods via MasterCard’s tap-and-pay feature. In 2016, PayPal formed a similar partnership with Visa. PayPal has released a strong showing in its 2016 third quarter results, with revenue increases of 18% and a subscriber base of 192 million worldwide, up 11%, with 1.5 billion transactions processed, $26 billion of which were in mobile pay, up 56%. Venmo in particular has shot up in popularity, processing $4.9 billion in payments, up 131% from the same quarter in 2015.

MasterPass: MasterPass is a digital wallet that enables customer purchases online, in-app, and in-store through a secure account. Launched in 2013 as an upgrade to PayPass Wallet Services, MasterPass works with MasterCard, American Express, Diner’s Club, Discover and Visa accounts. Customers create an account and load any participating credit or debit card, similar to setting up and using a PayPal account. MasterPass can be used at more than 5 million merchant locations in 77 countries that accept contactless payments.

Visa Checkout: Visa introduced the online Visa Checkout service in July 2014. Visa Checkout works with Visa, MasterCard, American Express or Discover credit or debit cards. Unlike MasterPass, Visa Checkout does not currently have point-of-sale compatibility, making it useful for in-app and web purchases only. Visa notes that more than 10 million Visa Checkout accounts have been created. Recently, Visa Checkout added the capability for users to swipe its Visa logo on a screen to begin the checkout process, after which they add their username and password to complete the checkout.

Paypal, MasterCard, and Visa are all names that consumers trust for secure payment. Each of these companies is trying to remain relevant as user expectations and technologies evolve.

What Does This Mean? The Future of Mobile Pay in Retail

Consolidation in mobile pay was bound to happen. The key players and platforms have emerged, at least for now.

From the perspective of software development, the question is what this means for enterprise mobile apps, especially those for retail brands that offer their own custom payment functionality tied to loyalty programs. Take Starbucks as an example. Starbucks has experienced incredible success tying its popular mobile app to its rewards and loyalty program.  Indeed, in the second quarter of its 2016 fiscal year ending March 27, 24% of Starbucks transactions in the US were made using mobile devices. Other retailers such as Dunkin Donuts, Taco Bell, and Walmart have pursued similar strategies.

However, given the shake up in the mobile pay marketplace, for most retailers we work with in the development of mobile apps, we recommend incorporating standard mobile payments into the purchase experience rather than producing a custom solution. Most people who are interested in using mobile pay at all will gravitate to one of the major players. As Apple Pay, Android Pay, Samsung Pay and PayPal / Venmo gain popularity, retailer-specific mobile payment solutions will be harder to justify. The simple reason for this is app fatigue. Recent research from Bain and Company found the average consumer is only willing to use between two and three payment apps on their mobile devices, after which they’d rather just swipe a credit card.

Ultimately, it comes down to removing friction from the pay experience. When customers get to the checkout page and see a familiar logo, they are more likely to complete the transaction, because A) they are more confident in transaction security, and B) they know they won’t have to enter all their information again. Most enterprises should offer Apple and Android Pay in their apps for each platform, and consider other options if their customer data suggests there will be demand for them. An “all of the above” approach risks a cluttered experience when the goal should be to streamline.

Regardless of the payment technologies chosen, there is still ample opportunity to make the purchase experience rewarding and use it to build customer loyalty. When we work with retail clients on mobile app strategy, we help them think of ways to integrate new payment options into existing products, allowing customers to use their app to reload their loyalty cards, pay off their brand-affiliated credit cards, or seamlessly purchase goods inside the app. By focusing on giving people the options they find most convenient, companies can increase customer satisfaction and drive revenue.