Contactless and Mobile

This month Google released its newest version of Android, Marshmallow, featuring one touch in-app and fingerprint authorised contactless payments.

Here in the UK we’ve not long had Apple Pay, originally released in 2014 and there is also competition from Samsung Pay and Barclaycard bPay vying for the same space. The challenge that each of these faces here in the UK is that consumers have already enthusiastically adopted contactless payments without their phones.

UK Banks have a good track record on payments innovation. We’ve moved from cash and cheques to ATMs and Debit Cards (Barclays being first to market with both innovations); and from magnetic strip cards to Chip & PIN. Now use of contactless is rapidly growing in popularity. As of June 2015 they accounted for 8% of total credit and debit transactions but this has grown 240% year on year. As the number of contactless cards and merchant terminals have grown year on year (up 43% and 35% respectively), it’s a simple story of more customers able to make contactless payments on more occasions. Consumers clearly appreciate the simplicity and convenience and as more merchants adopt contactless (Sainsbury’s has recently announced it will roll them out from 2016) and the limit on transactions is lifted from £20 to £30, this number will continue to grow.

So, back to the place for mobiles in all of this; device manufacturers will hope users see this as another piece of functionality that migrates an old clunky task or habit to something quick, easy and sleek wrapped up in one’s omnipresent phone but what does it offer the user?

The use cases communicated are nice to have but not that strong:

1 / You can leave your wallet at home or don’t have to get it out if you’re phone is easier to reach. It seems unlikely people will abandon their wallets given the limit on transaction value; the cash limit in the UK has recently risen to £30 per transaction and one could envisage the fingerprint authentication offered by a smartphone leading to this cap being raised significantly or removed but this is not currently on the horizon.

2 / For smart-watch owners it’s stronger as it will be on your wrist but we’re yet to see mass adoption these devices. A pay device on one’s wrist is probably not a strong enough benefit to convert more consumers to owning a smart-watch for those who have not already converted.

3 / One click payments for m-commerce. Although not relevant to contactless physical payments, this offers the consumer a one-click in-app checkout. This is great for infrequently used retailers where card details aren’t stored and probably the strongest case for signing up and registering cards.

The challenge in the UK is getting people to change from a popular payment method; this change requires a degree of effort as consumers will have to add cards to their mobile wallet. You may question if this minimal effort constitutes a barrier but then using a contactless card requires none to set up and make your first payment. For device and O/S manufacturers, it’s not so much the effort but the limited incentive offered that makes a switch in behaviour less likely.