January 24, 2011
Despite the hype about mobile payments, most consumers still aren't comfortable using smart phones to pay for things, according to new research from the Bank Administration Institute and Hitachi Consulting. That, however, could change, and change soon. The study also shows that debit remains consumers' preferred payment choice, though its future has question marks because of new regulations.
The sixth in a series that began in 1999, the newly released study is based on field research performed by Harris Interactive of a representative sample of 3,271 U.S. consumers who completed an online survey last July. Findings show consumers have some serious reservations when asked about mobile and contactless payments: 64% said "I don't think it's secure," 61% said they'd rather use other payment methods with which they were more comfortable; 46% said they only use their mobile devices for telephone calls or e-mail, and 32% agreed that "I don't see the value in using it for payments." Eleven percent of respondents feared overdrawing their accounts and 10% didn't think mobile or contactless payments were accepted in the stores where they shop.
Consumers indeed have worries about mobile and contactless payments, especially regarding security, Ajay Nagarkatte, managing director of research at the Chicago-based BAI, tells Digital Transactions News. "It's probably safe to say that there are some parallels to when debit cards were first introduced," he says, noting that consumers worried about everything from shoulder surfing for PINs to store clerks obtaining their card data when debit cards first came to the point of sale. "Obviously those challenges have gone by the wayside now," he says.
Nagarkatte and BAI colleague Dan Hough, director of strategic research, predict the current fears are going to abate quickly because of the increasing number of retailers adopting mobile payments and improved software applications for mobile banking, which can warm consumers up to mobile payments. Most recently, coffee giant Starbucks Corp. announced a big expansion of its mobile-payments initiative. Plus, younger consumers view mobile and contactless payments more favorably than their older peers, and other BAI research shows a statistically significant increase in consumers' usage of mobile banking, Hough says. "If that's an indication of future trends ... I would expect it is going to explode fairly soon," he says.
The payments study found that 5% of respondents had used a mobile device for payments in 2010; the question wasn't asked in the 2008 study. Some 11% had a contactless card or fob for payments in 2010, unchanged from 2008.
Debit cards retained their top position, used by 74% of respondents last year, the same as in 2008 but off from 83% in 2005. Credit card ownership slipped to 67% in 2010 from 71% in 2008 and is well below its 2005 peak of 89%. Some 59% of consumers had a checkbook in 2010, down from 69% in 2008 and 96% in 2005. Gift and prepaid card ownership came in at 33%, down slightly from 34% in 2008 but up from 26% in 2005.
Debit cards accounted for 42% of respondents' estimated in-store payment transactions in 2010, including cash, up from 37% in 2008. Some 19% were PIN-debit transactions compared with 20% in 2008, and 12% were signature debit, off from 17% in 2008. The 2010 study, however, for the first time asked about debit transactions that required no signature or PIN, and that subcategory came in at 11%.
The other in-store payment forms and respective transaction rates for 2010 and 2008 were: mobile payments, 1% (not asked in 2008); credit cards, 19%, 22%; cash, 26%, 29%; paper checks, 5%, 8%; and gift and prepaid cards, 7% and 4%.
BAI predicts high growth for prepaid cards as banks seek to serve consumers without checking accounts with reloadable cards that can take payroll and other types of funds, according to Nagarkatte. That growth is likely to come even with the new regulations on prepaid card fees, he adds. "There is an extremely high level of interest in this particular space because it appears to be growing fairly quickly and demand for that is fairly high," he says.
Despite its bad-debt troubles in recent years, credit cards could soon see a boost in transaction levels because banks are beginning to marry credit products with demand-deposit accounts, Nagarkatte says. Such products will mainly appeal to credit card users who pay their balances in full each month and will be aimed at transactions that otherwise would have gone to signature debit cards. Banks, especially big ones, are seeking new payment strategies because of looming regulation that could cut their debit interchange revenues by 70% or more.
In other findings, the study said 30% of consumers paid their monthly recurring bills at bank or credit-union Web sites in 2010, up from 18% in 2008. Twenty-seven percent paid recurring bills at billers' sites, up from 23% two years earlier.
The survey's margin of error was plus or minus 1.7% at the 95% confidence level. Study sponsors included First Data Corp., MasterCard Inc., U.S. Bancorp, Fidelity National Information Services Inc. (FIS) and Discover Financial Services' Pulse EFT network.
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