Tapping into the Future of Mobile Payments

Mobile payments have been gaining popularity, setting expectations for a bright future across the globe.

According to the Global Mobile Payment Market report, the market is projected to grow at an annual rate of 33% between 2019 and 2026, reaching $457 billion in 2026.

4 in 10 online adults used their phone to pay for an item or service last month – a figure that’s doubled in the last three years.

But why are these alternative payment methods so appealing?

As more people now have a mobile device (96%) than a bank account (89%), it’s no surprise we’re seeing such an uptake in usage.

On a micro level, mobile payments streamline the purchase experience, and thereby have the potential to boost both online and offline sales.

On a macro level, they’re one of the strongest ways to bring consumers without access to bank accounts or electronic payment systems into the financial ecosystem.

But how did this growing trend come about?

The dawn of digital payments

Digital payments have been on the scene for some time now, with one of the first instances as far back as 1997 when Coca-Cola introduced vending machines that allowed payment via text message.

2006 saw the launch of PayPal’s dedicated mobile payment service in the U.S. and the UK. Used by 13% of the global internet population, PayPal’s venture into a fully-fledged mobile payment service has established the brand as the top choice in 31 of our 45 tracked markets.

Its widespread adoption is largely a result of key competitor acquisitions like Verisign, Braintree, Venmo and Xoom, which helped solidify PayPal’s place as the market leader.

But more broadly, PayPal has contributed trust, awareness and familiarity among consumers and businesses alike in the digital payments realm.

However, the 2010 launch of mobile credit card manager, Square, followed by the digital wallet pioneer, Google Wallet, in 2011, truly introduced mobile payments to the wider market at scale.

The rising importance of mobile

Today, we use smartphones for an increasing array of activities in our daily lives – from playing games and watching movies to shopping and networking.

Ownership is close to universal (95%), and the number of consumers considering their mobile to be their key way of getting online has surged dramatically, having increased by 37 percentage points in the past three years to 71% today.

This ubiquity has had a clear impact on the commerce industry. 6 in 10 consumers have used their mobile for online shopping in the last month, while 4 in 10 used PCs or laptops. This has been a rapid development, as in Q2 2017 the smartphone was only starting to pull ahead of computers for online shopping.

It’s clear consumer mindsets are changing. Users’ appetite for convenience now overrides the skepticism associated with mobile security around personal financial information.

Mobile payments can thrive in mature economies

A regional perspective on mobile payments uptake provides a telling picture about the current state of the industry, and where it’s headed.

Asia Pacific is ahead of even its closest rival Latin America, while regions characterized by mature economies like Europe and North America lag behind. This is rooted in the differing financial infrastructures within both developing and developed markets.

For two countries sitting at the top for mobile payment adoption, Thailand (56%) and China (51%), credit and debit cards are more or less considered legacy payments today. But they never reached the same penetration rates in the first place compared to, for example, France where only 17% pay with their phone.

Fast-growth markets provide a fertile ground for mobile payments due to their rapid transition from cash-driven economies to digital payment hubs.

Europe and North America, on the other hand, have a higher representation of older consumers, who are less likely to be digitally savvy.

Early internet adoption in most markets here means these consumers have deeply entrenched habits, which increases friction in the adoption of digitally-forward trends, like card-less lifestyles.  

However, with a 123% growth over the course of three years, Europe shows there’s a ripe opportunity for mobile payments in the West too.

Denmark is the leader across all markets we track, with a 60% adoption rate, showing mobile payments aren’t solely the preserve of fast-growth economies.

Evidence for this are initiatives like the Second Payment Services Directive (PSD2) rolling out across the EU. Under ‘open banking’ EU, people have access to services via digital means and tools which essentially allows financial providers to innovate and go completely digital.

The reform will also bring about rapid growth by enabling new competitors to enter the market, potentially disrupting traditional banking.

What’s more, the potential in Europe has not gone unnoticed by foreign providers looking to expand in the West.

In its quest for Western expansion, Chinese provider Alipay, for example, plans to penetrate the UK market. By initially targeting Chinese tourists, while attracting the locals’ attention, Alipay sees the UK becoming one of its biggest international markets for mobile payments.

A trend going beyond consumer demand

Mobile payments are well-poised for further growth due to the benefits they provide increasingly gaining interest not only from consumers but also businesses, financial institutions and even governments.

More and more bodies are forming partnerships with mobile payment providers or developing their own services.

Recently, Apple and Goldman Sachs joined forces to create a credit card – a venture which will generate new revenue streams for both parties.

Apple will drive more usage of its digital wallet by introducing new features helping users to manage their finances easier and faster.

At the same time, Goldman Sachs benefits by extending its reach to consumer retail banking and collecting actionable data.

Meanwhile, nation states and central banks across the world (e.g. Indonesia and Mexico) use mobile payments to promote financial and commercial inclusion of previously under-served customers in remote areas.

These newly-connected cashless consumers carry enormous growth potential in developing economies, ultimately followed by increases in spending.

Drivers of further mobile payment growth

According to our research, smartwatch ownership has seen a substantial uptake in the past year.

12% of global online adults now have a smartwatch, jumping to 14% for millennials.

The growing consumer demand for smartwatches coupled with the increasing adoption of cashless transactions have contributed to the expansion of the wearable payment market.

The market is expected to grow at an annual rate of 15% from $312.4 billion in 2018 to $1,121.01 billion by 2026.

This trend extending beyond smartwatch devices shows its potential for mainstream adoption as the market matures. It has attracted the attention not only of financial bodies, but also traditional wearable manufacturers.

Providers like Tappy Technologies and Fidesmo, enable traditional watches to turn into fully-fledged payment devices, encouraging legacy watch brands like Timex to enter the thriving digital payment space as well.

Innovations in the mobile payments space are likely to continue as more countries worldwide develop single digital payments ecosystems. This holds large implications for driving growth in the fintech sector, with a high potential for disruption of traditional banking.