The emergence of Apple Pay has led some technology early adopters to predict that mobile payments will dominate U.S. consumer spending in the next decade.
Yet the idea that most Americans will use a mobile wallet in 2025 is still a pipe dream, according to some expert analysis.
Forrester Research on Monday threw something of a wet blanket on mobile payment growth, calling it an "evolution — not a revolution," in a blog.
In a separate report for its clients, Forrester said that the $142 billion predicted for mobile payment spending in 2019 will be "just a drop in the ocean of total U.S. consumer spending." Forrester predicted that all forms of mobile spending — online, in-person and person-to-person — will total only 1% of the annual $16 trillion consumer payments in the U.S.
Forrester analyst Denee Carrington nonetheless put a positive spin on that "drop in the ocean," saying there is still "tremendous opportunity for mobile payment growth."
The $142 billion in mobile payments predicted in five years is nonetheless a huge increase over the $52 billion spent in 2014.
In-person mobile payments, including Apple Pay, when used with NFC terminals, is the smallest category of all mobile payments but has the greatest growth potential, with grocery stores, restaurants and fast-food chains taking the lead, Forrester said.
In-person mobile payments will grow from $4 billion in 2014 to $34 billion by 2019, Forrester said, an annual growth rate of 56%, which makes it the fastest-growing category of mobile payments. The biggest success story in this category is Starbucks, with 16% of its transactions via mobile, totaling nearly 7 million transactions per week.
Still, Carrington noted that "broad-scale merchant acceptance has been hampered by a highly fragmented market and solutions that delivered limited merchant value." In addition, consumers have shown "apathy toward most mobile payment solutions."
While 19% of U.S. adults who are online with a mobile phone or tablet are interested in using in-person mobile payments, only 6% have tried it, Forrester said.
Carrington noted that there is also a lack of widespread merchant adoption of in-store mobile payments. Even Apple Pay, which launched in the U.S. on Oct. 20 with 35 retail brands, so far works in only about 220,000 brick and mortar stores in the U.S., or 5% of all available stores.
While Apple Pay has ignited enthusiasm for mobile payments, there are other options, such as Softcard, PayPal, LevelUp and Square Order that have made "for a highly fragmented and confusing marketplace," Carrington said. The Merchant Customer Exchange of major retailers such as WalMart and Best Buy is also expected to introduce a "CurrentC" mobile payment app in 2015.
In addition to in-person payments, the other two categories of mobile payments will also grow by the end of 2019, but not as fast, Forrester said. Remote mobile payments, made over the Internet as an extension of e-commerce, will grow from $43 billion to $91 billion, while peer-to-peer mobile payments (sending money to another person via a mobile phone) will grow from $5 billion to $17 billion over the same period, Forrester said.
In a separate report, Carrington predicted Apple would push aggressively into the mobile payments market, but noted an area of weakness that could be exploited by Apple's competitors. "With Apple Pay, consumer data is not shared with the merchant," she noted. "This may impede a seamless data exchange between consumers and brands they trust to use their data to deliver greater value such as personalized service or better products or marketing."
Indeed, Apple has defended its privacy policies with Apple Pay, and has argued that consumers will put greater trust in Apple Pay because of that approach. Google has been criticized for not being clear over how the consumer data it gathered with its mobile payment app would be used. As a result, merchant acceptance wasn't good and Google Wallet, which was introduced more than three years ago, hasn't performed as expected.
In contrast to Apple Pay's approach of not sharing consumer data with merchants, Carrington noted, Starbucks has greatly benefited from its use of the Starbucks mobile prepaid card, which users load with cash from another source, such as a credit card.
The prepaid card is the only way to participate in the Starbucks loyalty program and is the only funding source that can be used in the Starbucks mobile app, which is read in stores via barcode scanners and not via near-field communication technology.
The Starbucks app automatically tracks spending and loyalty rewards earned and provides customer rewards redemptions (such as a free coffee on a user's birthday), automatic card reloads, music downloads and other offers.
"The mobile app enables Starbucks to capture richer customer insights and it benefits from the positive economics that accompany a closed-loop prepaid card," Carrington noted. "The Starbucks model of integrating loyalty and payments is one that many merchants aspire to successfully imitate."