Why We Are Still Reaching for Wallets, Not Phones, at the Checkout

Mobile Payment
By Peter Eavis. 

Sammy Yuen, a graphic designer who lives on the Upper West Side of Manhattan, was standing in line at Whole Foods Market one morning waiting to pay. He used the Starbucks app on his phone to order coffee in advance and then bought his Whole Foods items with Apple Pay by holding the phone in front of the register.

Using his phone in these ways has become a routine for Mr. Yuen. “Wherever I can use it, I do use it,” he said.

But Mr. Yuen is very much the exception.

Banks, technology companies and retailers are spending large sums to build systems and apps so that people can pay for items with their phones in stores, where most retail spending still takes place. The hope is that phones will make payments more efficient and give banks and retailers new data on their customers’ shopping habits. Phone and software makers, including Apple, Google and Samsung, are getting involved in mobile payments to make their products more useful and attractive to their owners.

Behind all this is the belief that consumers will discover the benefits of paying with their phones — and then use them more often as a payment method.

Yet this is happening slowly.

A tiny percentage of in-store sales are made with phones. In the United States, an estimated $8.7 billion in purchases were made with phones in 2015, according to a survey by eMarketer, a research firm. That is a mere 0.2 percent of the estimated $4.35 trillion of in-store sales last year. Excluding purchases made with a wildly popular app by Starbucks, the amount of mobile payments would most likely be well below that $8.7 billion, payment industry experts say.

Other customers coming out of Whole Foods that morning gave several reasons for not paying with their phones. Most were concerned about the security of the transactions — or of losing their phones and having other people get access to their financial data.

They also doubted phones were much faster than credit or debit cards. Even Mr. Yuen said, “I still think that swiping is faster.”

And people who activate a payment method like Apple Pay may not use it much. Only 15 percent of people who had tried it said they used the service more than once a month, according to a surveyin January by First Annapolis, an electronic payments consulting and research firm.

Apple said the usage of Apple Pay accelerated significantly in the second half of 2015, compared with the first half of that year. The company did not define how it was measuring usage.

Large numbers of consumers don’t appear to be making frequent use of the other payment apps, either. Part of the problem may be that many apps are simultaneously vying for consumers’ attention, keeping one from becoming dominant, at least for now.

Confronted by the low enthusiasm for mobile payments, companies are looking for ways to generate some excitement.

Samsung has taken a technological step that substantially increases the number of places where its service, Samsung Pay, can be used. Many phone payment methods require the technology near-field communication. But it does not exist on older payment terminals that read a card’s magnetic strip. Samsung Pay, however, can be used on both types of terminals. Rival mobile payment services from Apple and Android do not work on the older technology.

As a result, Samsung Pay can be used in more places, according to Thomas Ko, Samsung Pay’s global co-general manager. “Truly, you don’t have to carry your wallet anymore,” he said.

But that advantage may not last, as the number of near-field communication terminals grows.

Companies might also try to increase adoption by underscoring the ways in which paying by phone can be more secure than using a card. Thumbprint authentication and passcodes can make it almost impossible for a thief to use a stolen phone to pay for something.

By contrast, a stolen credit card, or information from the card, can be easily misused until the theft is suspected or reported.

Services like Android Pay, Apple Pay and Samsung Pay use technology that allows the phone to make a credit card payment without transmitting the card’s details into the store’s payment system. This makes such services safer than, say, a card swipe, in which the card’s number enters the store’s systems and can be vulnerable to hackers.

But because card users generally do not have to pay fraudulent charges, the more secure nature of phones may not ultimately be the big draw that leads consumers to use them more for payments.

Another way to increase use might be to make paying with a phone far quicker than using a card. Services like Apple Pay are designed to be fast. But at some stores, the customer still has to sign when using such services. And even when that isn’t the case, taking out a phone and making a payment is probably not that much faster than using a card.

Many payments specialists say they believe that for mobile payments systems to take off, they have to reduce costs for retailers. Seeing the savings, retailers may then offer their customers benefits for using their phones to pay, like rewards programs. Such a program has been one reason for the runaway popularity of the Starbucks payment app. And once consumers see real benefits from paying with their phones, they may finally turn to their phones a lot more at the checkout.

That is why many payments experts are waiting to see what happens with JPMorgan Chase’s digital wallet, called Chase Pay, which the bank aims to offer this year. JPMorgan has payments relationships with a wide range of merchants, which, the bank hopes, will give Chase Pay critical mass with both retailers and customers.

Still, shoppers’ infrequent use of mobile payments does not bode well. Credit and debit cards have drawbacks, but are easy to carry and generally quick to use. What’s more, they don’t have batteries that run out during a shopping trip. “What happens if my phone dies?” said Tyriek Good, a resident of Harlem, as he came out of Whole Foods last month. “I don’t want to get used to this.”

Correction: April 6, 2016
An earlier version of this article misstated the technology used by older payment terminals. Older terminals used magnetic strip readers, not magnetic secure transmission, which is recent technology that allows Samsung Pay to work with older payment terminals.

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