Why the US lags behind China in mobile payment adoption, and how that might change
It’s easy to look at countries like China, Japan, and parts of the EU and wonder why the United States is so behind when it comes to mobile payment adoption. To examine the tepid mobile payment adoption in the US, we must first examine the factors that make each country’s situation unique.
In China and large swaths of Asia-Pacific, consumers have pretty much skipped over credit card culture. They went straight from using cash, into apps like WeChat and LINE, which offer simple payments in addition to messaging and socialization, making mobile payment friction a non-issue.
The US market is slowly adopting mobile payments (Apple Pay and PayPal are the most popular methods; Android Pay is catching up) with just 19.4% of US smartphone owners using mobile payments and mobile payment transactions reaching $112 billion by the end of 2016. Compared to China’s tripling in mobile transactions to more than $5.5 trillion over the same period, US mobile adoption is peanuts.
Why China leads
While the European Central bank’s support of NFC (near field communication) payments can largely be credited with popularity of mobile payments in the UK and Europe, China’s rise is directly correlated with the advent of cardless mobile wallets.
Behind China’s big numbers in mobile shopping is the pure buying power of hundreds of millions of consumers along with a rapidly evolving and increasingly trusted financial tech sector, and the simple fact that, in China, making payments on mobile is really the best option.
Mobile shopping and peer-to-peer lending are ubiquitous in China. Day-to-day purchases, the exchange of monetary gifts, and even more complex banking transactions, such as buying mutual funds, are all common mobile experiences. All that activity generates an enormous amount of data that payment companies and brands can leverage to create better and more effective products, shopping experiences, and payment processes. It’s a classic example of mobile data’s virtuous cycle.
Beyond this, broader economic realities reinforce mobile’s attractiveness for Chinese consumers. Paying online with debit cards in China is more complicated than what Westerners are used to, requiring multiple authentication layers, separate hardware like dongles, and specialized point-of-sale units. By comparison, buying through WeChat, for example, is as easy as a quick tap or scan of a QR code.
Behind this are the unique opportunities afforded to China as a so-called “late mover” in mobile payments, as explained in a June 2016 report from eMarketer, “…unlike the US and other regions, China does not have a strong, entrenched credit card culture. In effect, China has jumped directly from cash to mobile payments.”
Because of this, mobile payments leaped over the trust barrier very quickly and became an embedded part of Chinese culture. That’s a far cry from the reality of North American markets, where reliance on credit cards and a lingering distrust of financial providers are the norm.
Friction is as cultural as it is technical
There’s no question whether mobile and social evolutions drive experiences that afford Western shoppers more choices. Today, mobile shoppers can use any free moment to research a product, read reviews, place an order, track a package, or get customer support. While our behaviors and our ability to complete shopping-related tasks have certainly changed, our motivations as consumers remain much the same. This is the essence of slower adoption in the USA.
For one, Western consumers are committed to our credit cards—Americans, who prefer credit cards over both debit cards and cash, now owe more than $1 trillion on them. Though, perhaps if more people understood that Android Pay, for example, can act as a virtual extension of their credit cards, they would be more inclined to use mobile wallets.
The American consumer’s slow adoption of mobile payments might also be traced back to distrust due to some very public hacks, but there’s more to it than that. Many Americans find it easier to keep the status quo than to jump directly to mobile payments, as credit cards and cash provide a reasonably convenient and safe choice. In order for mobile payments to be widely adopted, they need to be multitudes more convenient than credit cards and cash, because consumers will not see the benefit of changing their shopping behaviors to save one or two seconds at the register.
Goldman Sachs declared in August 2017 that adoption of digital wallets by American consumers has been “underwhelming to date by nearly every objective standard.” But the prospects for mobile payments in the US aren’t all bad, as they provide notable benefits to consumers and companies. For companies, mobile payments increase user engagement, in-app spending, and reduce shopping cart abandonment. For consumers, mobile payments are more secure and convenient.
How the US can catch up
For astute developers that heed these trends, getting US consumers to adopt mobile payments is still possible. The solutions lie in these factors:
- Education: Banks need to make their customers understand that Apple Pay and Android Pay can act as an extension of the credit cards they already know and trust. Mobile payment platforms can also help with education to ease fears over security concerns.
- Ubiquity: In order for mobile payments to take off, the US needs to improve infrastructure. Stores must adopt NFC terminals en masse in order for mobile to truly thrive. Consumers should not have to think about what payment methods specific stores take during their checkout process. Further, mobile payment companies must make sure that mobile payment technology actually works 100% of the time.
- Creating value in the experience: When consumers value what they can do with mobile payments, adoption will accelerate and the technology will become commonplace. For many Americans, pulling out a credit card and signing a receipt is not enough of an inconvenience to adopt mobile payments. Instead, banks and mobile payment companies should push the security of mobile payments instead of convenience.
The tide is slowly turning for American mobile payment adoption. According to U.S. Bank, 47% of all American consumers prefer digital apps for making payments over cash. Tellingly, the number of those who favor mobile skew sharply by age, with 49% of millennials (ages 19-36) preferring mobile payments, as compared to just 32% of boomers (ages 53-71). Additionally, Americans are more likely to adopt mobile payments that are are backed by traditional banks (73%) and allow immediate access to funds (78%), according to the same survey.
Ultimately, American consumers may not adopt with the same level of voracity as their counterparts in China, but mobile payments will accelerate and scale in the US market in the coming months and years. We just need to keep engineering the friction out of the shopping experience and provide consumers an unequivocally better payment method than what currently exists.