It's Time to Face the Facts: Mobile Wallet Usage Rates Are Laughably Low

By Matthew Cochrane Markets Fool.com

In March, PYMNTS.com released a startling study about consumer habits and the use -- or lack thereof -- of mobile wallets to facilitate point-of-sale (POS) transactions. According to the study, which specifically looked at the usage rates of Apple's (NASDAQ: AAPL) Apple Pay, Samsung's Samsung Pay, Wal-Mart's (NYSE: WMT) Walmart Pay, and Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) Android Pay, less than 5% of the customers with the capability to use these mobile wallets did so, even when the merchants where the purchases were being made accepted that form of payment.

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All of the reported stats from the survey revealed strengths and weaknesses for each of these players. Apple Pay had the most respondents who had utilized the service at least once (22%). Samsung Pay (15%) and Android Pay (10%) notched fewer consumers trying their services.

Samsung Pay had the highest usage (4.5%), which is, again, only tracked when the consumer with the right phone and/or operating system made a purchase at a merchant who supported that method of payment. According to PYMNTS.com, the usage rate for Samsung Pay has been relatively constant for 1.5 years. Apple Pay had the second-highest usage (4%) while Android Pay lagged far behind with a mere 1.1% usage rate.

Walmart Pay was launched less than a year ago, making it far younger than the other players examined. Yet 3.3% of consumers have Walmart Pay installed on their phone, according to PYMNTS.com.

Image source: Wal-Mart Stores Inc.

What are the players doing to drive mobile wallet usage?

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Each of these companies seems to have a different strategy for boosting their mobile wallet engagement. Apple has been focused on opening new markets and points of acceptance for Apple Pay. In the company's 2017 second-quarter conference call, CEO Tim Cook welcomed the Taiwan and Ireland markets to Apple Pay, bringing the total number of global markets accepting the mobile wallet to 15. Apple Pay now has more than 20 million retail locations that accept it as a method of payment.

Image source: Apple Inc.

During the same conference call, Cook stated transaction volume for Apple Pay had increased 450% over the past year, proving that this strategy has shown some measure of success. While the usage rate remains dismally low, this plan at least addresses one of the primary shortcomings holding mobile wallet usage back, according to the study. A great deal of confusion still exists regarding which retailers support these mobile wallet platforms. According to the survey, 21.6% of customers with an iPhone didn't use it to make a transaction because the retailer didn't accept it or they didn't know whether it did.

Wal-Mart does not face these same issues. Since June 2016, when Walmart Pay was expanded to all domestic Wal-Mart locations, American consumers have known that the wallet would be accepted while they were shopping at one of the stores.

However, the giant retailer faces another challenge with its customer base. Fully 55.8% of Wal-Mart customers in the survey either wanted to use cash, were not comfortable with the platform, or simply flat out stated they didn't want to use a mobile payment method. Educational and promotional material inside the stores might go a long way toward easing the concerns of these customers.

Android Pay recently entered into a partnership with PayPal Holdings Inc (NASDAQ: PYPL) in hopes of encouraging user engagement. This agreement allows Android Pay users to link their PayPal accounts to Android Pay, allowing PayPal's 203 million active account holders to make purchases both in-app and at the point-of-sale with their PayPal accounts via Android Pay.

What's holding mobile wallets back?

These efforts might encourage some user growth and increase engagement with the platforms to some extent, but PYMNTS.com CEO Karen Webster believes they miss the larger point. In the press release accompanying the study, she was quoted as saying, "The lesson, though, isn't that wallets are dead but that the providers, and innovators, really need to focus on features -- or something -- that will get consumers, and merchants, excited."

Webster might have a point. For every mobile wallet included in the survey, a double-digit percentage of those surveyed said they preferred to use a different payment method because the other payment method offered rewards or points.

Another thing holding these wallets back are the very real physical limitations they all face. Each of them require a particular type of phone, operating system, or store (in the case of Walmart Pay) to work. Interestingly, PayPal was not included in the survey because its partnerships with Discover, Mastercard, and Visaare still relatively new. However, these partnerships allow PayPal to be accepted at physical retail locations using these payment networks' tokenization services.

Once these partnerships begin manifesting themselves into specific banking institutions (and they already have) PayPal's app might well become the digital wallet of choice because it won't be hampered by the same operating system or phone manufacturer restrictions these other mobile wallets face.

Customers can now order pizza from Domino's by tweeting an emoji or through Facebook Messenger. Image source: Domino's Pizza, Inc.

Another interesting development has been the onslaught of different retailers' mobile apps. For instance, Starbuckscustomerscan now use the coffee house's app to order their favorite caffeinated beverage while they're still miles away. Upon arrival, customers can pop in, grab their drink, and rush back out. Pizza lovers can order pizzas using their phones by tweeting pizza emojis or tapping one button on Domino's Pizza'sapp. These and other merchants' proprietary apps have surely stolen at least some of the mobile wallets' thunder.

The big takeaway

There can be little doubt that the world of payments and commerce are undergoing a seismic shift, the likes of which has probably not been seen since those little plastic rectangles were first introduced to our wallets decades ago. This change can be hard to categorize at times as the boundaries between digital commerce and traditional sales at brick-and-mortar retailers are increasingly blurred.

Mass innovation can sometimes seem maddeningly deliberate as consumer habits can be slow to change. Yet, as time marches on, consumer trust in new technology tends to increase. While it might not take the shape we originally envisioned, phones will almost undoubtedly be used more to pay for purchases. Whether that's through retailers' own apps, as in the cases of Domino's and Starbucks, or through mobile wallets remains to be seen. What is clear thus far is that Alphabet's, Apple's, Samsung's, and Wal-Mart's mobile wallet efforts are not enough to ensure their future success.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Matthew Cochrane owns shares of Alphabet (A shares), Mastercard, and PayPal Holdings. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Mastercard, PayPal Holdings, Starbucks, and Visa. The Motley Fool has a disclosure policy.