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Tipping the Balance Part 2: Consumer Behavior and Mobile Payments

AcxiomSeptember 28, 2015

There is a statistic that should be troubling for those who believe mobile payments will have a quick uptake. Of the 48% of people who tried Apply Pay in March 2015, only 33% were still using it 90 days later[i]. That statistic led me to begin a personal experiment in my last post to understand why that could happen. In my case, the reasons for shifting to mobile payments were there – all the inconveniences associated with carrying far too many cards – whether payment or loyalty. Then I described my painful early trials with Google Wallet and PayPal, and concluded that the way people use money is a very emotional thing, despite many people considering money-related behaviors as being fairly rational. To expect a consumer, or consumers in general, to change such an emotionally-laden, repetitive behavior quickly is unrealistic – especially one that  is so engrained that there must be a pathway in the brain dedicated to the reach back, pull out wallet, pull out card, swipe card, replace card in wallet, and put wallet back in pocket. Any alternative has to offer real immediate benefits and a seamless experience. Seamless means easy to use securely, with any payment card, and accepted at a sufficient number of merchants that I wean myself away from my old, deeply entrained behavior.

Enter LoopPay (Samsung bought LoopPay in 2014). LoopPay is based on existing magnetic stripe technology (MST), not contactless NFC. To a card reader it looks like any credit or debit card. But instead of putting the card into the reader, you just hold the LoopPay device – which sits in a case around your mobile phone – over the reader. Theoretically, LoopPay should work anywhere there is a mag strip reader. The question was: would it?

The simple answer – and there are definitely considerations beyond the simple answer – is yes. 95% of the time, LoopPay worked. Anywhere I went, whether using my Capital One Venture Card, my American Express Platinum Card, or private label cards like Macy’s, Best Buy or Target, I pulled out the phone, pressed the button on the LoopPay fob and got a “transaction processing” message. Yes, it worked better on some readers than others. But the only time it did not work was with mag stripe readers built into cash registers. Airport merchants commonly use those, so LoopPay did not work well in a very important mobile venue – travel. Apart from that, it was easy, efficient, and almost seamless. As an added benefit, I became the “cool kid on the block” whenever the cashier said “we aren’t set up for Apple Pay” even as the mag stripe reader beeped and took the transaction. I got a look of awe every time.

I also came to appreciate this particular mobile wallet because it handled other types of cards. It allowed me to quickly add 30 loyalty cards, along with my driver’s license and insurance cards. These types of cards are less used, so behaviors are less ingrained for them. They tend to sit in secondary locations, so it takes extra effort to get at them. In my case, my insurance cards sit in a different pocket in my wallet. Getting at them can be painful because they are bunched together, often sticking to one another. My travel loyalty cards sit in a completely different, large case that I carry in my backpack when traveling. Finding the one right card in that mess is plain painful. With LoopPay, accessing them became more like payment cards. The only difference is that I had to open the LoopPay app. But that was one extra tap versus scrambling through either my wallet or my huge, disorganized second loyalty card case.

The big barrier to getting consumers to use LoopPay, in an otherwise seamless experience, is setup. Once I downloaded the app, there was a 15-30 minute process of creating an account, validating my identity, and then entering the first cards into my phone. Consumers will also find it very threatening, because the process not only asks to photograph your driver’s license, but also to provide your social security number in a two-step authentication process. It was a lot of work, it wasn’t easy learning how to scan my driver’s license, and it was very invasive. After the fact, I felt that the investment was more than worth it. But at the time, who knew? I almost stopped in the middle and said “later.”

So even when enough NFC terminals are in place to convince me to try Apple Pay, I learned that I am going to think twice. One 15-20 minute invasive application process for a product, especially one I wasn’t even sure at the time would work for me, was more than enough. And this validates the feeling I had from the prior post: when Google Wallet and PayPal Mobile didn’t work, I almost wanted to give up on mobile payments altogether.

Point is: every bad experience with someone else’s payments technology is like an indirect negative review on the category. On the other hand, it also creates first mover advantage when the experience is good. The substitution cost of setting up a second mobile payment mechanic is so high that it is going to dissuade a consumer from moving to a second. That’s why Samsung’s strategy of getting Samsung Pay out-the-door with MST technology is so brilliant. It basically nullifies any first-mover advantage Apple created when it released Apple Pay, which is still not usable at most retail locations.

There is also at least one other limitation of mobile payments that few have given attention to, which relates to the statistic I began with. What happens when my phone runs out of power? How do I pay then? LoopPay anticipated this by making room in the case to carry two cards for backup. But if I need a backup, then I am still reinforcing my existing payment habits.

In my case, LoopPay ran out of power. It needs recharging separately from the phone with a different cable (which is not true for the Samsung Galaxy 6, but continues to be true for iPhones). And I kept forgetting to recharge it. So what happened? I started pulling out my cards again. After a time I didn’t even think about LoopPay anymore, even though I had come to depend on it. It was as if I’d never used it. I have recharged it now, but I’m still fighting to remember to use it first, before the card in my wallet. This shows just how deeply engrained payment card behaviors are. It also explains the backsliding we’ve seen with Apple Pay. When there are not enough merchants that take the payment type, there is not enough repetition of the new behavior to prevent recidivism to the old.

All of this to say – and what I think my personal experiment shows – is that getting people to change payment mechanics is exceedingly difficult and will take much longer than all the pundits and many merchants anticipate. The benefits are there, but payment behaviors are so engrained that it is going to take consumers time to retrain a very deeply-entrenched habit.

Not only that, but one small hiccup – like losing power on a phone and not carrying a backup card, or not having enough merchants accepting a payment type to reinforce the learning process, will cause backsliding to the older behavior.