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Square’s mobile payments hardware add-on has gained some traction with merchants using smartphones to swipe credit cards, but its wallet has struggled.

Jessica Kourkounis • New York Times,

Few consumers are buying the premise of mobile wallets

  • Article by: Brian X. Chen
  • New York Times
  • May 6, 2014 - 5:42 PM

Millions of Americans use smartphones for tasks like hailing a taxi or checking in for a flight. But for buying something in a store? That mostly remains a tech entrepreneur’s dream.

For years now, the promise of a so-called mobile wallet — in which paying in person can be as simple as hitting a button on a phone — has led to a host of American start-ups trying to cash in.

Those companies, though, have faced nearly as many hurdles as they have competitors, including the most basic ones: Many people aren’t aware of the new payment systems, others are confused by the many choices, and some see no benefit in the mobile option over using cash or credit cards.

The hurdles have left all the payment companies scrambling to find a profitable business model. And now, a feeling is growing that mobile payments systems will not replace traditional wallets, at least anytime soon.

“There was the assumption that there was going to be some sort of spark that ignited the marketplace, and there was going to be a mobile payments revolution,” said Denée Carrington, a Forrester analyst who studies the mobile payments market. But people do not mind paying with cash or a credit card, she said.

“So this was never going to be a revolution,” she said. “It’s definitely more of an evolution.”

Despite the slow uptake of the technology by consumers, there is no shortage of ways to pay using a mobile phone. Start-ups like Square, Loop, LifeLock and Clinkle offer apps that promise to let smartphone owners pay for products in stores with the tap of a button.

Bigger brands have stepped in, too, offering different types of mobile payments. Samsung Electronics last year agreed to include Visa’s payWave software on many Samsung phones.

And for years, Google has offered Google Wallet, which allows consumers to load their credit card information into a digital wallet so their phones can be tapped on some merchant terminals instead of using a credit card.

Apple has not announced plans to get into mobile payments, but Tim Cook, the company’s chief executive, has said it is an area of interest.

None of the companies, though, have found the winning combination to transform mobile payments into everyday consumer behavior.

The research firm Gartner estimates that worldwide, people spent $235.4 billion through mobile payments in 2013, compared with $163.1 billion in 2012. But that number is much smaller in North America, where consumers spent about $37 billion through mobile transactions in 2013, up from $24 billion the year before.

And analysts say that before the public can be expected to know about and widely adopt mobile payments, some significant problems must be overcome. As the digital payment world stands now, there are many different parties involved in making the payments work, and they come from different industries and have different interests. The disparate parties include banks, payment networks, retailers, wireless carriers and the companies that make digital wallets themselves.

Merchants who want to accept mobile payments are unlikely to support all the possible types. So consumers who want to buy things with a phone must first find a business that supports the technology, and then figure out which smartphone technology the store accepts.

Square, a San Francisco start-up that is one of the most prominent mobile payment companies, has struggled to get people to use its Square Wallet app for paying with a smartphone. The company has renamed the app several times to gain more attention.

Square’s big partnership with Starbucks, which the start-up hoped would help it add users, instead led to losses at Square of at least $20 million last year, according to a person who was involved with the partnership, who spoke on the condition of anonymity because the number is private.

Square declined to comment.

David Byttow, the lead engineer working on Square Wallet from mid-2012 to mid-2013, said getting a mainstream digital payment solution started was difficult and represented something of a catch-22 situation. More people would most likely use a service if it were widely available, he said, but merchants are not interested in installing new payment software and hardware unless a large swath of shoppers are using the service.

But even if the payment process were widely available, companies still would need to persuade consumers that there is an advantage to making payments from a phone.

Aditya Khurjekar, a former Verizon Wireless executive who worked on mobile payments there, said he believed consumers do not find it bothersome to carry or use credit cards and cash.

“There isn’t a problem to solve,” Khurjekar said. Khurjekar, who now runs the Money Event, a business conference revolving around mobile wallets, said companies offering mobile payments need to offer incentives that cash and credit cards cannot, like coupons and discounts.

“The mobile payments experience has to become the hook for some other commerce shopping experience,” he said.

While the mobile wallet appears to be years from widespread use in America, it already has started to catch on elsewhere. In Japan, for example, NTT DoCoMo, the country’s largest phone carrier, said that about a third of its 65 million subscribers are using its mobile payments service. The service, called iD, is used for payments with taxis, vending machines, buying a meal at McDonald’s or even paying to get on the subway.

Kyoshi Mori, a mobile systems specialist for DoCoMo who focuses on the company’s payments system, said an important decision DoCoMo made was to share its payments system with anyone who wanted to use it, including other carriers. DoCoMo teamed up with Korea Telecom, the top phone carrier in South Korea, to support a standard mobile payments system that is compatible across both their networks.

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