The Future of Mobile Payments – Role of mobile wallets in consumer purchase journey and peer-to-peer transfers

This report will look into why US consumers aren’t warming up to mobile payment services and how mobile wallets can integrate shopping and peer-to-peer transfers to make payments relevant with smartphone owners for wider adoption.

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Table of Contents

  1. Introduction
  2. Who is driving growth of the US mobile payments market?
  3. How does mobile compare against other payment options?
  4. Which mobile payment services do consumers use?
  5. How do consumers use mobile payments?
  6. What is keeping consumers from using mobile payments?
  7. How can mobile wallets make mobile payments relevant?
  8. How can mobile wallets enhance shopper purchase journey?
  9. How do consumers use mobile wallets beyond shopping?
  10. Who do consumers trust most to provide a mobile wallet?

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List of Charts

  1. US mobile payment transactions by type, 2014-2019
  2. US consumer usage of mobile payment, All vs mobile device owners
  3. US mobile payment usage by age group, 2011-2014
  4. US mobile payment usage by ethnicity, 2011-2014
  5. US consumer preferred payment method by transaction type
  6. US consumer cash carrying and spending behavior
  7. US consumer payment methods by sense of security
  8. US consumers’ familiarity with and usage of mobile payment services
  9. US consumers’ familiarity with mobile payment services
  10. US consumers’ usage of mobile payment services
  11. US consumers’ usage of mobile payment by purpose
  12. US consumers mobile payment method at Point-of-Sale
  13. US mobile share of eCommerce transactions by category
  14. US mobile share of eCommerce transactions by device type
  15. US mobile order value compared to $100 spent on desktop
  16. US consumers funding method for mobile payments
  17. US consumers’ reasons for not using a mobile payment service
  18. US consumers’ mobile payment usage by type of user
  19. US consumer future interest in mobile payment activities
  20. US consumer awareness of mobile wallet features
  21. Starbucks weekly mobile app transactions volume in the US
  22. US consumer expectation for mobile wallet content
  23. US consumers in-store smartphone usage by purpose
  24. Consumer feature preferences for mobile digital wallet
  25. US consumers’ mobile wallet usage for peer-to-peer transfer
  26. Venmo monthly mobile app transactions value in the US
  27. US consumer most trusted mobile wallet provider
  28. US consumer mobile banking usage by purpose
  29. US mobile banking usage by age group, 2011-2014
  30. US mobile banking usage by ethnicity, 2011-2014
  31. US consumer access to banking services by means used

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Introduction

The US mobile payments market is expected to more than double by 2019 primarily driven by Millennials and Generation X consumers. Despite this less than a third of US consumers today use mobile payments. PayPal is by far the most popular payment service used by US smartphone owners with more than five times the number of users compared to the next closest payment service Google Wallet.

The key reason behind consumer’s reluctance in adopting mobile payment is because they can’t find a benefit when comparing it with cash and card, which are perceived as familiar, convenient and more secure. Consumers are, however, interested in mobile payment if it becomes part of the shopping process by integrating coupons and loyalty programs via a mobile wallet.

Consumers are already using smartphones as a shopping companion at various stages of the purchase journey when inside a store. They use it to find new products in the discovery stage. In the influence stage they use smartphones to look up information on products and read product reviews towards making a purchase decision. In the final conversion stage, they are using mobile to pay via QR codes, apps and NFC features. Mobile wallets can help consumers along the shopping journey by providing information relevant for discovery and influence stages as well. Addition of loyalty programs, one of the most sought after features, could make mobile wallets a useful tool to track and engage consumers beyond the purchase journey. As a shopping companion, consumers expect brands to provide marketing content such as coupons, loyalty programs, and product information in mobile wallets.

Consumers also use mobile payments for peer-to-peer transfer. Most transfers occur between trusted members of a person’s social network such as the local corner shop owner, friends, and family. There is also a small group of individuals who work for themselves such as cleaners, handymen and freelance workers who have take a liking to being paid via peer-to-peer transfer on their smartphones through apps like Venmo. People trust banks the most to provide a reliable mobile wallet service. A greater trust in bank emerges from their experience using mobile banking features.

This report will look into why US consumers aren’t warming up to mobile payment services and how mobile wallets can integrate shopping and peer-to-peer transfers to make payments relevant with smartphone owners for wider adoption.

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Who is driving growth of the US mobile payments market?

Section Summary

Millennials and Generation X consumers will drive the US mobile payments market, which is expected to more than double over the next four years. The growth will come primarily from technologically savvy consumers who own both smartphones and tablets. Non-Caucasian consumers are already ahead in mobile payment adoption and will be responsible for much of the future growth.

Key Data Highlights
  • The US mobile payments market grew by 34% between 2014 and 2015 to reach $69.3 billion. It is estimated to grow by 104% over the next four years and reach $1.4 trillion in 2019.
  • Mobile payment penetration is nearly twice as high among multiple mobile device owners (54%) compared to the average US consumer (28%).
  • 18 to 29 year old US Millennials lead mobile payment adoption with more than a third (34%) using the service.
  • 30-44 year old Generation X segment is the fastest growing demographic driving mobile payment adoption after growing 10 percentage points between 2013 and 2014 – from 21% to 31%.
  • Non-Caucasian consumer segments are ahead of white consumers in mobile payment adoption – especially among African-American (34%) and Hispanic consumers (32%).

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US mobile payment transaction value will more than double by 2019

The US mobile payments market is estimated to be valued at $69.3 billion by the end of 2015 – a 34% increase since 2014. The size of the market will more than double (104% growth) over the next four years reaching $1.4 trillion in 2019.

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While payment service providers segment the mobile payment market based on the technology they use such as Near Field Communication (NFC), Cloud Based, Imaged Based, Proximity Based etc., it is also important to segment the market based on the context in which consumers use mobile payment services.

Essentially there are three key scenarios in which US consumers use mobile payments today. The first is when they use mobile devices to make online purchases from a mobile website or an app – called remote payments in the chart above. In essence this is the same as making online payments on desktops and laptops for online shopping on Amazon, eBay, Wal-Mart or Best Buy. It also includes bill payment via mobile apps especially payment of subscription based services like Spotify and Netflix.

The second scenario, called in-person payments, occurs when consumers use their mobile devices to make a payment at a place of business such as a physical retail store, at a restaurant/bar/café, at the post office/library or any other place of business that enables its customers to pay with mobile. Increasingly this also includes mobile payments made to taxi services like Uber and at movie theaters for tickets purchased. Finally, the third scenario, peer-to-peer transfer, includes consumers using mobile payment to transfer small amounts of money to other individuals either for services provided or to settle monies owned. This could happen when consumers seek to split the bill at a restaurant between each other, pay the local corner shop owner, or making a payment to a freelancer for their services.

Remote payments, which include payments made for online purchases via mobile devices, will make up 77% of mobile payment transaction value in 2015. Online shoppers using mobile devices in addition to desktops and laptops during the purchase journey make this the largest segment of the US mobile payments market. Remote payments, estimated to grow by 71% over the next four years to reach $90 billion, will continue to be the largest contributor to US mobile payments market accounting for 64% of all mobile payment transaction value in 2019.

In-person payments, which include using mobile to pay for purchases at physical brick-and-mortar stores, is estimated to grow by 400% over the next four years reaching $34 billion in 2019. This is the fastest growing segment of the mobile payments market largely due to increased smartphone adoption among US consumers and availability of mobile payment options at various retail stores as well as restaurants, bars, cafes and theaters. Consequently, its share of the US mobile payments market will increase from 10% in 2015 to nearly a quarter (24%) in 2019.

Peer-to-peer transfers, including sending and receiving money between friends using services like Venmo, will more than double in value – from $7.3 billion in 2015 to $16.8 billion in 2019. Using mobile for peer-to-peer transfer is limited to transferring small amounts such as settling a bill with friends or paying a service professional such as a handyman. As such its contribution to the payments market in terms of value will remain low even if it increases in volume. This segment will account for 12% of all mobile payment transaction value in 2019 – up slightly from 11% in 2015.

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Multiple device owners are twice as likely to use mobile payments

Mobile payment usage is strongly tied to ownership of multiple of mobile devices i.e. owning both a smartphone and a tablet almost doubles the likelihood of a consumer using mobile payment to pay for their purchases. While only 28% of all US consumers have used a mobile payment service, the share of mobile payment users among smartphone and tablet owners rises to more than half (54%) of the population.

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Owning both smartphone and tablet is a sign of an early adopter and hence multiple device owners are more likely to try out mobile payment services and experience its benefits.

Multiple device ownership also gives consumers the chance to move along their purchase journey across devices. If a person were to discover a product on their smartphone during the commute back home from work, they could discuss it with their friends, family and partner at home before purchasing it on a tablet at home. Owning a tablet also allows consumers a better browsing experience compared to the smaller screen smartphone promoting product discovery and influence via reviews, which would be difficult to achieve on a smartphone app.

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Millennials and Generation X drive mobile payment adoption in the US

Like most other mobile trends – SMS, messaging, and mobile-based social apps to name a few – mobile payment usage is also driven by young smartphone owners, millennials in particular. Today more than a third of US millennials use mobile payment services more than any age group, but the Generation X has caught up with them with the share of 30 to 44 year old consumers using mobile payment having grown by 94% between 2011 and 2014 compared to millennials who grew by 70% in the same time period.

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The share of 18 to 29 year old millennials who use mobile payment services increased from 20% in 2011 to 34% in 2014. In the same time period, Generation X consumers using mobile payment services grew from 16% to 31% – making Generation X the fastest growing demographic that is driving adoption of mobile payments.

Millennials and Generation X consumers find mobile payments appealing because it allows them the freedom to do their shopping at their own pace, wherever and whenever they feel like it. The greater availability of discounts and offers can attract consumers initially but the ability to use mobile to share product discoveries with friends and get their opinion before making a decision is what keeps them using mobile payment services.

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Black and Hispanic consumers lead in mobile payment usage

Mobile payment users in the US are not only likely to be young, but also ethnically diverse. Non-Caucasian smartphone owners – Black and Hispanic in particular – lead mobile payment usage in the US.

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More than a third (34%) of black consumers in the US and more than three in then (32%) of Hispanic consumers are already using mobile payment services compared to only 17% of the white consumers. The pattern of Black and Hispanic consumers making mobile payments at a higher rate than white consumers has persisted over time. The research also found there to be no clear relationship between mobile payment usage and income or education level of a consumer.

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How does mobile compare against other payment options?

Section Summary

Cash and card are top of consumer minds when it comes to picking payment methods in most everyday situations such as buying groceries, going to a restaurant or paying for a cab. Cash is the most accessible form of payment with more than eight in ten consumers still carrying some amount of cash with them at all times. Consumers also believe cash to be the most secure form of payment ahead of card and mobile.

Key Data Highlights
  • Consumers overwhelmingly prefer cash for transactions that involve small amounts of money being exchanged such as paying a street vendor (87%), paying cabs or public transit (64%), and paying the bar tab (52%).
  • Consumers prefer using their debit cards for regular purchases such as buying groceries (60.94%) and paying at retail outlets (58.09%). They also prefer debit cards for leisure related purchases such as paying for movie tickets (52.73%) and paying at a restaurant (53.01%).
  • Cash is the most accessible form of payment for US consumers with more than two in five (41%) consumers carrying anywhere between a dollar to twenty dollars with them at all times. Less than one on five (18%) consumers do not carry any cash with them.
  • Consumers feel most secure when paying with cash (56%), followed by credit cards (22%) and debit cards (16%). Only one in a hundred (1%) rank mobile as the most secure payment option.

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Cash and card beat mobile across most categories

Cash stand out as the outright winner as the preferred mode of payment when it comes to paying for small purchases, while cards are the preferred mode of payment at point-of-sale in physical stores and businesses. US consumers prefer to use cash to pay for street vendors (86.63%), cabs/public transit (63.89%), and at a bar (51.82%). All three instances of payment generally require exchange of small amounts. In comparison less than one in hundred consumers prefer using their smartphones to pay for street vendors (0.68%), cabs/public transit (0.83%), and at a bar (0.62%). However, the rise of disruptive organizations like Uber should see more people willing to pay for their cab ride with mobile in the future.

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Consumers are almost equally likely to prefer cash or debit card to pay at a coffee shop (39.53% cash, 41.32% debit card) or for goods and services provided by others (36.38% cash, 25.42% debit card) such as a food delivery or repair services. Both these payment scenarios also involve exchange of relatively small amounts of money. In comparison, consumer willingness to pay with a mobile device is considerably low for both coffee shops (2.68%) and goods/services offered (1.65%). The slightly higher figure for coffee shops is largely related to Starbucks’ successful mobile wallet app.

Consumer preference for cash is largely due to a familiarity factor that leads people to carry cash with them at all times. The ritual of retrieving one’s wallet and counting money to make a payment, though trivial in nature, is largely established as an age old rite of passage to ownership whether one is paying for a cab ride or at a bar. Less than one in five (18%) say they don’t carry any cash with them. More than four in ten (41%) carry up to $20 in their wallets, while almost a quarter (24%) carry amounts between $21 and $50.

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Consumers overwhelmingly prefer debit and credit cards to all other payment methods when paying at a restaurant (53.01% debit card, 27.58% credit card), at leisure centers such as movie theaters or bowling alleys (42.73% debit card, 29.03%credit card), grocery stores (60.94% debit card, 22.36% credit card), and all retail outlets (58.09% debit card, 26.95% credit card).

Payment in these scenarios represent habitual, regular expenses that feature as part of a consumers monthly or weekly budget. Putting them on card makes it convenient for consumers to monitor expenses and mange their budgets. In comparison, less than one in hundred US consumers prefer paying with their mobile at restaurants (0.56%), at leisure venues (0.90%), grocery stores (0.41%), and retail outlets (0.68%).

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Cash and card perceived as more secure payment options

Cash is by far the most trusted form of payment among US consumers. More than half (56%) of all US consumers rank cash as the most secure payment option. The overwhelming trust in cash comes not only from people’s familiarity with cash over time but also the fact that in most cases exchange of cash involves interaction between two people. People give their money in return for goods and services to others they trust. As such the trust in cash is largely transferred from the other party.

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Most card exchanges now also involve interacting with another person who complements the card machine by helping consumers in case something were to go awry. Hence it’s not surprising that a little more than one in five (22%) of consumers rank credit cards as the most secure while another 16% rank debit cards as the most secure payment method. Once again, the sense of security comes from the presence of another trusted individual.

In comparison, only one in ten (1%) US consumers rank mobile as the most secure payment option largely due to its novelty and lack of personal interaction while carrying out mobile payment transactions. While waving and tapping might help mitigate the latter, the requirement for an NFC enabled smartphone is still an obstacle.

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Which mobile payment services do consumers use?

Section Summary

PayPal is by far the most popular payment service used by US smartphone owners with more than five times number of users compared to the next closest payment service Google Wallet. PayPal is also the top mobile payment service on consumer minds followed by Google Wallet and Apple Pay. However, awareness does not convert to usage with more than third of smartphone owners saying they don’t use a mobile payment service despite being aware of one or more options.

Key Data Highlights
  • PayPal is the most widely used mobile payment service among US mobile payment users with nearly a half (44%) using the service.
  • PayPal is also the most widely known mobile payment service in the US with more than four in five (85%) smartphone owners aware of the brand’s mobile payment services.
  • More than half (51%) of all smartphone owners are aware of Google Wallet, while nearly half (49%) are aware of Apple Pay.
  • More than a third (37%) of US smartphone owners do not use mobile payment services despite being aware of one or more options.
  • Less than one in ten (9%) of US smartphone owners are not aware of any mobile payment services.

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Knowing about a mobile payment service does not mean consumers use it

Awareness of one or more mobile payment service does not mean consumers will use it. More than a third (37%) of US smartphone owners know about at least one mobile payment service but do not use it. Very few smartphone owners are not aware of a single mobile payment service. Less than one in ten (9%) do not know about any mobile payment services.

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Consumers need more than just awareness around mobile payment options since it is still untested technology for many. In fact being presented with a range of options consumers are more likely to be overwhelmed and pass the opportunity altogether. If not guided, consumers are likely to get lost in the jargon of technology and intricacies of processes such as linking debit and credit cards or bank accounts.

Helping consumers see the benefits of mobile payments is key to increasing its penetration not only among smartphone owners but also among all other consumers. Specifically people need to gain trust in mobile payment services, which is ideally obtained through peer recommendation, or seeing other people benefit from mobile payment services.

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PayPal is the most well know and widely used mobile payment service

PayPal is the most well know mobile payment service in the US followed by Google Wallet and Apple Pay. More than four in five (85%) smartphone owners in the US are familiar with PayPal as a mobile payment service. Just over half (51%) of US smartphone owning consumers are aware of Google Wallet while just under half (49%) are aware of Apple’s mobile payment service Apple Pay.

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Very few smartphone owners are aware of mobile payment services provided by banks. Less than one in five (19%) are aware of Bank Of America’s Online Transfer facility and even fewer (17%) are aware of other bank specific payment services – a strong sign that financial institutions need to up their marketing efforts if they are to occupy a customer’s mindshare when it comes to mobile payments.

Among independent mobile payment service providers, Square is the leader with 15% of US smartphone owners aware of the service. Less than one in ten smartphone owners are aware of other their party mobile payment service providers like Xoom, Venmo, and Dwolla.

PayPal’s high awareness among smartphone owners translates into high usage as well. Nearly half (44%) of all smartphone owners in the US have used PayPal’s mobile payment service – more than five times the share of smartphone owners who have used Google Wallet (8%) despite more than half of customers being aware of the service. The share of customers using mobile payment services is even lower for Apple Pay with only 3% of smartphone owners having used the service despite nearly half of them saying they are aware of it. While mobile payment services provides by banks like Bank of America fare better than Apple pay they are used by 5% or less of smartphone owning customers.

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PayPal’s dominance emerges from its long history in online payments. Customers used to making payments with their PayPal accounts on desktops and laptops are increasingly doing the same on smartphones. The availability to pay for various goods and services online via PayPal is also a key factor driving PayPal usage over other mobile payment service alternatives. For competing payment services from Google, Apple, banks and independent providers, it is imperative to strike partnerships with key online and brick-and-mortar retailers to make the service available as an option to cash and card.

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How do consumers use mobile payments?

Section Summary

Consumers are paying their utility bills as well as their purchases online and in stores with mobile payment services. Consumers prefer to use QR codes and apps that do not require NFC while paying with mobile in stores. Consumers tend to pay with mobile when buying fashion and luxury as well as travel related products. Overall purchases made through tablets are larger in value compared to smartphone purchases.

Key Data Highlights
  • Nearly seven in ten (68%) of US mobile payment users use the service to pay their utility bills such as electricity, mobile, and cable television.
  • More than half (54%) of US mobile payment users pay for an online purchase using their smartphones, while just under two in five (39%) pay for an offline purchase made at a physical retail store.
  • While paying at retail point-of-sale with one’s smartphone, US consumers prefer to scan a QR code (31%) followed by using an app that does not require waving or tapping (22%).
  • Online purchases made via mobile contribute significantly to e-Commerce transaction in the fashion and luxury category (33%), followed by travel (27%) and sporting goods (26%).
  • Smartphones dominate mobile purchases for fashion and luxury (65%) as well as travel (62%), while tablets dominated mobile purchases made in the home category (68%).
  • Consumers spend more per order when buying on tablets than on smartphone – fashion and luxury ($28 more on tablets), travel ($59 more), sporting goods ($15 more), and home ($25 more).
  • Consumer prefer to link mobile payment services with debit cards (55%), credit cards (51%) and bank accounts (41%) over PayPal (15%).

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Consumers use mobile to pay their bills and pay for their purchases

Consumers are using mobile payments for wide range of purposes – to pay their bills, make online purchases, pay for products at a store, and send or receive money between two parties. Paying regular utility bills is the top scenario in which mobile payment is being used. Nearly seven in ten (78%) US smartphone owners, who have used a mobile payment service, do so to pay their bills. Paying bills via mobile is easier than every due to apps from banks that allow consumers to link their utility bills directly with their bank accounts or debit/credit cards enabling direct debit.

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The next most common scenario where consumers use mobile payments is shopping. More than half (54%) of all mobile payment users have paid for an online or in-app purchase using their mobile devices, while nearly two in five (39%) have used it to pay for a product or service at a store. Consumers are more likely to use smartphones for online shopping because they are already familiar with it on the desktop and laptop. Increasingly, a more streamlined experience is being offered via mobile browsers and apps by brands as well as retailers. When it comes to paying at a physical store consumers have options beyond mobile. Mobile loses out to the familiarity and convenience provided by cash and card when it comes to payment at a retail store point-of-sale.

One of the reasons behind a slow uptake of mobile payment at physical stores is a confusing array of options. However a growing number of marketing campaigns and price-based promotions have influenced some to try out some of the options. The three most common ways in which consumers prefer to pay with mobile at a retail POS are scanning a QR code (31%), using an app that does not require waving or tapping (22%), and waving or tapping with the smartphone (14%).

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Consumers are more likely to use payment methods that do not require upgrading their devices and use features they are already familiar with such as camera s and apps. Scanning a QR code and using an app are both payment methods that work across devices compared to waving or tapping which needs an NFC (Near Field Communication) enabled smartphone.

Marketing and promotion also has a big influence on which payment method consumers use at the retail POS. Brands and retailers have integrated QR codes and apps into their marketing and promotions which makes consumers more likely to use them ahead of waving or tapping their device. While campaigns help educate consumers how to use apps and QR codes to make payment, promotions in the form of discounts and rewards can encourage them to try out new payment methods.

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Fashion and luxury ahead of travel and sporting goods in mobile commerce

Consumers who use mobile payment to purchase items online through a mobile browser or in-app do so across all product categories. A third (33%) of e-Commerce purchases in the fashion and luxury category came from mobile devices – the highest of all segments. With fashion and luxury leading they way for mobile commerce, we can assume that consumers who are comfortable with using mobile for payments are also comfortable spending significant amounts via mobile devices. Mobile also contributed more than a quarter of e-Commerce transactions in travel (27%) and sporting goods (26%). The prominence of fashion, luxury, travel and sporting goods among mobile payment users also shows that consumers who purchase products via mobile are confident that products they receive will meet their expectations or can be returned/refunded easily.

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Consumers who use mobile payments are also browsing websites and apps from mass merchant retailers like Best Buy and Target for their online shopping. Mobile contributed more than one in five (23%) of all online transactions among mass merchants. Mobile accounted for 20% of all e-Commerce transactions for health and beauty products, and 15% for all home products i.e. furnishing, decoration, DIY etc.

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Consumers pay on smartphones or tablets depending on category

Smartphones drive mobile transactions for fashion and luxury segment (65%) and the travel sector (62%). Several purchases made in both categories tend to be subject to a time sensitive discount offer making smartphones better suited to make the final purchase because consumer can pay for it using their smartphones anytime and anywhere.

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Tablets, which are mostly used at homes where consumers can take their time to make a more informed purchase decision, drive mobile transaction for product in the home category (68%). Purchases in the home category tend to be long-term investments and require extensive research before making a purchase.

Consumers are just as likely to pick a smartphone or a tablet when it comes to paying for health and beauty products and sporting goods (49% smartphone, 51% tablet). Consumers are likely to buy their regular brands in both categories via smartphone as it requires less research and the purchase is driven more by a need to replace a product. When buying something new to try out for the first time, they are more likely to turn to their tablets for a more in-depth research as well as going through customer reviews.

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Consumers spend more on tablets than on smartphones

Differences between smartphone and tablets exist not only in which product category people buy but also in the amount they spend in each of those categories. Across all six categories consumers spend more when buying on tablets than on smartphones. Despite more than half of all purchases in fashion and luxury coming from smartphones, tablet-using buyers spend on average $28 more per order than smartphone buyers. The difference is greater in the travel category where tablet buyers spend $49 more per order compared to smartphone buyers.

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Tablets are definitely turning out to be influential shopping devices among online buyers as tablet buyers not only spend more than smartphone buyers but, in some cases, spend more than desktop buyers as well. For fashion and luxury, as well as mass merchants, tablet buyers spend $14 and $2 more per order than desktop buyers respectively. Tablet buyers spend per order is close to desktop buyers for health and beauty ($96) and sporting goods ($95). The tablet’s big screen allows consumers to browse more in-depth and read reviews with ease as well, while the availability of shopping apps help consumer compare prices efficiently. Additionally, social media apps like Facebook and Twitter enable them to seek out peer opinion quickly bringing them closer to the final purchase decision all on the same device.

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Debit and credit cards fund consumer mobile payments

Consumers prefer financial options from traditional, trustworthy institutions to power their mobile payment services. More than half of all US mobile payment users prefer linking their debit (55%) and credit (51%) cards to a mobile payment service, followed by another two in five (41%) who prefer linking their bank accounts.

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While consumers overwhelmingly prefer to pay with PayPal, they link the payment with their bank accounts, debit cards and credit cards instead of their PayPal balance. Less than one in five (15%) link their mobile payment services to their PayPal accounts – an indication that while consumers might trust PayPal they prefer to have their balance in one place such as a bank account instead of spread out over various accounts.

Mobile carriers have long tried to become a player in the mobile payments market by enabling consumers to add mobile payments to their monthly bill. However, less than one in twenty (4%) prefer to charge their mobile payment transactions to their mobile bill either in fear of additional charges or to better manage their spending by putting them all on one card or bank account.

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What is keeping consumers from using mobile payments?

Section Summary

Consumers who view mobile payment as an alternative to cash and card do not want to trial the technology because they don’t see how it provides a benefit compared to exiting payment methods. Security with mobile payments is also a key concern among mobile payment non-users. Consumers are most interested in mobile payment when it becomes part of the shopping process by integrating coupons and loyalty programs via mobile wallet.

Key Data Highlights
  • Three quarters (75%) of smartphone owners who haven’t used a mobile payment service say they find it easier to pay with cash or card.
  • Nearly three in five (59%) mobile payment non-users don’t see the benefit of using mobile over cash or card, while an equal proportion are concerned about security of mobile payments.
  • More than three in ten (31%) smartphone owners who haven’t used a mobile payment service are confused about mobile payment options available or find it difficult and time consuming to set up mobile payment services on their device.
  • More than three in five (65%) smartphone owners who haven’t used a mobile payment service aren’t interested in using the service in the future irrespective changes and innovation.
  • The top reasons that will attract the remaining mobile payment non-users are coupons and reward points (20%), being able to pay at a store (18%), and paying bills using a mobile app (15%).

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The biggest barrier to mobile payment adoption lies in consumer minds

The biggest obstacle to widespread mobile payment usage lies in the consumer’s mindset. People do not intend to take up mobile payment options because they are already familiar with cash and card. The familiarity with cash and card makes consumer believe they are more convenient even if they have to fish around for change when paying with cash or enter PIN numbers and sign during card purchases. Three quarters (75%) of US consumers who don’t use mobile payments believe it’s easier to pay with cash or card.

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More than half (59%) of consumers who don’t use mobile payments say they don’t see how it benefits them compared to cash and card. Reward programs drove the adoption of credit and debit card. Similar discount and reward programs aren’t enough to sway the consumer towards mobile because they enjoy those benefits on their cards already. Cards also became popular because consumers no longer had to carry loose change and could pay the exact amount. Once again mobile cannot claim to provide the same benefit as a debit or a credit card. Mobile payment needs to go beyond transactional benefits and look into how it can help them better manage their spending perhaps by discovering products and deals they would have missed out on.

Consumers are also wary of security around mobile payment services. Slightly less than three in five (59%) US consumers who haven’t used a mobile payment service say they have security related concerns. This is similar to the early days of online shopping when consumers were concerned around fraud as well as their cards getting charged twice or the product never being delivered to their location. More than two in five (41%) don’t trust the technology behind mobile payment. While trust can be built over time, brands, retailers and mobile payment services can speed up the process by providing guarantees and unrivalled customer care to win consumer trust.

Finally, consumers are also quick to point out the dizzying array of mobile payment options and the difficult learning curve associated with each. More than three in ten US consumers who haven’t used mobile payment say that they don’t understand mobile payment options (31%) and that it’s difficult/time consuming to setup and use mobile payments (31%). In fact, confusion around mobile payments can cause people to use mobile payments without even knowing they did so. More than one in ten (13%) of US consumers who identified as a non-user of mobile payment had actually made an online or in-app purchase using their smartphones, while another 8% had paid their bills using a mobile device.

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Consumers expect mobile to help them shop and replace their wallets

For most US consumers who haven’t used mobile payment services yet, it is just another payment option that they don’t want to try out. More than three in five (65%) consumers who don’t use mobile payment services say they won’t use it in the future regardless of any changes. The most eager consumers to adopt mobile payment are those who realize it can be a powerful tool in their shopping journey for instance by helping them discover coupons. One in five (20%) US consumers who haven’t used mobile payment services say they would be willing to try out the service if it offered coupons or reward points similar to a loyalty programs.

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Beyond making payments at stores (18%), paying bills (15%), and paying for online purchases (15%) with mobile devices consumers are also interested in more disruptive changes that mobile payments could bring about. More than one in ten (13%) consumers who haven’t use a mobile payment service would be interested if mobile could be used as a mobile wallet to replace cards. Mobile has had a disruptive impact on a consumer’s communication and media consumption. Consumers have a bigger expectation from mobile payment in that it would go on to replace the wallet much like it replaced MP3 players, handheld gaming consoles and cameras.

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How can mobile wallets make mobile payments relevant?

Section Summary

Consumers perceive mobile wallets as more than just a payment alternative to cash and card. They expect brand to provide a marketing content such as coupons, loyalty programs, and product information in mobile wallets to help them with the shopping process. However, there is a large mobile wallet disconnect with brands and retailers failing to meet consumer demand for marketing content aimed at mobile wallets.

Key Data Highlights
  • Nearly half (48%) of consumers are aware that mobile wallets have non-payment features in addition to payment features, compared just a third (33%) who are aware of its payment features only.
  • More than four in five (85%) of smartphone owners in the US expect non-payment related marketing content form brands in their mobile wallets, but less than one in five (19%) retailers provide marketing content that integrate with mobile wallets.

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Consumers define mobile wallet as tool to organize marketing content

Consumers expect mobile to not only be a better payment method but a better shopping companion that enables them to store shopping lists, offers, coupons, and product information. In fact, mobile wallets such as Apple’s Passbook and Google Wallet not only offer those features but also loyalty cards that integrate with marketing campaigns. Nearly half (48%) of all US smartphone owners are aware that mobile wallets can store non-payment related information.

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Consumers are more likely to be aware that mobile wallet stores marketing content than the fact that it can be used as a payment method. Only a third (33%) of all consumers believe mobile wallets as payment only tools. Among consumers who are aware of its non-payment features more than half (56%) know that mobile wallets can be used for payments as well as storing marketing content while the remaining 43% are aware of the marketing content feature only. From a consumer perspective, then, mobile wallets are primarily shopping tools that help them discover new products, store product information for comparison, save coupons and offers, and earn rewards for loyalty.

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Mobile wallets that integrate marketing also drive revenue

Consumers seek engagement from their mobile wallets and not just transaction. A successful example of how mobile wallets go beyond payment features and integrate marketing content is the Starbucks app. The app not only allows consumers to pay for their coffee but also rewards them with redeemable points for each purchase, gives them access to mobile specific offers, and allows them to skip the line with mobile pre-orders. As of the end of second quarter in 2015, Starbucks processed on average 8 million transactions across the US.

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With mobile wallets, brands and retailers have the opportunity to integrate marketing campaigns with mobile wallets to efficiently and accurately measure the campaign ROI. An example of mobile wallet integration with marketing campaign comes from Pep Boys, a US automotive aftermarket service and retail chain, who launched a mobile wallet marketing campaign where customers could save coupons to their phones. The chain witnessed seven-figure sales in the first couple of months with Passbook and Google Wallet, as 30% of all Pep Boys mobile wallet offers added to mobile wallets were redeemed in-store.

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Consumers want mobile wallet content, but brands are slow to provide

The success of Starbucks and Pep Boys in the US is a clear sign that there is consumer demand for mobile wallets that provide engagement beyond payment features. In fact more than four in five (85%) US smartphone owners expect to get non-payment related content in their mobile wallets. However, there is big disconnect between brands and consumers as less than one in five (19%) retailers provide content for mobile wallets.

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The big disconnect between brands and consumers stems from a heightened focus on security and technology among brands when it comes to mobile payments. While innovation is key to driving new technology, it also needs to be relevant to a consumer’s everyday needs and concerns. Marketers can start doing that by producing more marketing content – coupons, offer and loyalty programs – for mobile wallets.

However, there is much more untapped potential with mobile wallets to further engage consumers and build a deeper relationship by enabling the shopper process. Mobile wallets can go beyond content marketing campaigns to monitor and measure consumer engagement at each stage of the purchase journey across all touch points.

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How can mobile wallets enhance shopper purchase journey?

Section Summary

Consumers are already using smartphones as a shopping companion at various stages of the purchase journey when inside a store. They use it to find new products in the discovery stage. In the influence stage they use smartphones to look up information on products and read product reviews to help them make a purchase decision. While payment is part of the final Conversion stage, mobile wallets can help consumers along the shopping journey by providing information relevant for discover and influence stages as well. Addition of loyalty programs, one of the most sought after features, could make mobile wallets a useful tool to track and engage consumers beyond the purchase journey.

Key Data Highlights
  • Consumers use smartphone when inside a store to compare prices (30%), find new and relevant products (28%), find and redeem coupons (25%), and to look up product information (24%).
  • More than one in five (23%) smartphone using shoppers use the device to take pictures of products and share with friends to get an opinion before making a purchase decision.
  • The most sought after feature in a mobile wallet is loyalty programs, points and rewards (57%), followed by coupons, discounts and special offers (56%).
  • Consumers also want price comparison features (52%) and ability to look up product information (50%) built into their mobile wallets.
  • Besides shopping, consumers are willing to use mobile wallets for making a reservation at a restaurant (50%), placing their order before reaching the restaurant (49%), and requesting the bill to pay at their table (50%).

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Mobile is already a key part of the shopper’s in-store journey

Consumers are already using their smartphones when inside a physical retail store for various activities to help them along the shopping journey. Comparing prices is the top in-store activity among smartphone using shoppers. Three in ten (30%) smartphone owners who use the device inside a store do so to compare prices. Comparing prices is a key step in the Awareness stage of the journey where the consumer’s objective is to discover as many options as possible especially when they already have a limited budget to work with. More than a quarter (28%) of smartphone using shoppers access the device to find new and relevant products – another key activity in the Awareness stage.

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Most smartphone related in-store activities fall under the second Influence stage of the consumer journey where they are narrowing down their options to make a final purchase decision. These activities include researching product information (24%), taking product pictures and sharing with friends for their opinion (23%), and reading customer reviews (19%). At times, availability of coupons and offers can lead customers to decide on a product taking them from the second Influence stage to the final Conversion stage where they make the payment. A quarter (25%) of all smartphone shoppers use the device in-store to find and redeem a coupon.

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Mobile wallets can bring together the fragmented consumer journey

More than half of all US smartphone owners want mobile wallets to help them with activities that predominantly occur during the Influence stage when they seek to make a final purchase decision such as comparing prices (52%), and looking up product information (50%).

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As a payment enabled tool, more than half (56%) of all smartphone owners want mobile wallets to provide coupons, discounts and special offers – a feature they look for in the Conversion stage of the shopping journey. More significantly the top feature preference for mobile wallets is a loyalty programs, points and rewards – part of the post-purchase stage of a shopper’s journey where customers track the rewards they earn and look to redeem them at a later time.

All four shopping activities – price comparison, product research, coupon lookup, and loyalty point collection – happen in separate apps on a smartphone today. Mobile wallets can bring it all together in one place, making it convenient for the shopper to focus on their shopping instead of finding the right app. It would also help brands track how customers explore their options, find out what information they seek, and identify instances when coupons help consumers decide rather than get ignored due to irrelevance. Integrating mobile wallets into the shopper purchase journey is a win-win for both brands and consumers.

Mobile wallets can also bring together the purchase journey in non-retail businesses like restaurants, coffee houses and entertainment venues. Half (50%) of all smartphone owners in the US would prefer to use a mobile wallet to make a reservation at a restaurant and an equal proportion would request their bill for payment at the table. Both activities occur in the final Conversion stage of the journey after consumers have made a decision on which restaurant to visit. Like the Starbucks app, consumers also seek to use mobile wallets to place their orders before arriving at a restaurant. Nearly half (49%) of all smartphone owners would use a mobile wallet to do so.

Consumers also have confidence adding their card or bank account details to mobile wallets with nearly one in two (48%) saying they would do so. The appeal of content that could help them make a better purchase decision drives consumer willingness to link mobile wallets with cards and bank accounts.

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How do consumers use mobile wallets beyond shopping?

Section Summary

Besides online and retail store shopping, consumers use mobile payments for peer-to-peer transfer. Most transfers occur between trusted members of a person’s social network such as the local corner shop owner, friends, and family. There is, however, a small group of individuals who work for themselves such as cleaners, handymen and freelance workers who have take a liking to being paid via peer-to-peer transfer on their smartphones through apps like Venmo.

Key Data Highlights
  • Slightly more than one in five (21%) mobile payment users in the US have used the service to pay a local business or store via money transfer.
  • One in five (20%) mobile payment users have sent money to friends and family while 15% have received money from their friends and family.
  • More than one in ten (13%) of mobile payment users have also used peer-to-peer transfer to send payment for products and services – usually to individual contractors such as cleaners, handymen, landlord and freelancers.

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Trust drives peer-to-peer transfers between members of one’s social network

The value of mobile wallets and payments in general is more vivid when we look at peer-to-peer transfers. People are transferring money to and receiving money from trusted members of their social network – friends, family and small local businesses – using mobile wallets.

More than one in five (21%) mobile payment users have used a mobile wallet to pay a business or store by transferring money into the business owner’s account. This usually occurs between consumers and local small business owners who have a trusting relationship. Trust also drives use of mobile wallet to transfer money between friends and family members. One in five (20%) mobile payment user has use a mobile wallet to send money to a friend or family member, while 15% have used it to receive money from a friend or family member.

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Consumers tend to have multiple mobile wallet accounts to better manage their finances, such as personal and work related accounts. It is common for them to transfer money from one to another with nearly one in five (18%) doing so.

A more significant use of mobile wallets is emerging among individual contract workers from the handyman and cleaner to the landlord and freelance worker. More than one in ten (13%) of mobile payment users have paid an individual for a product or service using mobile wallets, while another 9% have received money through mobile wallets. The use of mobile wallets for small transfer between individuals in exchange for products and services is more convenient compared to bank transfers and at times can be cheaper due to low fees or absence of any fees.

One of the most successful mobile wallets in the peer-to-peer transfer space is Venmo, which process more than a billion dollars in transfer during the first quarter of 2015. Venmo allows consumers to quickly setup an account, link their card or bank balance, and instantly transfer money to friends, family or anyone else with a Venmo account. Those who receive money can get it deposited to their bank account overnight.

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Venmo’s success is largely driven by the freelancer community where it has become common for freelancers to ask their clients to ‘venmo them’ the payment after sending an invoice. The success of mobile wallets lies in connecting with tribes like freelancers who need a better, faster, and trustworthy payment solution compared to checks and bank transfers.

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Who do consumers trust most to provide a mobile wallet?

Section Summary

People trust banks the most to provide a reliable mobile wallet service. A greater trust in bank emerges from their experience using mobile banking to do everything from checking bank accounts to making electronic check deposits. Mobile banking users are also similar to mobile payment users in terms of demographic – young and ethnic – making it valuable for banks to roll out a mobile wallet feature for their mobile banking consumers.

Key Data Highlights
  • Consumer most trusted provider of mobile wallet is a bank (41%), followed by credit card networks (32%) and PayPal (29%).
  • Apple iPhone users are more then thrice as likely to trust a mobile wallet from Apple compared to all smartphone users (23% for iPhone users vs. 7% for all smartphone users).
  • Consumer trust in banks for a reliable mobile wallet is driven by their usage of mobile banking which includes mundane tasks like checking account balance (94%) as well as advanced tasks like depositing a check electronically by using the camera (51%).
  • Mobile banking is particular prominent among millennials (60%) followed by Generation X consumers (54%) who have emerged as the fastest growing segment of mobile banking users.
  • Mobile banking has historically been more popular with Black (43%), Hispanic (53%) and other non-white consumers (48%).

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Consumers trust banks and credit card brands with their mobile wallets

Consumers trust banks above all other institutions and organizations to provide a reliable mobile wallet. More than two in five (41%) smartphone owners in the US trust banks to provide a dependable mobile wallet service followed by credit card networks (32%) like Visa, MasterCard and American Express. Both banks and credit card networks are transitional financial organizations to which people have entrusted their wealth, so it is natural for consumers to trust them with mobile wallets ahead of retailers and other brands. Nearly three in ten (29%) smartphone owners in the US trust PayPal to provide a mobile wallet service, which largely comes from PayPal’s heritage in online payments over the years.

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Apple iPhone owners, in general, trust mobile wallets more than the average consumer with nearly a half (47%) trusting banks and almost two in five (39%) trusting credit card brands. Even when it comes to PayPal, 35% of iPhone users trust them with mobile wallets. There is also significant brand loyalty transfer among consumers when it comes to Apple. Apple iPhone owners are three times more likely to trust Apple’s own mobile wallet Passbook compared to the average US smartphone owner with more one in five (23%) of iPhone users trusting Passbook compared to only 7% among all smartphone owners.

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Consumers trust banks because of experience with mobile banking

A key reason behind a greater trust in banks for mobile wallet rollout is largely due to significant exposure and usage of mobile banking via apps and mobile websites. Almost all (94%) of mobile banking users have accessed mobile banking to check their account balance or monitor their recent transactions and more than seven in ten (71%) have downloaded the banks mobile app.

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Peer-to-peer transfer, a highly sought feature in mobile wallets, is already prominent among mobile banking consumers. Mobile banking users are ahead of mobile wallet users in transferring money with more than three in five (61%) using their smartphones to transfer money across their bank accounts and another quarter (25%) of mobile banking consumers transferring money to another person’s account.

Besides peer-to-peer transfers, mobile banking consumers also perform a range of activities that usually gets perceived as complex or advanced. More than half (51%) of mobile baking users deposited a check into their account electronically using the smartphone camera. With mobile banking users comfortable enough to carry out complicated activities on their smartphones, it is not surprising that consumers want banks to roll out a mobile wallet.

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Banks can target mobile banking users with wallet services

Mobile banking users, just like mobile payment users, tend to be young and non-white. Three in five (60%) millennials (18-29 year olds) use mobile banking slightly more than 30-44 year old Generation X consumers among whom more than half (54%) use mobile banking. In comparison less than a third (32%) of Boomers (45-59 years old) and slightly more than one in ten (13%) Matures (60 and above) use mobile banking.

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The trend of more young consumers using mobile banking compared to older ones has been consistent over the years though Generation X users have now caught up with millennials and will most likely continue to grow as the share of millennials using mobile banking decreased for the first time in 2014.

The trend of Generation X consumers surpassing millennials in mobile banking usage is in line with greater smartphone ownership as well as a faster rate of technology adoption among Generation X consumers. This is good news for banks as Generation X consumers have more disposable income compared to millennials.

Like mobile payments, mobile banking is also more prominent among non-Caucasian consumers. More than half (53%) of Hispanic consumers in the US use mobile banking services in 2015, significantly up from less than three in ten (29%) in 2011. Mobile banking has also been prominent among African-American consumers with more than two in five (43%) using the service in 2015, up from 35% in 2011. In comparison, just over a third (34%) of white consumers use mobile banking services.

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Non-Caucasian consumers in the US have historically led adoption of mobile banking much like mobile payments. The demographic is at the forefront of mobile led technologies including mobile shopping as well making it ideal for brands, retailers and financial institutions to engage them via various mobile led initiatives including a mobile wallet.

While the research found there no clear relationship between mobile banking usage and income or education level of a consumer, the prominence of ethnic and young consumers in mobile banking usage makes it ideal for banks to launch their own mobile wallet service to help them with peer-to-peer transfer as well as shopping.

Mobile wallets can also be a complementary tactic to increase mobile banking penetration in the US, which stands at just over a third (35%) of banking consumers, ahead of mobile telephone for the first time but significantly behind desktop and laptop based online banking which increased from 67% in 2012 to 74% in 2014.

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References

  1. Payments on the go: Making sense of the evolving mobile payments landscape
  2. Consumers and Mobile Financial Services 2015
  3. YouGov Omnibus
  4. Reinventing Retail: What businesses need to know for 2015
  5. State of Mobile Commerce Q1 2015
  6. The Future Of Mobile Wallets Lies Beyond Payments

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