Americans’ desire for contactless methods of payment at the point of sale is turning out to be a surging tide that will continue lifting all mobile wallets, according to eMarketer. By 2025, the research firm projects, 50.1% of U.S. smartphone users 14 and older will be using their devices to make payments that they might have made in the past with cash or plastic.
In 2020 the number of U.S. users of “proximity mobile payments” — contactless use of wallets — rose to 92.3 million. eMarketer believes this will increase by 35% to 125 million in 2025. That increase, 32.7 million, is equal to the population of Texas with a couple of smaller states thrown in.
All mobile wallets are benefiting from the trend, according to Jaime Toplin, eMarketer Senior Analyst. But she explains in an interview with The Financial Brand that a concurrent trend is for the companies offering mobile wallets to increasingly loop them into bigger financial and product ecosystems to make it more enticing for consumers to use that wallet and thus increase the companies’ share of (mobile) wallet.
The unusual conditions of the first year of the pandemic spurred a 29% increase year over year in use of mobile payments in stores. This is doubly noteworthy considering that for extended periods during 2020 many consumers couldn’t go to any stores except those deemed essential. This means that the velocity of the increase where people could pay with mobile devices was that much more pronounced.
Why This Is Important:
While other research has shown how consumers’ demand for contactless payments rose in the wake of the coronavirus, eMarketer’s data indicates how payment preferences are changing permanently.
The trend in use of mobile wallets built on what eMarketer was seeing in earlier research during 2020 at stores, bars and restaurants. Fears of Covid contamination led more people to avoid cash and shift to debit and prepaid cards, as well as credit cards when they were willing to use credit.
A Pocket-Sized Trend That’s Growing and Growing
Toplin says that the nearly one-third boost of 2020 came at the same time that mobile wallet payments were already gathering momentum. She believes that boom is a one-time push, but the firm projects that its impetus will be felt at least through 2025, though the rate of increase will fall off as time passes.
Also likely to contribute to continued growth will be increased blurring of the lines between mobile wallets and P2P payment methods. Toplin says eMarketer expects to see more convergence between the two payment channels. P2P players like Venmo and Zelle could develop wallet products of their own, for example.
Toplin notes that early in the pandemic consumers wanting to use mobile wallets may have pulled out their devices, ready to wave them — only to find the store had no card reader. She says that many retailers adopted more advanced readers during the pandemic in response to demand.
What to Watch:
Much room for additional growth in mobile payments remains because many merchants still can’t accept them. But that will change.
Research by Blackhawk Network, a prepaid payments provider, indicates that 39% of major retailers still don’t take NFC (near-field communication) payments. This suggests that as more retailers add the capability at checkout that this will hasten growth in contactless mobile payments. Toplin says the trend will be assisted, as well, as payments processors make it easier for smaller retailers to add mobile-friendly readers at their locations. Portable readers for payment at table and at curbside pickup have also been a factor.
Younger Consumers Feed the Mobile Wallet Trend
Toplin says eMarketer’s research indicates that Millennial and Gen Z consumers represented the largest amounts of new users of mobile payments. Of the projected 6.5 million new mobile wallet users expected to be added each year from 2021 to 2025, the firm estimates 4 million will be from Gen Z. To a degree this trend reflects the fact that a greater portion of the country falls withing the two younger population groups than Baby Boomers, Gen Xers and Seniors.
That said, Toplin notes the contactless preference spans all groups and that as Boomers, for example, try it, they adopt it.
“It creates a flywheel effect,” says Toplin, and becomes habit-forming.
As consumers incorporated mobile wallets into their daily routines and became more comfortable buying a wider variety of items with the technology, spend per user increased.
— Jaime Toplin, eMarketer
As illustrated earlier, by 2025 eMarketer expects mobile spending at point of sale to more than double per user.
Increasingly Mobile Wallets Belong to Ecosystems
Of course, the mobile wallet business wasn’t waiting for a once-in-a-lifetime disease to be its sole marketing agent. Toplin says that the companies offering wallets increasingly seek to build usage by making them part of something bigger.
One of the leading examples of this approach is the Apple Card, which is both virtual and physical. Cardholders who use the Apple Card via the Apple Pay wallet receive extra cashback. And, as the Apple website says, invoking the demand for contactless payments, “Apple Pay is a safer way to pay that helps you avoid touching buttons or exchanging cash.”
Google’s pending Google Plex project, in which banks and credit unions are working to provide transaction and savings accounts to be offered through the Google Pay wallet can be seen as another example. Incentives are expected to be part of those offerings.
Toplin believes that of other wallets, Walmart Pay and PayPal are two to watch as they grow.
And the ecosystem effect can be a two-way street. As a blog on NerdWallet points out, card issuers not only want cardholders to put their cards into their mobile wallets, but will pay bonuses for using them that way on an ongoing or promotional period basis. It’s a matter of being “top of wallet” — mobilely. LINK:
Wallet use reflects a channel choice, while the selection of which card to use is a choice of funding method.
With eMarketer’s projections and ecosystems at work, will plastic cards — even titanium cards like Apple’s — fade away and go entirely virtual?
Toplin is skeptical: “I don’t think we’re there yet. I don’t think that we’re going to see a wholly cardless society.” And while consumer crypto payments are growing — Bakkt’s Digital Wallet can be used with crypto to pay at Starbucks, for example — she considers that still a bit “nascent.”