Security Concerns Slow Growth in Mobile Payments: Fed

While more consumers are using smartphones to pay bills and conduct other financial transactions, a good portion worrying about security are staying away, according to a Federal Reserve Board study.

The main fears consumers have about mobile payments is the security of their data and the possibility that hackers can remotely access their phones, according to a March 14 Federal Reserve Board study of mobile banking and mobile payments.

"Consumers' perception that mobile banking and mobile payments are unsecure is currently one of the primary impediments to adoption," the report says. "If consumers' perception of security issues changes — whether due to actual or perceived improvements — adoption rates may significantly increase."

For the Fed's "Consumers and Mobile Financial Services" report, Knowledge Networks conducted an online survey of 2,290 U.S adults between Dec. 22 and Jan. 9.

More than half of respondents said the reason they had not adopted mobile banking is because "their banking needs were met without the use of mobile banking." Forty-two percent of respondents cited security concerns as the reason they had not adopted mobile banking.

Eighty-seven percent of the U.S. population over age 18 has a mobile phone, and 44% of those are smartphones, the report says.

Some 21% of smartphone owners within the previous 12 months used their device for mobile banking, and 12% used it to make a payment, the report found. The Fed defined a mobile payment as purchases, bill payments, charitable donations or fund transfers to another person.

Among the respondents who used a smartphone to make a payment, 47% paid a bill online; 36% made an online purchase and 21% transferred funds to another person's bank, credit card or PayPal account.

Fewer than 10% of respondents used a smartphone for other types of mobile transactions, such as receiving a payment or texting to make a charitable donation, according to the report.

Younger consumers are more likely to make mobile payments with smartphones, the data suggest. Thirty-seven percent of respondents ages 18 to 29 said they had made a mobile payment compared with 22% of all respondents.

Among the underbanked, which the Fed defines as individuals who may have a bank account but use alternative financial services for check-cashing, 29% of respondents said that within the last 12 months they have used mobile banking services and 12% said they have made a mobile payment.

Women are also slightly more likely to use mobile payments, with females accounting for 55% of all mobile payments, the survey data says.

Income and education did not factor in different groups' use of mobile payments, according to the report.

The majority, or 66%, of respondents used a credit, debit or prepaid card to make a mobile payment, while 45% made payments directly from a bank account and 22% used Google Wallet, PayPal or iTunes. Eight percent routed a payment to their mobile phone bill.

Fewer than 7% of respondents used a smartphone to make more than five payments per month, the data says.

Although 58% of respondents used the Internet to price-compare before making purchases, only 12% of mobile-phone users said they had used a barcode-scanning application for price comparisons. Some 16% of respondents said they used their mobile phone to browse online-shopping reviews while in stores.

The Fed predicts that mobile banking will continue to grow, with one in three smartphone users adopting it by early 2013. "Similarly, a significant fraction of mobile phone users appears to be interested in using phones to make mobile payments," the report says.

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