How mobile wallet use exploded from one year in lockdown

April 26, 2021 11:01 AM

Mobile wallets have seen strong adoption as an in-store payment method in China, but have lagged in appeal in the U.S. until recently. Coronavirus fears have caused many Americans to rethink the mobile wallet’s value proposition.

“The biggest problem with mobile wallet adoption and usage was always merchant acceptance,” said Jason Pavona, general manager for North America e-commerce at FIS. “COVID changed that overnight. Mobile wallets have been the big winner in the last year as COVID has made people rethink how they pay in-store and online.”

Old payment habits take a long time to change, unless there's a major event such as a global pandemic. In the case of cash, much similar to paper checks, both of their usages have waned for decades.

Based on the findings from the Federal Reserve Bank of San Francisco’s Consumer Payment Diary conducted in October 2019, just before the pandemic struck, cash made up almost half (47%) of all in-store transactions under $10. However, its share dropped precipitously as the size of transactions went up, deferring to debit and credit cards.

The effect of the pandemic on North America’s usage of cash for in-store point-of-sale transactions is clearly seen in the data from the FIS 2021 Global Payments Report. In 2019, cash had an almost 15% share of all in-store POS volume, while mobile wallets could muster only a 6% share position.

In 2020, mobile wallets received a 60% boost in POS usage, growing to a 9.6% share; and cash volume fell by over 20%, to 11.4%. Going forward, FIS predicts that mobile wallet POS volume will reach 15.5% in 2024 while cash usage will fall to under 10%.

“Merchants who balked in the past about accepting wallets because there were no users changed their tune overnight as the rush was on to give consumers more contactless payment options,” noted Pavona.

“Customers have discovered the versatility of shopping with a wallet both online and in-store in the past 12 months,” said Pavona. “Merchants and banks have also discovered the utility of driving offers to wallets to incent usage and loyalty. It’s quickly becoming table stakes to integrate loyalty programs with wallets as they are the only payment vehicle that can drive traffic in-stores, online and in mobile apps.”

Mobile wallets built a strong share position in the U.S. online shopping channel in 2020, growing to 30% of payment volume, according to FIS data. Wallets reached parity with credit cards, which have long ruled the roost in e-commerce.

Additionally, some wallets can be integrated with certain browsers, such as Apple Pay and Safari. As more merchants are accepting wallets for e-commerce transactions, the utility of wallets is only set to increase.

One clear example is the integration of Apple Pay with Intuit’s QuickBooks as a payment option, broadening its reach to many service-oriented small businesses that perform lawn care, pool services, accounting and other services.

Interest in using a mobile wallet as a primary method for in-store payments is much higher among younger consumers, yet still resonates with older generations. Based on data from PaymentsSource’s Future of Money Survey released in November 2020, 48% of Gen Z survey respondents stated that they would be extremely or very interested in using a mobile wallet as a primary payment method for all in-store transactions. Millennials scored even higher, at a 61% level.

While only 26% of boomers reported the same level of enthusiasm for using mobile wallets in-store, over half (52%) reported that they had no interest in using a wallet as a primary POS payment choice.

Key concerns that kept some respondents from being overly enthused about mobile wallets included not knowing if a store accepted contactless transactions, being unsure if the wallet would work when they wanted to use it at the register, and not being familiar with the technology.

Despite some of the fears and apprehensions consumers may have had around using mobile wallets in stores, COVID-19 caused people to take a second look at paying with their smartphones.

“There’s a growing awareness of the wallet’s ability to transact in-stores,” added Pavona. “Not only is their wider merchant acceptance, but many stores have now realized that they can provide coupons to customers through their mobile wallet to get repeat usage. People love coupons, especially Gen X and if that’s what it takes, the successful merchants will capitalize on the opportunity.”

The change in mobile wallet adoption from before the pandemic to November 2020 is stark. Based on the PaymentsSource Future of Money study, mobile wallet usage among Gen Z and millennials tripled in less than a year and more than doubled among Gen X adults.

Gen Z went from 3% mobile wallet usage as a primary payment method in February 2020 to 9% in November 2020, and millennials went from 2% to 7% in the same time period.

Looking outside of the U.S., mobile wallets were already gaining significant ground in countries such as China, where Alipay and Tencent’s WeChat Pay dominate e-commerce and have become commonplace for in-store transactions.

Based on the FIS Payments report, half of all in-store POS transactions in 2020 were conducted with a mobile wallet. This has spurred TikTok’s parent company, ByteDance, to challenge the Duoply’s control of mobile wallet usage by launching Douyin Pay which already has 600 million users. Ant Group’s Alipay and Tencent Holding’s WeChat Pay each have over 1 billion users.

Early in the pandemic, reports of China and South Korea burning, disinfecting and quarantining cash only served to add to consumer fears that cash could transmit the coronavirus, prompting many to seek alternative payment methods such as mobile wallets.

“The rate of change was surprising to me,” said Pavona. “COVID has changed how people interact, how they shop and the choices that they make when marking purchases in-store. It’s one thing to see a store no longer taking cash for purchases, but it’s another thing to see that happen globally.”

In India, the traditionally cash-based economy also experienced significant adoption in mobile wallet usage for in-store POS transactions. Data from the FIS report revealed that mobile wallets account for 22% of POS volume in India, taking second place after cash as the leading payment method.

Other factors, in addition to COVID-19, have come into play in driving mobile wallet adoption outside of the fears that cash may be a vector to spread the virus. In 2016, India abruptly recalled its larger paper currency notes in a bid to crack down on tax evasion. This caused a run on banks as consumers sought to convert old notes into new ones and diversify into card and other electronic-based payments.

India’s digital directive to discourage the use of cash and promote digital payment methods has greatly influenced non-cash payment options. Finally, there has also been significant growth in local and foreign wallets seeking to capture the Indian consumer’s attention. Paytm, a local wallet has sought to integrate e-commerce with in-store transactions using QR codes. Meanwhile Google and Phone Pe, which is part of the Flipkart network and majority-owned by Walmart, have become major players in the Indian mobile wallet market.