With cryptocurrency getting a bulk of the buzz in 2018, it was easy to take eyes away from mobile payment apps and their continued progress. But the worldwide trend of making fewer and fewer cash transactions is no small thing. In fact, that might be one of the most tangible, revolutionary results from the entire mobile app development movement.
Mobile payment apps don’t require (and are not connected to) personal bank accounts. This benefit, alone, opens doors. But paired with the integration of blockchain and cryptocurrency into mainstream financial channels, a more universal move away from physical cash is picking up the pace.
How will these trends converge and play out in 2019? There are several factors that come into play:
The Popularity Contest
Smartphones. People love them and continually choose to trust them. So why wouldn’t using mobile payment apps continue to trend up?
By 2015, the cash value of mobile payments in the United States alone amounted to about $178 trillion. Research quoted in the Guardian notes that, in the UK in 2016, cash was used for only about 40% of all transactions. That percentage is projected to drop to around 21% by 2021.
Convenience often outweighs risk, and a better user experience not only changes purchase behaviors, but also consumer expectations.
Mobile Payment Pros
- Convenience: Tap, wave, authenticate, leave. No lines, no PINs, nothing to sign. With Walmart Pay, you scan the QR code with your phone, and you’re done. Personal payments via instant, secure apps like Venmo, Zelle, Facebook Messenger, Google Pay, Apple Pay, or PayPal also deliver on fast and easy.
- Record keeping and currency conversion: Purchase receipts are automatically stored in an app, so records are always available if a refund is needed. Furthermore, some mobile payment apps, such as Western Union and Xoom, are specifically designed to send money between countries. They automate currency conversions with a fair rate of exchange and relatively low fees.
- Personalization: Consumers get premium deals, discounts, and special sale prices through mobile apps, based on their buying demographic and history.
- Physical security: Multiple layers of authentication make it harder for thieves to steal money, even if they get hold of the phone.
- Cost Savings: Retailers and banks can save money by facilitating mobile payments. These transactions require fewer employees to manually process.
- Visibility: For individual awareness and tracking, this is a pro. From the government’s point of view, having traceable transactions eliminates a lot of criminal options.
- Streamlined engagement with brands: Branded apps of all kinds, from Uber to Starbucks, allow users to arrange and pay for products and services. Dozens of apps such as LevelUp, QKR and Grubhub are becoming generalists in the digital payment ecosystem.
- Ongoing innovation: App features evolve with consumer demands. One example is Square. The app plans to begin offering on-the-spot financing for large ticket items.
- User Risk: Some apps, like Zelle, warn users they cannot guarantee service fulfillment. For this reason, Zelle urges customers to use the app only when they are acquainted with the person they’re paying. (For instance, you’d pay a babysitter with Zelle, but you wouldn’t use it for a Craigslist purchase.)
- Identity Theft: If not properly secured, mobile apps can expose a consumer to cybercrime. In an increasingly crowded field, users have to check the legitimacy of an app before transacting.
- Lack of Privacy: Privacy advocates have been a driving force behind the development of cryptocurrency. Some people have strong feelings around keeping their financial lives private. Mobile payment apps tied to ordinary funding sources can track every financial interaction.
- Lost or Stolen Devices: If you’re unlucky enough to leave your phone in a taxi, or drop it into a fountain, or even let it run out of battery, your purchasing power falls off the table.
- Retailer Lag: If their favorite stores don’t offer mobile payment options, consumers hesitate. Retailers, however, may not feel inclined as long as their customers appear to be fine using cash or credit cards. Only 36% of North American retailers currently support Apple Pay, which is the most popular mobile payment app in the U.S.
Understanding the Unbanked
The first generation of mobile payment options required users to have bank accounts and/or bank-issued credit cards. Payment apps simply functioned as a channel to direct funds from those accounts. As a result, apps shut out households that had no relationship with a bank. Payment methods linked to the American banking system had no way to reach the vast rural swaths of the world’s population.
As smartphone use in remote areas vastly outstripped banking access, new payment options were inevitable.
From mobile wallet OnOnPay, newly built to serve the 69% of Vietnamese citizens who are unbanked, to the 16 different mobile payment services reaching out to Latin America’s unbanked population, the alternatives are multiplying.
Breaking the Bank
Recognizing an untapped market, PayPal offers many services similar to traditional banks, and Apple Pay insures users’ in-app balances of up to $250,000. Prepaid debit cards, which are not associated with traditional bank accounts, are sufficient to gain access to many of today’s mobile payment apps. According to Deloitte, more than 30% of millennials say that within five years, they won’t need a bank at all.
Mobile Payments: Meet the Blockchain Gang
Blockchain, although progressing greatly behind the scenes, is still in early stages of consumer understanding and business adoption. That being said, when it comes to eliminating some major concerns around mobile transactions, it just might be the hero mobile payment apps have been waiting for.
Independence from banks is related to the mainstreaming of blockchain and cryptocurrency. World Food Programme (WFP) assistance is increasingly being delivered in the form of mobile cash transfers, and the value of these is expected to reach $1.6 billion in 2018. WFP is now experimenting with using blockchain to make these transfers “more efficient, transparent and secure.”
Blockchain’s digital ledger technology eliminates many security concerns associated with non-banked money transfers. It creates a secure, private way to pay and helps mitigate the associated and perceived risks in making mobile payments. David Drake, founder and chairman of private-equity firm LDJ Capital in New York City, predicts, “The [cryptocurrency] and the mobile payment solutions will be merging…the Monaco cryptocurrency already offers Visa-affiliated cards for people to easily spend their money.”
Mobile Payments & Cryptocurrency, a 1-2 Punch
The use of cryptocurrency, namely Bitcoin, dominated cash-crushing conversation in 2018. Mobile payment apps and “crypto” are positioned to drive a two-pronged revolution against traditional consumer payment behaviors and preferences.
The growing acceptance of cryptocurrency by mainstream financial institutions offers new opportunities for digital payments that are private as well as secure. It’s already possible to access the more prominent forms of cryptocurrency through mobile devices, even though users operate outside of the standard monetary system:
- Cash App from Square, for example, lets users buy and sell Bitcoin, moving regular currency into and out of their ordinary bank accounts for this purpose. People can also use the app to pay each other in Bitcoin.
- Jaxx is a cryptocurrency wallet that works with a smorgasbord of currencies including Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Dash, and Zcash.
To offer some big-picture perspective: Bitcoin lost 80% of its value in 2018, and many economists and asset managers are “only slightly bothered,” according to Global Coin Report. The UK’s Independent notes that “Bitcoin is following the same path towards mass adoption as other technologies like the internet and social media.”
A Declaration of Independence?
The use of cash (or objects that represent a fixed value) dates back over 7000 years. Official coins have existed for more than 2700 years. The act of physically exchanging physical payment is still in our cultural DNA, and, similar to pumping gas, it’s not going to stop overnight. With less reliance on traditional banks, or established monetary systems, mobile payments provide the portal to transactional independence.
The world will ring in 2020 with cash in pockets. But, with mobile payment app evolution, blockchain tech, and cryptocurrency adoption, this year will accelerate the movement toward a cashless future.