Will mobile payments make payment cards an endangered species?

Traditionally used for higher value purchases, consumers are increasingly using cards for lower-value transactions. This shift in consumer attitude and behaviour, coupled with the relatively recent introduction of contactless-enabled payment cards has undoubtedly cemented their appeal as a convenient, easy-to-use payment instrument. However, in the mobile world that we live in, could cards be an endangered species?

While it is easy to get caught up in the hype around mobile, it is important to note that it was only last year that the volume of card payments in the UK outstripped cash payments for the very first time – this is despite the first UK charge card being issued nearly 70 years ago (1951). These initial charge cards were very different to the more sophisticated, contactless-enabled payment cards we know and use today, however, they were, nevertheless, the start of our long-standing relationship with plastic.

Step forward the mobile device. While the first mobile payment was recorded in 1997 when Coca-Cola introduced SMS purchases at vending machines, the first mobile phones with MasterCard PayPass and/or Visa payWave didn’t appear until October 2011, and the ‘Pays’ weren’t launched until 2014/2015.  Smartphones have become ingrained in our everyday life – you only need to walk down the street to see people with their heads down engrossed in their phones, and with 80% of UK adults owning and using a smartphone, you wouldn’t be amiss in believing that mobile devices could take market share away from the payment card – the opportunity is undoubtedly there.

There is certainly a market for mobile payments, which many financial companies and tech giants are trying to take advantage of, that said, a recent report by ICM/HH Global suggests that the widespread popularity of contactless cards is stunting the adoption of mobile payments. The study reported that only 1% of British consumers choose to use mobile payments in everyday scenarios (buying lunch, clothes, etc.), while spending on contactless cards has trebled. Although they are convenient, making a payment with a mobile device is still relatively new, so it’s not surprising that mainstream adoption is slow. As with the transition from cash to cards, consumers need to learn to trust and feel secure using their phones to pay – only then will they form new habits and behaviours and ultimately adopt mobile payments.

A 2016 Compass Plus survey revealed that 25% of consumers thought mobile payments was the least secure payment method, in 2018, this figure reduced to just17%; in parallel, the number of consumers who believed the mobile device could be their main method for making payments in the next 10 years rose from 6% to 18%. These figures strongly suggest that the key to adoption is based on how secure a payment method is perceived to be.

With a 328% year-on-year increase in spending on NFC-enabled mobile phones (according to WorldPay) and a study by MoneySuperMarket revealing that almost a quarter of consumers aged 18-24 believe that mobile payments will ensure payment cards will soon become obsolete, there is no doubt that the mobile device is making inroads into the payments market and will continue to be one of payment instruments used by consumers.  It remains to be seen if mobile will overtake cards as the go-to way to pay.  

One reason for this could be down to the argument that mobile payments are simply an extension of paying with a card and that many consumers do not see the benefit of using the equivalent contactless technology on their phone. For example, while I do make mobile payments, these are usually when I have not got my card on me. The contactless limit means that I can’t use my mobile for making high value purchases, and to be honest, I don’t think it’s something I would feel comfortable doing even if it was an option.

Cards have undoubtedly replaced cash for higher value purchases, while the contactless functionality on them is being used for lower cost payments– this means that the mobile is essentially in battle with contactless. Is this a battle that mobile can win? In the next 50 years, I would expect to see a continued shift to consumers making more and more payments using their mobile device, as it becomes even more ingrained in everyday life, with more capabilities, longer battery-life, etc.  All payment methods have their downsides and until there is a more convenient and secure experience that is significantly different to using a card – for example, zero step payments – it’s hard to believe that the card will be an endangered species anytime soon. Cards took nearly 70 years to overtake cash, by this reckoning (and using the NFC mobile payments as a guide), mobile payments have at least 65 years until they usurp cards to take the crown.