Mercator Blog

Can Mobile Payments Overcome Early Challenges and Increase Consumer Adoption?
Date: February 28, 2017
Raymond Pucci
Associate Director, Research Services
In just the past few years, the U.S. digital economy has generated seismic waves throughout the payments landscape. E-commerce activity now thrives due to forces including the popularity of Amazon, the improving ease of electronic payment, and the ubiquity of the smartphone. Both old and new providers of technology to facilitate electronic payments are competing and collaborating. Established payments vendors, including the merchant acquirers, payments processors, card networks, and card issuers, are adapting to digital commerce—the new normal. In addition, new payments industry participants have emerged that are focused on enabling digital commerce. These include gateways, financial technology (fintech) companies, alternative payment providers, and value-added resellers (VARs).

The resulting payments ecosystem is complex. Rapidly evolving technology, combined with disruptive influences, has facilitated the exponential rise of U.S. digital commerce. Many apps and systems designed to enable digital commerce have been launched in just the past three years. Apple Pay was announced in 2014; Android Pay and Samsung Pay arrived on the market in 2015. Spun off from eBay in 2015, PayPal has its own mobile payment app as well. The card networks chimed in with Visa Checkout and MasterPass. Financial institutions are not to be left out, with Chase Pay and Citi Pay coming into their own. Starbucks launched its powerhouse mobile app, and other fast food and big box merchants followed suit. Digital commerce has also expanded beyond the traditional concept to include chat sessions and voice commands through Facebook, Amazon’s Alexa, and Google Home. It is not just technological innovation that is causing the expansion of digital commerce. Its spread is also driven by the ever- increasing number of value-added suppliers that introduce new methods of marketing, engagement, payment methodologies, and features. This Mercator Advisory Group research report touches on all of these factors in order to establish a taxonomy of the digital commerce infrastructure as it exists today and to provide a forecast for its growth.

More information is given in the report, Mobile Payments Platforms and Markets: How High Is Up?  Attention is given to the stakeholders on the front lines of the e-commerce action. Merchants and their customers drive the demand for online and mobile transactions. Online merchants fueled the rapid rise of e-commerce, catching brick-and-mortar retailers by surprise and leading to the demise of many. Highlighted in the report are some merchants who have succeeded on both the digital and physical sides of e-commerce and the reasons for their success. Not to be left out of the discussion are consumers, whose digital wallets and smartphone apps payment vendors are fighting over. This report features recent consumer research by Mercator that provides insight into the mobile payments use and preferences.

The impact of some new and evolving technologies on e-commerce is also discussed. Tokenization, the new W3C payment standard, and the 3DS version 2 authentication system raise implications that payment vendors must understand for the near future.

What the U.S. government has traditionally called “e-commerce” has expanded greatly, and so new definitions are required. Mercator Advisory Group uses the term “digital commerce” to denote all transactions performed over the internet, which includes IVR, chat bots, voice recognition, traditional web, mobile web, mobile apps, person-to-person (P2P) payment solutions utilized to purchase goods or services, and remote payments made on the behalf of the consumer by devices such as cars and appliances. The majority of digital commerce is conducted over the branded payment networks, but this definition and our forecast also includes closed-loop prepaid transactions.