There is a push underway to digitize consumer payments, led by those seeking to make the mobile phone and other personal devices into digital wallets.
To help monitor this trend and the evolving opinions about its future, we analyzed the results of a recent survey about the future of device-based payment systems conducted by the Pew Research Center. This brief presents some of the key themes that emerged from the Pew survey and synthesizes them with material from other sources to explore the future of digital money and explore implications for businesses and other organizations.
“There is nothing more imaginary than a monetary system. The idea that we solemnly hand around printed slips of paper in exchange for food and water shows just how trusting and fond of patterned behavior we human beings are. So why not take the next step? Of course we’ll move to even more abstract representations of value. Other countries are already content to use their phones; we’ll catch up eventually.” — Susan Crawford, professor at Harvard’s Kennedy School of Government
• A sizeable majority (65%) of Internet experts expect mobile wallets to become the primary form of payment for World 1 consumers by 2020, according to a poll conducted by the Pew Internet & American Life project.
• In the near term, adoption will likely break along generational lines, with younger consumers leading the way in World 1.
• There will be geographical differences as well. Key World 1 nations already lag certain emerging markets in the use of digital payments.
DIGITAL WALLETS IN 2020
Pew asked a set of 1,021 survey participants to respond to a “tension pair” that presents two opposing future scenarios for payment technologies. Respondents included a variety of Internet and technology experts from corporations, academic and research institutions, and NGOs—including well-known thought leaders such as Hal Varian, Google’s chief economist, and Clay Shirky, author and fellow at Harvard’s Berkman Center for Internet and Society. It also included many professionals who are “working in the trenches”—actually building the Web and related technologies.
Among all respondents, a sizeable majority (65%) felt that by 2020, mobile wallets will become the primary form of payment and will largely eliminate the use of cash and credit cards by most World 1 consumers. In contrast, 33% took a more measured view of the future of digital payments.1 (See Figure 1, above.)
THE PSYCHOLOGY OF SPENDING
One potential future—which was briefly mentioned in the Pew report—is that digital payments could lead to a new wave of overspending. As one expert put it, “We will see even more people having financial difficulties because of overspending.”
Researchers have already shown that people are willing to pay more for products when paying with credit cards versus cash, partially because it’s harder to keep track of what is being spent with cards.
Early research suggests that there may be a generational component to the adoption of mobile payments. In a 2011 Deloitte study, 28% of US mobile users who access the Internet via their smartphones reported making an m-commerce purchase at least once a week.9 But this figure varied widely among different age groups.
Respondents were then asked to elaborate on these two very different futures. Thanks to the tension-pair approach, this exercise elicited a number of interesting, divergent themes that offer insight into the potential futures of digital payment systems.
The new wallet—Respondents who saw widespread adoption of digital payment by 2020 identified a variety of interesting themes.
The rapid adoption of smartphones—This trend is providing the necessary infrastructure for new payment types. Other drivers—such as the insecurity and transaction costs of credit cards, and consumer desire for convenience—will come together to help drive the mobile payment future.
Mobile payments are evolutionary—Experts expressed the opinion that payments made via mobile devices are an evolutionary—not revolutionary—step in payment technology and used this argument as a way to support their forecast for a relatively quick transition. As a distinguished Microsoft engineer noted, “We have already witnessed the transition from cash to debit/ credit cards. The electronic wallet is not much more than a ‘virtual card,’ in which near-field communication replaces the reading of a magnetic stripe.”
Security concerns will be manageable—Those respondents who were most bullish on mobile payments acknowledged security concerns as a real—but manageable—threat. Some envisioned technical solutions, such as multi-factor biometric identification, paving the way for widespread use of digital payment systems. Others suggested that the convenience of mobile wallets would override any real and perceived threats to personal finances. As one anonymous respondent suggested, “The security fears of using smart devices for payment mirror the early fear of making purchases over the Internet. Ultimately, the ease of making purchases will win over the public.”
3 BUSINESS IMPLICATIONS
- Digital payment technology could give consumers significant new levels of transparency into their financial lives, in much the same way that wearable sensors associated with the “quantified self” movement are driving transparency into people’s health pursuits. In other words, since every item a person purchases will be digitally recorded, it will become much easier for people to track and analyze their own spending and brand loyalties at a much more granular level, and to derive useful insights from this data.
- For example: A consumer could receive a detailed weekly or monthly analysis of where and how they spend, and discover that they tend to make impulse purchases when they are out with particular friends. Another person might find that their daily coffee habit at the local café is on track to cost them $1,250 this year. This implies the need for new services to help consumers manage all of this new digital spending data.
- As spending habits become easier to discern and visualize, as noted above, it will have a variety of outcomes, not all of which can be currently foreseen. For consumers who feel financially strapped, the ability to quantify their financial lives could drive an even greater focus on value and not spending. Others may feel that they have the leverage to push for improved loyalty perks.
- For example: Someone who can prove through their digital spending record that they only shop at a particular grocery store might push for more discounts, lest they take their business elsewhere. Another possibility is new forms of group buying, if consumers decide to share their purchasing data collectively with others who have similar spending patterns. No matter what the outcome, quantified (financial) lives will add an important new facet to empowered consumerism.
- The forecast that acceptance of digital payments could break along generational lines suggests the need for a nuanced and multipronged approach to the issue. Organizations will need to vary approaches to marketing, communication, and consumer education efforts and appeal to the unique needs of each generation.
- For example: Millennials—most of whom were hard hit by the Great Recession—may react to messaging about how digital payments can help better track purchases and save money. On the other hand, boomers may respond to messaging about how digital payments can help them stay on par with their kids in terms technology usage and make shopping more convenient.
FOR MORE INFORMATION
To read this entire brief — and to learn more about the trends and forecasts in this report and what they mean for your organization — contact firstname.lastname@example.org.