sfgate.com
PayPal co-founder Max Levchin is a self-described “payments geek.”
And yet, as he approached the checkout counter at San Francisco’s Marina Meats, he reached for his credit card — not one of the payment apps on his phone.
“That was the entire transaction in two-and-a-half seconds,” he said, narrating the exchange. “I have an entire suite of apps for mobile payment on my phone, and yet I’m using my credit card to buy fish for my dinner. That should tell you how I feel about mobile payments.”
Most advertising for mobile wallets relies on a tremendous assumption: that rifling through an overstuffed wallet for the right credit card, or through a purse crowded with makeup and mints to unearth the wallet hiding at the bottom, is so arduous that shopping itself becomes a pain.
The issue with this pitch is that it proposes a solution to a problem that nobody really has. Paying with cash or a card simply isn’t that difficult (and plenty of women lose their phones in their purse, for what it’s worth).
Selling convenience without the existence, first, of inconvenience, is hard.
“In that sense, there’s a little bit of a don’t fix what ain’t broke approach that I would argue for,” said Levchin. “Innovating around the user interface of payments is a little gratuitous.”
Saves a few seconds
Paying by tapping a smartphone at the checkout counter saves seconds that no one was counting in the first place. And it presents its own new set of issues — like, for example, what if your phone dies?
Levchin’s next stop on the Sunday errand rotation was Whole Foods, one of the retailers that accepts Apple’s recent entry into the mobile payments space.
“At Whole Foods, I can swipe my card or I can try to use my Apple Pay,” he said, “But don’t think I’ll gain anything from using my phone.”
PayPal was one of the first companies to target mobile payments — back in 1998, Levchin and Peter Thiel launched a company that sought to turn a Palm Pilot into a digital wallet, storing encrypted payment information on the device. Until the company stumbled upon the idea of e-mailing payments, its big dream was to beam them from one device to another.
Levchin, who was not long out of college when he and Thiel founded what would eventually become PayPal, said at that time his main interest in mobile wallets was “curiosity.”
In the time since, mobile wallets have become something of an impossible dream. Levchin is no longer directly involved with PayPal (he recently founded Affirm, a lending startup), but PayPal debuted its own wallet app in 2013. The launch prompted a headline in The Verge that read, “PayPal’s new digital wallet app is powerful but baffling: Will anybody ever get mobile payments right?” Google Wallet debuted in 2011, but has yet to gain significant traction. Square’s Wallet product shut down this year.
A survey released in March by the Federal Reserve found that while 16 percent of smartphone users had used their phone to make an in-store payment, three-quarters of those had not believed it was easier to pay with cash or a credit or debit card.
Much hope has hinged on Apple Pay, which Apple unveiled this fall. Apple has some advantages that other entrants into the mobile payment space have not. It entered the market at a time when consumers have heightened concerns about credit card security, following a rash of payment data breaches this year. Through iTunes, 800 million consumers have already entered credit card information into Apple’s system, making it simpler for iPhone users to sign up. And Apple has a track record of driving adoption of new technologies.
Potential tipping point
“Apple Pay is certainly a tipping point,” said James Wester, the research director for Global Payment Strategies at IDC Financial Insights, who is critical of most U.S. mobile payment offerings.
But even Apple Pay has its skeptics.
David Evans, an economist at the University of Chicago who runs a payments blog, pointed to Apple Pay’s performance on Black Friday. A survey by InfoScout found that of more than 400 people with Apple Pay-enabled on an iPhone 6, only 5 percent actually used Apple Pay when checking out. The problem, he said, is that Apple Pay is limited to iPhone 6 users who shop at one of the small fraction of U.S. retailers that accept the technology. Evans went so far as to declare on his blog that Apple Pay is already “fizzling.”
Mobile payment has succeeded elsewhere by offering consumers something they really need. In some developing nations, such as Kenya, they provide consumers greater financial inclusion, providing access to banking services otherwise difficult to come by.
But in developed nations like the U.S., critics see it as tech for tech’s sake. The hassle of fishing for a wallet at the checkout counter is not a big enough problem to spur consumers to change behavior — and tech companies have yet to convinced them that there are other significant benefits to paying with a phone.
“Mobile wallets have been around for a long time, and nobody really uses them,” said Brad Brodigan, vice president of retail at PayPal. “Digital wallets are going to have to solve real world problems for real people. We can drive early adoption in Silicon Valley with cool technology, but everyday people need more.”
More options needed
Many critics agree with Brodigan — to spur mass adoption, mobile payment will have to offer shoppers much more than most payment options already do. For consumers, the real promise of mobile wallets isn’t actually paying with a phone. It’s all of the other stuff that paying with a phone might enable, such as organizing loyalty points, keeping better track of spending and maybe even storing things like keys or driver’s licenses in a digital wallet.
When Square killed Wallet, one of the main takeaways was that consumers wanted more than just a way to pay. So the company debuted Order in its stead, an app that allows consumers to place orders for things like coffee or lunch ahead of time (while paying for them on their phones, of course.)
Starbucks’ mobile app has been one of the biggest mobile payment success cases. In the U.S., 16 percent of all transactions at Starbucks are now made with a mobile device, up from 10 percent a year ago. Starbucks’ app didn’t start off as a way to pay, though. The app’s first coup was allowing its customers to digitally store loyalty points and gift cards — things that people are likely to lose track of.
Uber pay sees success
Uber is another company often hailed as a mobile payments success. But Uber has succeeded in automating the entire process of paying. Once a ride is hailed using Uber’s app, a rider has no need to take out their phone or wallet — the credit card info is already entered into the app and charged automatically.
“For my friends who use Uber a lot, the big issue is not thinking about money,” said Dan Ariely, a psychologist and behavioral economist at Duke University. “To leave without paying — that’s a big value. The pain of paying is really the association of payment with consumption.”
Still, the minds behind many digital payment companies seem to believe that the time-tested billfold is the real pain.
Keith Rabois, a venture capitalist and former COO of Square, lamented having to carry his own wallet. “Men don’t want it,” he said. “It’s just an extra thing in your pocket.”
Will Graylin, the founder of another mobile wallet, LoopPay, can’t look past the inefficiency.
“It’s simply faster than digging your wallet out of your purse,” he said. “That takes 17 to 20 seconds.”
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