Alternative music for millennials: New payment options to win them over
Millennials have fashioned the smartphone into a ubiquitous tool to socialize via Twitter or Instagram or Snapchat; collaborate on projects with Slack; or find and review restaurants on Yelp. So it seems natural that this group would aggressively opt in when it comes to mobile payments, right?
Not so much—or, if you prefer, that call is on hold.
While this large, powerful demographic depends on their smartphones to the point of earning the moniker “digital natives,” recent research indicates they aren’t quite as committed to using mobile payment methods just yet, as many prognosticators predicted. According to a 2016 survey by Accenture Consulting, 52 percent of North Americans are “extremely aware” of existing mobile payment options. But only a meager 18 percent use them regularly. Indeed, the number of Americans who use mobile phones at the point of sale—just 19 percent—hasn’t bumped up at all in a year, the report finds.
But the interest is there according to Brian Pearce, senior vice president of innovation for Wells Fargo & Co. Virtual Channels. “There was an assumption that mobile payments behavior [among millennials] is very different, but that’s not what we’re seeing,” he says. “We’re seeing customers interested in using mobile wallets … but they also don’t want to hold up the line.”
Not that the phone line is clear. London-based payments firm VocaLink Ltd also explored the issue of what’s delaying acceptance of mobile payment with its own survey of 5000 U.S. millennials. They found that 52 percent had used mobile payments; that’s the impressive part. Not so much impressive: 86 percent had encountered problems.
P2P and pointing beyond point-of-sale
A third of millennials [32 percent] use their phones for peer-to-peer (P2P) payments through applications such as Venmo, compared to about 18 percent on average across other demographic segments. But industry insiders agree the response is not as strong as it could be. “Mobile payments at the [point of sale] especially are not really resonating with millennials [because] they’re not really attached to much greater value,” says Daniel Van Dyke, mobile practice analyst at Javelin Strategy & Research. “They don’t have a compelling reason to embrace wallet, especially when compared the cards.” Van Dyke claims the lack of merchant acceptance is perhaps the biggest drawback to POS-mobile payments, though he says wallet providers, especially Samsung, are making major inroads.
P2P services continue to gain momentum, as the likes of PayPal, Facebook and Chase get into the peer-to-peer game. According to a recent Accenture study, 46 percent of consumers have used P2P services—15 percent with regular frequency. According to the same study, P2P is widely considered the front running use case for enabling real-time payments in the U.S.
With significant growth in bill pay technology and usage, opportunities for wider adoption still exist. According to the June 2016 BAI Consumer Market Outlook Survey, consumers have an average of 4.5 bill pay interactions per month. Interestingly, this does not vary widely by generation. At the same token innovation opportunities exist within the bill pay space.
Payments priorities: Loyalty, velocity, friction-free
Millennials already represent more than 75 million U.S. citizens (24 percent of the population) and will have the greatest spending power of any generation by next year ($3.39 trillion). Thus banks and payments providers refuse to give up on making m-payments work for this up-and-coming group and engage them as customers. Charlie Youakim, CEO of payments upstart Sezzle, points to the basic concept that as with most consumers, “Millennials are just looking for something that makes their lives easier.”
Youakim suggests that making mobile payments more “friction-free” (that is, not having transactions denied or slow down the line at a store) marks an important first step—one that needs to be followed by offering these valued customers rewards.
“Consumers are fickle,” he says. “They need something to get them on board with [a new] payment method,” recommending clear-cut loyalty options such as cashback on purchases.
Bank-centric applications are not the only option, as business wallets are on the upswing. Starbucks—one of the first businesses to introduce an in-house mobile payments system—has led the way with business-specific wallets. Recently, Target, Walmart and CVS have launched their business-specific payments applications. “We will see more business apps that blend payments with experiences such as ‘order ahead’ and in-store pickup over the next year,” notes Malauzai chief product officer, Robb Gaynor.
“In the end, it has to come to the banks to deliver the immediacy and the experience [of payment],” notes Alex Carriles, executive vice president and director of mobile and online channels for BBVA Compass Bank. “It doesn’t matter how good the application is: The last mile is delivered by your bank.”
Wells Fargo also sees the value in combining what they can offer as a bank—specifically the connection to a customer’s real-time banking account information—with mobile payment, according to Pearce.
“For us it begins with the mobile banking application, that ability to check balances before or after a transaction,” he says. The San Francisco-based bank is also looking into other ancillary benefits, such as receipt download to smartphone.
Despite their convenience-based reticence and early disappointments, millennials have shown a propensity to give mobile payments a chance. Indeed, according to at least one account, the total value of mobile payment point-of-sale transactions is forecasted hit nearly 10 billion by 2018.
One thing is for certain: Millennials aren’t about to put down their smartphones or give up their digital native status. If anything, the natives are restless for payments speed and ease. Banks say that day is coming and the first ones good to make good on their word—whether by wallet, P2P, frictionless app or some appealing combination—stand to win loyal customers and billions in business: a billennial payoff, if you will.
Karen Epper Hoffman has been writing about banking and technology issues for nearly a quarter of a century for publications including American Banker, Bloomberg Businessweek and Financial Times’ The Banker. She has also spoken and moderated panels at industry conferences. She lives in Olympia, Wash.