Mobile Payments: Where are they Headed in 2016?

Mobile Payments: Where are they Headed in 2016?
Mobile payments picked up momentum during 2015. And while full mass-market adoption remains on the horizon, several critical building blocks have come into place.

In 2015 there were more than $5bn worth of near-field communication (NFC) purchases and upward of $11bn in mobile person-to-person (P2P) payments made in the US alone. These numbers are expected to grow in 2016 as the market increases its focus on technologies such as issuer-led mobile wallets and identity authentication.

Looking back on the year, at least four major mobile payment themes emerged, along with a clear change in consumer sentiment.

Four Themes That Mattered

Consolidation. The mobile payments sector saw continued consolidation during 2015, bringing on a much needed 'thinning of the herd.' The past year also saw a slew of M&A activity that featured more than 30 deals, including:

- PayPal's acquisitions of Paydiant ($280m), Xoom ($890m) and Modest.
- Google's acquisition of Softcard.
- Samsung's acquisition of LoopPay ($250m).
- Verifone's acquisition of Doublebeam.
- Square's acquisition of Kili Technology.

Most 2015 acquisitions were focused on the point of sale (i.e., processing and wallet platform architecture segments).

Contactless. While 2015 wasn't the 'year of contactless payments,' as some had originally thought it would be, it unequivocally goes down as a turning point for mobile technology and the wallet ecosystem at large.
The broad release of mass-market NFC wallets like Apple Pay and Android Pay - against the backdrop of an EMV liability shift - galvanized the role NFC plays in the mobile payments ecosystem, and has helped lay the foundation for significant future contactless growth.

Tokenization. Tokenization protects private account information by creating a unique token for each transaction. In 2015, it evolved into a critical security measure in an economy filled with Internet-connected devices.

As the intersection of IoT and payments becomes more apparent, tokenization's influence and role will continue to grow.

'Buy Buttons.' As the volume of online and mobile transactions swells, the checkout page has become the latest land-grab opportunity. 'Buy buttons' have become a key strategy of many commerce stakeholders in order to simplify checkout flows and increase conversion rates.

In 2015 we saw further new entrants into this market, including Chase Pay, Amex Express Checkout and Android Pay. Building on its past successes, PayPal rolled out One Touch to its mobile and Web browsers.

The sheer number of buy buttons - which also includes Apple Pay, Visa Checkout and MasterPass - has created a highly fragmented landscape that isn't sustainable over the long term. This year may see a few more new entrants, but a weeding out of the market will likely begin soon.

The Road Ahead

In 2016 mobile payments should make serious gains across both the physical and virtual domains. As such, we will be keeping a close eye on the following:

- Issuer Wallets. The introduction of the Capital One Wallet and Chase Pay during 2015 should be seen as the vanguard for issuer wallets. We will see more card issuers deploy branded payment applications to secure their relationship with customers in 2016.

- Integrated Loyalty and Rewards. As mobile wallets mature, the seamless integration of loyalty and reward redemption with payment flow will help separate the leaders from the laggards.

- Connected Commerce. The intersection of commerce and IoT has become increasingly apparent. Any connected device has the capability to become a commerce device, and 2016 will see a variety of Internet-capable devices gain the power to transact.

- Authentication and Identity. Biometric authentication in banking and payments made great strides during 2015. This momentum will continue in 2016, along with a growing focus on data-driven identity to enhance accuracy and ease-of-use across channels and devices.

In many respects, we look back at 2015 as an infrastructure-building year - with security measures and mobile wallets helping lay the framework that ecosystems will build on moving forward.

But will such infrastructure gains spell mass-market consumer adoption in 2016? We will be keeping our eye on the mobile payments market throughout the year to find out.

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Opinions expressed by the author are not necessarily those of WITI.