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October 1st, 2015

Quick Guide to Mobile Payments

Is Apple Pay a success or a failure? Who are the leaders in mobile payments other than Apple, Google and PayPal? Which mobile payment provider should I choose?

State of the Market

Forbes calls it the $15 Trillion Gold Rush with the leading tech companies, banks, credit card companies and start-ups fighting for a piece of the pie. Every year over the past 5 years has been proclaimed the year when mobile payments will finally reach mass market.

When looking at the mobile payment market it’s important to evaluate the two different types separately:
1. Mobile payments online to pay for apps, in-app payments, book hotels and flights, order and purchase products online from Amazon, eBay, etc.
2. Mobile in-store payments using the mobile device instead of cash, credit or debit cards.

Online payments have shown extremely fast adoption and growth whereas in-store payments haven’t to date. According to global payments tech company Adyen’s recent Mobile Payments Index, global online mobile payments rose to 27.2 percent of digital transactions, a 39 percent increase year-over-year.

Industry analysts and representatives usually blame lack of NFC enabled devices and payment terminals for the slow breakthrough, but recent data seem to contest this. By the end of 2015 only 5 percent of the world’s 600 million NFC-enabled phones will be used once or more per month to make “contactless in-store payments at retail outlets,” according to consulting firm Deloitte’s annual “Technology, Media & Telecommunications (TMT) Predictions” report.

Many believed that Apple Pay would finally lead to mass adoption. However, recent reports on the adoption of Apple Pay previously analyzed here on our blog indicate slow adoption. The greatest success story for in-store by far is Starbucks and so far nothing else is remotely close. In August 2015 21% of all revenue for Starbucks in the U.S. came through mobile payments.

The reason for the failure of mobile payments in-store is not a technology issue but simply that it doesn’t solve a consumer problem unless you combine it with an incentive such as the Starbucks loyalty card.

Online mobile payments on the other hand are exploding. According to Gartner, “rampant interest in mobile payments” and a “significant increase in mobile commerce” will drive mobile commerce revenue in the United States to represent 50 percent of all U.S. digital commerce revenue by 2017. Mobile commerce currently represents 22 percent of all digital commerce, Gartner says.

The Main Players

Although PayPal touted great success in mobile payments already in 2011 with $4 Billion in mobile transactions, the most impressive growth came after the acquisitions of Braintree and Venmo. PayPal did $46 Billion in mobile transactions in 2014. When choosing a mobile payment solution PayPal, or more specifically Braintree, should definitely be included on the list with proven success cases including Uber and Airbnb.

In addition, to online payments PayPal also offers several interesting solutions for in-store payments worth exploring for retailers.

Apple Pay
As per our introduction, the real success for Apple in payments is online rather than in-store. The simplicity for iPhone users in the US and UK to use Apple Pay to pay for goods or services means that most merchants want to offer it as an option. The disadvantage however from a merchant perspective is that Apple’s solution is extremely restrictive in terms of the data they share. Therefore other payment options are usually promoted first. Apple’s focus on customer privacy has its pros and cons though.

Denée Carrington of Forrester Research says that “Apple Pay will be the catalyst for new debates on balancing data privacy with customer engagement and loyalty” and will be “the standard-bearer for the best use of tokenization to secure payments and biometrics to combat fraud.”

For in-store payments we believe the value add from Apple Pay is limited for consumers and merchants to date, but this is likely to change over time as new capabilities are added.

Google was actually among the first to offer a mobile wallet solution in 2011, but being first is not always an advantage. The technical issues were many and adoption was slow and this probably impacted the perception of Google negatively in the payment space. However, since then they have continued to optimize and improve and today Android Pay offers an equal alternative to Apple Pay for Android users.

Other players
Of course there are a number of other important players. Most online and retail merchants rely on one or multiple payment gateway processors. For smaller merchants Square and Stripe offer good alternatives.

There is also a lot of mobile payment innovation coming from Mastercard and Visa that help improve security, increase ease of use and enable new payment processes (e.g. automatic ordering through BLE). Existing payment processors such as Vantiv and First Data in the U.S., Worldpay in the UK and Wirecard in Germany are also rapidly becoming dominant players in the mobile payment space although slightly slower to market.

Payment providers to watch
No payment analysis would be complete without mentioning Bitcoin. When Apple Pay launched, Coinsetter CEO Jaron Lukasiewicz said that Apple’s move is good for next-generation payments, as it will bring attention to issues common to traditional payments.

Still, Lukasiewicz said the bitcoin community shouldn’t worry about Apple’s latest launch:

“Apple Pay is still built on top of the same old credit card payment networks and banking system. Bitcoin is therefore well-positioned to enhance Apple Pay over the long run through its integration behind the scenes, providing merchants lower costs and instant access to their funds.”

Finally, there is still a lot of innovation going on in this space with investors pouring in money into new payment providers such as Adyen, Klarna and Poynt so keep your eyes open for better alternatives for your business. Direct bank transfer payments is taking over as an alternative in markets such as Denmark with lower transaction costs, but such trends can be due to local market conditions and are not necessarily applicable elsewhere.

So how do you choose a mobile payment provider?
Considering everything going on in the mobile payment space this is not an easy decision and usually it’s a combination of providers of technologies making it even harder. Generally it comes down to a few key factors though:

  • Payment methods and cards to be supported
  • Transaction fees
  • Fraud management
  • Market/geography as most payment providers offer limited global coverage with the exception of Visa, Mastercard and PayPal
  • Features/functionality to support the service
  • Bank relationships as working with an existing bank partner can often be an advantage for overall financial planning

Sadly user experience is usually not among the key considerations even though it should be. We advise customers to look at the end-to-end customer journey and select the partner that will make it easiest for the end user to register, complete transactions and value added functionality such as offers and subscriptions.


Mobile payments will dominate online within 2 years and adoption, although slow for in-store, is picking up. Choosing payment partners can be challenging and the landscape continues to change fast. Continue to evaluate new alternatives for your customers every year and do a more thorough analysis for your business every 3-5 years.

As usual this blog was written and researched on my mobile. Please let me know if you agree or disagree with the content or if we missed anything important. Use our Contact page to get in touch.

Magnus Jern, President Mobile Application Solutions


Tags: ecommerce Mobile payments retail

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