Apple Pay, Android Pay and Samsung Pay have certainly increased awareness of mobile payments in the US – but the number of connected consumers actually paying this way is small indeed.
As we have seen with numerous other technologies, the consumer adoption process is multi-stage, as mainstream buyers become familiar with an idea, decide that they might be interested, and finally come to feel that they cannot live without it.
But for every product that has made this tricky transition from unknown to "must-have," hundreds of others have fallen by the wayside. For every VCR, there is a Betamax; for each Hoverboard, there is a Segway.
Rogers and the innovation chasm
Everett Rogers’ innovation adoption curve, first proposed in 1962, helps explain this complex process. Although you might not be familiar with Rogers’ Diffusion of Innovations theory, you may have heard the terms critical mass and early adopters – both coined by Rogers, who pioneered studying how newly launched innovations are communicated to and embraced by consumers.
Rogers proposed that four main elements influence the spread of a new idea: The innovation itself, communication channels, time and a social system. He also identified five consumer groups that, in chronological sequence, must accept a product for it to achieve mass success. He starts with Innovators and Early Adopters – two key segments that collectively account for 16% of the US population.
But to get to the crucial third group, the Early Majority – which makes up one third of the population – the product or innovation must cross "Rogers’ Innovation Chasm."
The Innovation Chasm follows the initial excitement of a new offering and its acceptance by the most adventurous consumers; to leap over to sustained sales, the product or service must be adopted by the Early and Late Majorities. Some issues that may prevent products and services from jumping over the chasm include:
- Competing standards or offerings that create confusion and drive down acceptance
- Failure to integrate into existing product sets or routines – too demanding for mainstream acceptance
- Benefits that are seen as only slightly incremental compared to current options
- Lack of social buzz or word of mouth around the new offering
When we look at adoption, roughly 10% of the general population had made a payment using their mobile device either online or in-store in the last 6 months, with 2.6% making a payment in-store and 7.3% making a mobile purchase online. In other words, mobile payments adoption in the US isn’t exactly at the innovation chasm, but we are fast approaching it.
And, despite the increased awareness of paying by mobile device, of the consumers who have made a purchase using their mobile phone either in-store or online, only 7% turn to them ten or more times a month, while 20% of users make mobile payments four to ten times a month.
That leaves the vast majority (74%) of adopters paying three or fewer times per month with their mobile devices.
Who is currently making mobile payments in the US?
When we look more closely at the FutureBuy data, it is the 18 to 24 year olds, or Generation Z, and Leading Edge Consumers (LECs) who are using mobile payments more heavily. LECs are early adopters of new technologies, and in the case of mobile payments are both passionate and influential about purchasing items this way.
Gen Z and LECs are using mobile payments at nearly twice the rate of the general population in terms of share of all payments made. Gen Z’s use of mobile payments as a percent of transactions is 7%, while LECs’ is 8%, on average, compared to 3% of all consumers.
When we look more closely at the younger generations, use of mobile payments both in-store and online by Gen Z and LECs was much higher than the general population, at 76.9% and 63.3% respectively.
Smartphones and the Rogers adoption curve
Smartphone adoption in the US is a terrific example of an innovation that followed Rogers’ adoption curve. Starting with the launch of the first Blackberry in January of 2005 through to the introductions of the iPhone, Android and finally Droid, the US smartphone market had only reached the Innovators and early adopters. It was not until the Galaxy S was launched that the smartphone market really began to cross the Innovation Chasm and penetrate the Early Majority of consumers.
How did the mobile phone industry cross the Innovation Chasm?
Consumer features and benefits were launched – improved cameras, more apps, better billing plans, social media, mobile shopping and larger screen sizes. Smartphones were elevated from being "just phones" to becoming an integral part of our everyday lives. These value-added services allowed mobile phones to reach the tipping point and achieve adoption with Early and Late Majorities of consumers.
Checking in with the elements
If we map Rogers’ four main elements that influence the spread of a new product or service to mobile payments, we can see that the innovation itself is currently being proven in the market. NFC technology has become the default for mobile payments, which is a significant step in establishing the platform, and the Innovators and Early Adopters are using mobile payments.
The next challenge is to improve communication of the benefits of mobile payments to both retailers and connected consumers. So far, the value proposition of using mobile payments has not been clearly defined or disseminated. One prime example: Mobile payments are arguably much more secure than other forms of payment, often requiring triple authentication and/or biometric authentication; yet consumers still cite security and privacy as barriers to mobile usage. This has been a real weakness in communication of benefits.
Prescriptions for chasm jumping
Just as mobile phones added new features to become smart, mobile payments need to get "smart" as well.
With the all-but-certain launch of "smart payments," or Payments 2.0 – incorporating value-added services into a consumer-centric payment experience – the industry will progress beyond Gen Z and LECs to the Early Majority. These mainstream-friendly services include rewards, discounts and loyalty programs, geolocational offers, personalization of offers and discounts suggestions, automated shopping lists, parking finders and gas station locators.
As adoption of mobile payments increases, retailers will join the FinTech community and begin to create an evolved retail experience, with mobile payments being the catalyst for the evolution. This will speak to Rogers’ "social system" requirement and help MPs reach ubiquity among the majority of consumers.
In addition to value-added services, for mobile payments to cross the Innovation Chasm and reach the Early and Late Majorities of consumers, several things need to happen.
1) Establish and communicate innovational advantage over current technologies:Is it faster, more secure, easier, and more widely accepted? Are the value-added services compelling to consumers and retailers?
2) Improve continuity with current technologies in market: Do POS terminals have NFC capabilities? Are QR codes accepted? Are wallets integrated with payments methods, rewards, loyalty cards, shopping lists, parking finders and gas stations?
3) Minimize complexity of use: Can consumers and retailers use the technology? Is there reliable wifi available? Is the user experience pleasing?
4) Provide opportunity to trial and test the new technology before committing: Is setting up the mobile wallet and mobile platform easy? What are the barriers and triggers to usage?
With cellphones, the camera, access to the Internet and social media, and navigation all helped smartphones cross the Innovation Chasm- just making phone calls was not enough. Mobile payments need to communicate their value and present themselves as more than just digital credit cards in order to be widely adopted by the majority of consumers.