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Mobile payment systems fail to take off with consumers

A merchant used Square, a mobile payments system, to swipe a customer’s credit card at a small shop in Philadelphia.
A merchant used Square, a mobile payments system, to swipe a customer’s credit card at a small shop in Philadelphia.Jessica Kourkounis/New York Times/NYT

SAN FRANCISCO — Millions of Americans use smartphones for tasks like hailing a taxi or checking in for a flight. But for buying something in a store? That mostly remains a tech entrepreneur’s dream.

For years now, the promise of a mobile wallet — in which paying in person can be as simple as hitting a button on a phone — has led to a host of US startups trying to cash in.

Those companies, though, have faced nearly as many hurdles as they have competitors, including the most basic ones: Many people are not aware of the new payment systems, others are confused by the many choices, and some see no benefit in the mobile option over using cash or credit cards.


The hurdles have left all the payment companies scrambling to find the code for a profitable business model. And now, a feeling is growing that mobile payments systems will not replace traditional wallets, at least anytime soon.

“There was the assumption that there was going to be some sort of spark that ignited the marketplace, and there was going to be a mobile payments revolution,” said Denée Carrington, a Forrester analyst who studies the mobile payments market. But people do not mind paying with cash or a credit card, she said.

“So this was never going to be a revolution,” she said. “It’s definitely more of an evolution.”

Despite the slow uptake of the technology by consumers, there is no shortage of ways to pay using a mobile phone. Startups like Square, Loop, LifeLock, and Clinkle offer apps that promise to let smartphone owners pay for products in stores with the tap of a button.

Bigger brands have stepped in, too, offering different types of mobile payments. Samsung Electronics last year agreed to include Visa’s software payWave on many Samsung phones.


And for years, Google has offered Google Wallet, which allows consumers to load their credit card information into a digital wallet so their phones can be tapped on some merchant terminals instead of using a credit card.

Apple hasn’t announced plans to get into mobile payments, but Timothy D. Cook, the company’s chief executive, has said that it is an area of interest.

None of the companies, though, have found the winning combination to transform mobile payments into everyday consumer behavior.

Gartner, the research firm, estimates that worldwide, people spent $235.4 billion through mobile payments in 2013, compared with $163.1 billion in 2012. But that number is much smaller in North America, where consumers spent about $37 billion through mobile transactions in 2013, up from $24 billion the year before.

And analysts say that before the public can be expected to know about and widely adopt mobile payments, some significant problems must be overcome.

As the digital payment world stands now, there are many different parties involved in making the payments work, and they come from different industries and have different interests. The disparate parties include banks, payment networks, retailers, wireless carriers, and the companies that make digital wallets themselves.

Merchants who want to accept mobile payments are unlikely to support all the possible types. So consumers who want to buy things with a phone must first find a business that supports the technology, and then figure out which smartphone technology the store accepts.

Square, a San Francisco startup that is one of the most prominent mobile payment companies, has struggled to get people to use its Square Wallet app for paying with a smartphone. The company has renamed the app several times to gain more attention.


Square’s big partnership with Starbucks, which the startup hoped would help it add users, instead led to losses at Square of at least $20 million last year, according to a person who was involved with the partnership, who spoke on the condition of anonymity because the number was private. The Wall Street Journal earlier reported the loss.

Square declined to comment.

David Byttow, who was the lead engineer working on Square Wallet from mid-2012 to mid-2013, said getting a mainstream digital payment solution started was difficult and represented something of a Catch-22 situation. More people would most likely use a service if it were widely available, he said, but merchants are not interested in installing new payment software and hardware unless a large swath of shoppers are using the service.

But even if the payment process were widely available, companies still would need to persuade consumers that there was an advantage to making payments from a phone.

Aditya Khurjekar, a former Verizon Wireless executive who worked on mobile payments there, said he believed consumers do not find it bothersome to carry or use credit cards and cash.

“There isn’t a problem to solve,” Khurjekar said in an interview. Khurjekar, who now runs the Money Event, a business conference revolving around mobile wallets, said companies offering mobile payments needed to offer incentives that cash and credit cards cannot, like coupons and discounts.


“The mobile payments experience has to become the hook for some other commerce shopping experience,” he said.