Will consumers reject mobile payments?

Will consumers reject mobile payments?

Upgrading point-of-service (POS) systems to accept mobile payments can have many advantages for merchants. Yet will customers be on board?

A recent study from the UC Berkeley Center for Law and Technology suggests that consumers could be wary of this new payment method because they worry that it allows merchants to infringe upon their privacy.

Three-fourths say "no" to mobile
The study, released in April 2012, was based upon telephone interviews with about 1,200 adult Internet users in the United States. Almost three-quarters of those surveyed (74 percent) said they are "not at all likely" or "not too likely" to adopt mobile payments, while only 24 percent said they are likely to adopt them.

The age of the respondents did play a role in their attitudes. More than one-third (37 percent) of those between the ages of 18 and 29 group already use mobile payments. People 55 and older were the most negative about mobile payments, with 76 percent not at all likely to use mobile payments and only 10 percent very or somewhat likely to use them.

Consumers' message to merchants: No sharing
According to Federal Reserve statistics referenced in the UC Berkeley study, 42 percent of those surveyed cited security concerns as the reason they were wary of mobile payments.

Consumers may have some justification for their worries. The Berkeley researchers pointed out that the current credit card payments system limits the amount of information about each transaction that's shared with retailers, banks and credit card networks. Banks and the credit card networks, for example, receive only the total amount of a consumer's purchase, where the purchase was made and the account number associated with that purchase. Merchants know what the consumer has bought and the consumer's name, but don't get other personal details (such as the person's address and phone number).

With mobile payment systems, personal details are often linked the mobile payment accounts used to complete transactions. That means merchants, banks and credit card processors could be able to collect personally identifiable contact information about customers, according to the study. Any of these entities could store data about consumers' purchasing habits and share it with some third party without consumers' knowledge or permission.

When it comes to their information being accessible to merchants, survey respondents indicated strong disapproval. When asked if they would be willing to have their phone number shared with retailers, 81 percent would definitely or probably not allow it. As far as home addresses, 81 percent said they would definitely or probably not allow sharing.

Concerns over having personal information lifted from their mobile purchases could lead to changes in consumers' buying habits that spell bad news for merchants, according to the study. For example, consumers may avoid buying certain items that would lead to embarrassment if they knew information about themselves and what they bought would be stored or shared by the merchant.

Conflict of interest?
These privacy concerns may present a conflict of interest for merchants and consumers. While consumers want to shop anonymously, merchants want to learn everything they can about their customers.

This conflict was illustrated in the weeks before Black Friday Weekend 2011. In November, shopping centers caused controversy when they proposed capturing signals from consumers' wireless phones to track them as they shopped .When those plans became public (and lead to consumer uproar), however, they were canceled, the Berkeley study points out.

Although tracking customers' shopping habits might help merchants improve the shopping experience (in addition to their bottom lines), survey respondents overwhelmingly rejected the idea of being tracked while browsing. Ninety-six percent said they would definitely not or probably not allow such tracking.

Benefits of mobile
The study authors do point out that consumers and merchants can gain benefits from mobile payment systems. Merchants can offer specifically-targeted coupons (based upon loyalty program information) in their customers' digital wallets, for example. Customers could also keep track of their purchases and store receipts on their phones, making the returns process easier for both merchants and shoppers.

There's also the potential for lower merchant costs with such transactions, since consumers might opt to have the money for their purchases taken out of their bank accounts directly, eliminating credit card transaction fees.

What's more, mobile payments may be more secure than card payments if properly implemented. Mobile wallet users can customize their security settings to make it more difficult for a thief to access their accounts than it would be to use a stolen card. And all that personal information involved in mobile payments could be used to verify a shopper's identity.

But the study authors argue that mobile won't go mainstream unless merchants address privacy issues. What good are perks like improved loyalty programs and customized offers if consumers are worried about being profiled?

The researchers suggest the adoption -- at the federal level -- of a law similar to California's Song-Beverly Credit Card Act, which prohibits merchants from requesting personal information during credit card transactions. They recommend updating the law to include all parties involved in mobile payments -- banks, credit card companies and merchants -- from automatically collecting such information via mobile payments.

Although there's no guarantee that such a law would make people more likely to use mobile payments, it appears likely that without some assurance of privacy, consumers may be slow to adopt mobile payment systems.

Published: June 12,2023