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February 16, 2016

Changing How We Pay Online in 2016

Over the past few years, I've done the majority of my Christmas shopping online through my laptop or mobile device. This year, I did 100 percent of my shopping online due to an accident that left me mostly immobile. Though shopping online was certainly easier for me than trying to get out in the hustle and bustle of the December shopping madness, the payment experience for some of my transactions was as painful as my leg injury.

I have been hearing for years how the mobile phone is going to replace my wallet, and one reason is that our phones are increasingly with us while our wallets are not. Yet I never leave my house or office without my wallet unless I forget it. In fact, I forget my mobile phone more often than my wallet, but apparently I'm an exception. However, I realized that when I'm home, I am rarely with my wallet. Out of habit, I leave my wallet sitting on a shelf in the closet. This habit never created issues for me until recently.

Except for websites that have my card on file, I am almost always required to enter my card information (account number, expiration date, and maybe the card security code). The expiration or CVV2 are still required even for some of my card-on-file transactions. While it's always been something of a hassle to go get my card information from my closet, I never gave much thought to the friction of the experience—that is, until my left leg was temporarily rendered useless and making it to my wallet in the closet became difficult. When my wife wasn't around to get my wallet, my cart abandonment rate pushed 100 percent.

Then I discovered how easy it is to use online digital wallets. And I tried a lot of them—PayPal, American Express Checkout (actually more of a platform than a wallet), Visa Checkout, and MasterCard's MasterPass, to name a few. While each wallet has its pros and cons and merchant acceptance varies by wallet, I gained a greater appreciation for these transactions because of how easy it was not needing to physically have my card to enter the requested information for each transaction beyond the initial wallet setup. And I liked not having my card on file with a merchant. By the end of the shopping season, I had become a big fan of digital wallets.

Removing friction from the consumer experience is just one reason why many believe that mobile proximity payments will flourish. I never agreed with that reason (this was in a pre-EMV world though!) but it is a big reason why I believe online commerce will experience a significant transformation in 2016 with both merchant and consumer adoption of digital wallets taking off this year.

By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

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