ECONversations Webcast: The Future of Payments - February 16, 2017

Today's smartphones are more powerful than room-size mainframes of 40 years ago. So it's no wonder we are using them to do more and more, including to pay for things.

Over just the past three years, the share of all e-commerce (online) payments that originate from a wireless device (m-commerce) has doubled, but to only 20 percent, according to comScore, an analytics firm. In a recent ECONversation webcast, Federal Reserve Bank of Atlanta payments risk experts Douglas King and Dave Lott discussed various payments-related topics including the growth of mobile payments.

That growth has been less spectacular than many observers expected. One reason: old customs die hard. "You really have to create a much better experience to get the consumer away from a habit," King said during the chat with Ed English of the Atlanta Fed's Public Affairs department. "It's been challenging, to say the least."

Even with the recent surge, mobile payments last year made up less than 1 percent of total personal consumption expenditures in the United States, according to figures from comScore and the U.S. Bureau of Economic Analysis.

To be sure, payments are changing
That's not to say payments are not changing. E-commerce overall—which, as Lott explains, includes any transaction done over the internet—nearly doubled in dollar terms from 2010 to 2015. Check writing has for years been in decline as debit and credit card usage rose sharply. The "internet of things" even promises a new wave of payments triggered automatically by, for example, web-enabled refrigerators that detect when their owners need milk and then order a gallon online. "The payments industry is just wild about the capabilities," Lott says.

And despite sluggish growth so far, conditions could be ripe for mobile payments to take off. The biggest plus for mobile is the ubiquity of smart phones. Studies have shown that people are more likely to leave their wallet at home than their phone, King noted. Retailers know that. So they are steadily improving once-clunky mobile payment apps. For example, tiny fields that are tricky to fill in are becoming a thing of the past.

"It's getting easier for the consumer to perform mobile transactions every day," King says.

Security always a concern
As smart phones are omnipresent, so too are concerns about the security of newfangled payment methods. Yet mobile transactions are not necessarily less safe than older forms of payment, according to Lott and King. "It all depends," Lott says.

It is true that a mobile transaction consists of many electronic steps—mobile device, apps, the cloud, wireless networks, and card or automated clearinghouse processing networks. Each step is a potential point of attack for criminals. At the same time, mobile phones offer attributes like location services that can help make payments safer. A merchant or issuing bank may decline a transaction if the payment originates from a place that is not close to the consumer's mobile phone. Likewise, makers of digital wallets and payment apps continue to bolster security features. Users also can better safeguard payments by adopting strong security practices such as leaving their phones locked, thus making stolen phones harder to use.

"We truly believe," King says, "that many of these mobile payments are actually safer than the payments we're making today without the phone. But the challenge the industry has faced is getting that message across to the consumer."