Payment Security, Ease of Use and Google Wallet

Payment Security, Ease of Use and Google Wallet

The payment landscape is changing before our eyes. Mobile payments are the new big thing and everyone who is someone in the payment card industry, and even more newcomers, are battling one another for the early lead. However, mobile payments come in many shapes and forms and some of them have been quicker to win over consumers than others. Phone-based credit card acceptance, for example, spread like wild fire once Square made it possible less than two years ago. Carrier billing, the type of thing companies like BOKU are doing, has also been quite successful, as has been Facebook’s Credit platform. NFC-based payments, on the other hand, have been slower to catch on, even though Google has made a strong push in the field with its digital wallet.

So what are the factors that determine the success or failure of a given payment method? Is it possible to predict whether or not consumers will adopt a particular product in large enough numbers to make it a viable business proposition? Well, a recent Boston Fed paper answers the former question in some detail, which in turn makes it possible to at least attempt to answer the latter. It turns out that there are multiple factors that determine the consumer adoption of a payment product, however their combination differs from one to another, which makes predictions difficult. Let’s take a look at what the Fed researchers found.

Security and Ease of Use among Top Factors in Payment Adoption

Scott Schuh and Joanna Stavins from the Federal Reserve Bank of Boston have looked into nine rather traditional payment methods, including credit, debit and prepaid cards, cash and checking accounts. The researchers have not examined mobile payment data, perhaps because there are none yet available. Still, I suspect that their conclusions will be just as applicable to m-payment methods, as they are to the traditional ones. Here is the gist of the paper:

[S]etup, record keeping, security, and ease of use were the most important factors in consumers’ decision whether or not to adopt payment methods. A significant positive coefficient on security for any payment method indicates that people who see this method as relatively more secure are more likely to adopt it (and conversely — those who see the payment method as relatively less secure are less likely to adopt it). Thus, consumers’ different perceptions of security of providing online information are important determinants of their adoption of bank account number payments and online banking bill payments.

So security is singled out as an especially important factor for the adoption of a given payment method, but it always works in combination with a group of other factors that vary from one product to another:

Credit card adoption was affected by record keeping, ease of use, and control over payment timing. In debit card adoption, most of the characteristics were found to be significant, especially setup and record keeping. In the BAN [bank account number] regression, coefficients on setup and security were most significant and of largest magnitude, but record keeping and cost were also significant. In the OBBP [online banking bill payments] adoption, record keeping and security were found significant. Only acceptance was significant in the prepaid adoption.

But what does that tell us about mobile payments, if anything?

Google Wallet’s Security Woes

Looking at the paper’s findings, one can make a direct link between Google Wallet’s struggles in finding early adopters and its inability to keep its users’ PINs safe from hackers. But, you may say, there were security concerns over Jack Dorsey’s credit card acceptance app when it first went live and competitors did their best to keep the suspicion alive. The difference, however, is that while the security fears with Square have so far been proved to be totally unfounded, they’ve turned out to be all too real with Google Wallet.

Additionally, consumers may not be finding Google Wallet all that easy to use. The thing is that all of us still carry our credit cards and are used to swiping them through the POS machines. It’s fast and simple. With a digital wallet, there are a couple of extra steps involved: we have to sign in, select payment type, connect with the merchant’s terminal and complete the payment. Yes, a digital wallet relieves us of the necessity to carry our cards, but then a small piece of plastic doesn’t weigh a ton.

Square, on the other hand, rather than coming up with a cardless payment solution of its own, took advantage of consumers’ familiarity with the card swipe and its strategy paid off. Of course, raising more than a hundred million dollars to develop and market their product helped, but then Google isn’t exactly skimping on its own m-payment service.

The Takeaway

Perhaps we shouldn’t be too quick to attribute Google Wallet’s lackluster early results to its security and (possibly) ease-of-use shortcomings. There is also the issue of not having enough participating merchants. But the search giant’s executives knew that and had set their expectations accordingly. Yet, their digital wallet still underperformed and the Schuh / Stavins paper indicates the possible causes. If its digital wallet is to be successful, Google will have to prove two points to its customers. Firstly, that it can keep its users’ information safe from hackers and secondly that it is as easy to use as a card swipe.

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