PIN Vs. Signature Debit: Which Is More Secure?

Monday, June 2nd, 2014

PIN vs. Signature Debit: Which Is More Secure?

Tags: data security, debit card processing, Federal Reserve

PIN vs. Signature Debit: Which Is More Secure?


Every time the Federal Reserve surveys the public, it finds that consumers consistently rank security as the most important characteristic of payment methods, Joanna Stavins from the Boston Fed reminds us in a new paper. Yet, just as consistently, when they analyze the actual consumer payment use patterns, the Fed’s researchers find that security is not as significant as other payment characteristics, such as cost, convenience and record keeping.


Trying to explain that puzzle away, the Stavins digs deep into the data and finds that security concerns create an obstacle to the adoption of some types of bank account-based payments, such as debit cards, online banking bill pay and bank account number payments, but once adopted, the security rating has no significant effect on the use of those payment instruments. However, the reverse is found to be the case with more established payment methods, such as cash, checks and credit cards: consumers’ perception of security has no influence on adoption, but it does affect the actual usage of these payment types.


But debit cards present a particularly interesting case, because debit transactions can be processed in two distinctly different ways. On the one hand we have signature-based debit, which uses the same infrastructure, which is used to process credit card payments. On the other, we have PIN-based debit, where transactions are processed via specialized debit networks. And it turns out that consumer attitudes toward the security of two debit types are markedly different and once again, the actual usage patterns do not always reflect the professed attitudes. Let’s take a closer look at what Stavins finds.

PIN vs. Signature: What’s the Difference?


When you swipe your debit card at the checkout, the point-of-sale (POS) terminal will usually ask you: “Debit or Credit?” I have no idea why this has become accepted, as you would have to be an industry insider, in order to understand its meaning. The more appropriate question, and one which would be immediately understood by everyone, would be: “PIN or Signature?” Either way, the question refers to the type of debit card authorization.


PIN Debit. PIN transactions are routed through what are known as electronic funds transfer (EFT) networks (for example Star, NYCE, Pulse, Interlink, etc.). EFT processing takes place when the customer chooses “debit” when prompted and then enters her PIN. The EFT network then authorizes the transaction and immediately deducts the transaction amount from the customer’s checking account, which is linked to the debit card used for payment. The merchant then receives the money within a few days. PIN debit transactions are often referred to as “online” transactions, because they require an electronic authorization.


Signature Debit. Signature-based debit transactions are authorized, cleared and settled through the same Visa or MasterCard networks used for processing credit card transactions. Signature debit processing is initiated when the customer selects “credit” when prompted by the POS terminal. She then signs a sales receipt (unless the merchant has waived the signature requirement for transactions under a certain amount or the card is not present) and the funds are deducted from her checking account, typically within a day of the processing date. The merchant submits the transaction with the rest of her card transactions, usually at the end of the day, and then receives the money, typically within a day or two of the settlement. Signature debit transactions are referred to as “offline” transactions, because a PIN debit network does not play a role in processing.

PIN vs. Signature Fraud


There is a big difference between the two debit authorization types when it comes to losses from fraud and theft. PIN debit is considered more secure because the cardholder authenticates her card with a PIN and, unless the PIN number is stolen, the transaction cannot be completed.


Signature debit transactions, in contrast, cannot be easily authenticated, especially because the signature requirement is typically waived for small-amount transactions, which is fully in compliance with industry standards, as all the big networks allow merchants to eliminate the signature requirement on purchases of less than $25 (for details, see here and here). Furthermore, signature debit processing is used in all e-commerce, mail and phone debit transactions (even though there is no possibility for actually signing anything), where fraud rates are higher.


And the data certainly confirm the higher level of security associated with PIN debit. In 2011, Stavins reminds us, PIN debit fraud losses were estimated at $0.004 per transaction, while signature debit fraud losses were about eight times as high — $0.031 per transaction. The ratio was much the same when the loss rate was calculated as a share of fraudulent transactions, in relation to the total number: signature POS fraud losses averaged 0.08 percent, while PIN fraud losses averaged 0.01 percent.


The author is quick to note that fraud losses borne by debit issuers and payment processors are not automatically transferred to the cardholders. In the U.S., at least, a cardholder is liable for no more than $50 per fraudulent PIN debit transaction if she reports it within a specified period of time. Furthermore, both Visa and MasterCard extend the same protection against unauthorized debit transactions as they do against fraudulent credit card transactions — zero liability for fraudulent transactions.

PIN vs. Signature: Perception of Security


In agreement with the evidence, consumers perceive PIN debit as more secure than signature debit: 63.8 percent of consumers consider PIN debit secure or very secure, compared with 51.4 percent for signature debit. However, over 41 percent consider no-PIN / no-signature debit transactions very risky, compared with 3.8 percent for signature debit and 5.3 percent for PIN debit, even though the no-PIN / no-signature transactions are processed the same way as signature debit transactions. Then there is the case of online debit transactions, which require neither a PIN nor a signature — these are rated more secure than the no-PIN / no-signature in-person transactions, with only 20 percent of consumers saying they are very risky.


PIN vs. Signature: Perception of Security


But it turns out that consumers don’t always behave accordingly to their stated payment preferences. On the one hand, as you will see in the chart below, consumers who consider PIN debit “secure” or “very secure” are at least twice as likely to prefer PIN debit as those who consider PIN as “risky” or “very risky”. However, that is not the case with signature debit, where consumers who consider this type of debit processing to be “very secure” are nevertheless less likely to prefer signature debit than those who consider signature debit “secure” or “neither”.


PIN vs. Signature: Perception of Security

PIN vs. Signature: How We Pay


Stavins then proceeds to compare the stated preferences for PIN vs. signature debit to the actual use of the two types of payment and finds that consumers’ behavior is consistent with their stated preferences. Those who prefer PIN debit use PIN debit more than twice as often as signature debit (71.2 percent versus 28.8) and those who prefer signature debit use it over three times as often as PIN (75.7 percent versus 24.3).


Then she compares the actual use of debit — total, PIN and no PIN — to consumers’ assessment of security of debit cards in general. Sure enough, consumers who view debit as “secure” or “very secure” use it more intensively than those who consider debit more risky and the pattern holds in the case of total debit, PIN and no-PIN debit.


PIN vs. Signature: How We Pay


Of course, as the author notes, consumers may not be aware that no-PIN debit transactions are processed the same way as signature debit and so may be more skeptical about the security of such payments. In fact, I think we can be reasonably certain that consumers do not know that the two are processed in an identical fashion.

The Takeaway


So, as you see, consumers don’t have a clear picture of the differences between the two debit types, which I guess could be expected. Yet, they nevertheless understand that PIN debit is more secure than signature-based debit and tend to use it more often, even though at times they do the opposite of what they say. In any case, industry regulations ensure that consumers are well protected from debit fraud.


Image credit: Wikimedia Commons.

Thursday, April 10th, 2014

Americans Like Payday Loans, Even If Their Government Doesn’t… And You Will Not Believe Why.

Tags: Federal Reserve, payday loans, prepaid cards, unbanked consumers

On Payday Loans and the Rise of Prepaid Cards


In its third annual Consumers and Mobile Financial Services survey, the Federal Reserve takes another close look into the payment choices made by America’s unbanked and underbanked consumers. And just as they did in the two previous studies, the researchers find that, more often than not, not being part of the traditional financial system is much more a matter of personal choice and lack of financial education, than it is the result of being shut out of it. For some reason or other, a substantial majority of unbanked and underbanked Americans just don’t want to have anything to do with mainstream bank services and are perfectly willing to substitute them with payday loans.


While it is distressing to see just how poorly motivated choices unbanked and underbanked consumers are making, the good news for them is that the quality of at least some of the alternatives has gotten much better in recent years and continues to improve. I’m talking, of course, about the excellent prepaid cards that have been launched over the past couple of years, which were designed specifically for the unbanked (although some of them are perfect substitutes for, and offer better value than, many checking accounts).


First Chase launched its Liquid prepaid card two years ago, which offered everything a checking account offered, with the exception of paper checks, for only $4.95 a month. Then American Express and Wal-Mart upped the ante with Bluebird, which offered everything Liquid did, but at no monthly fee. It seems to me that the availability of such products is blurring the distinction between unbanked and banked consumers. But let’s take a look at the report’s findings.

Why Are Americans Unbanked?


In 2013, the share of unbanked consumers — defined as consumers who do not have a checking, savings or money market account — rose to 11 percent of the adult population, up from 9.5 percent in 2012, but it was virtually unchanged from 2011′s level of 10.8 percent.


Of those currently unbanked, 34 percent told the researchers that they had a bank account at some point in the past. In contrast, 40 percent of those unbanked at the end of 2012 had obtained a checking, savings or money market account in 2013. Conversely, 4 percent of those who did have a bank account in 2012, no longer had one in 2013.


The share of underbanked consumers — defined here as having a bank account, but also using an alternative financial service such as a payroll card, payday loan, check cashing or auto title loan — has increased quite a bit in 2013, reaching 16.9 percent of the population, up from 10.2 percent in 2011 and 9.9 percent a year later. So why are there so many unbanked and underbanked Americans?


Well, the reasons given by the survey’s respondents for not having a bank account are once again quite revealing, as you will see in the table below. On the one hand, we have a tiny minority of consumers who offer genuinely good reasons — “banking history, credit or ID problems” and “I cannot manage / balance an account”. These account for a combined 12 percent of all respondents. And yes, if you’ve had credit problems in the past and have been placed on the U.S. bank blacklist (the ChexSystems), no bank will give you a checking or savings account. And if you know that you cannot manage or balance an account, you are indeed better off not opening one up in the first place.


However, you will note that all other answers, excluding the 22 percent which are divided between the “refused to answer” and “other” groups, display either a personal attitude towards the banking industry and its services — “I don’t like dealing with banks” and “I don’t need or want an account” — or misinformation (all other categories). And in some cases these two categories are related. For example, if you believed that the banks’ fees were too high, how could you possibly like them?


But it gets worse. These same respondents who tell us that they don’t have enough money to open a bank account or don’t need one would then turn to check cashing services when they could easily find a free checking account, especially at a local community bank or credit union. And even if they couldn’t find one, it is unlikely that a bank account with a monthly fee of $5 – $10 would cost more than a check-cashing service. So what we see is that a combination of lack of financial education and personal prejudices is keeping Americans who may qualify for mainstream banking services from using them.


Why Are Americans Unbanked?

Why Are Americans Using Payday Loans?


Once again, the Fed takes a close look at the use of payday loans — the high-interest short-term consumer loans, which have been under so much scrutiny over the past year. Only 6 percent of the respondents have confessed to using a payday loan in 2013, we are told, the same ratio as in the past year and slightly up from 2011′s level of 5 percent. As we know, this is a hugely expensive type of financing, with even the most mainstream of payday lenders charging annual interest rates of 300 percent. So why do consumers take out such expensive loans, rather than trying their luck with a bank loan or a credit card? Well, here is what they told the researchers:


Why Are Americans Using Payday Loans?


This is quite amazing, and I mean that in the worst possible sense. The only way you can possibly justify taking out such an expensive loan is that you absolutely need the money for some hugely important purpose and you only did so after you tried, but could not get a more traditional type of loan. Yet, what we see in the chart above is that more than a half of payday loan borrowers are being severely overcharged, because they find payday borrowing more convenient (19 percent), quicker (19 percent) or easier (15 percent) than bank loans or credit cards. And of course we also have the two percent who feel “more comfortable” with payday loans.

The Takeaway


Once again, the good news is to be found in the rising popularity of prepaid cards. The researchers tell us that “[p]repaid cards have remained the most-used alternative financial service over the last several years” and add that 15 percent of the respondents reported that they have used a general purpose card in 2013. A sizable share — 8 percent — use a government-provided card and 3 percent use a payroll card. Overall, just over a fifth (22 percent) of all surveyed consumers use some type of prepaid card.


As prepaid products continue to improve in quality, I expect that this trend will continue. Gradually, consumers are bound to learn that depositing their paychecks into a prepaid card like, say, Bluebird — which is sold at Wal-Mart — is cheaper (well, it’s free) and more convenient than check-cashing services and comes with a number of additional benefits like bill payments. It really is a great substitute to having a checking account.


Image credit: Flickr / swanksalot.

Wednesday, April 9th, 2014

Economists Keep Telling Them This Cannot Go On. Yet Americans Keep Slashing Credit Card Debt. Wow.

Tags: consumer debt, Federal Reserve, non-revolving credit, revolving credit

Economists Keep Telling Them This Cannot Go On. Yet Americans Keep Slashing Credit Card Debt. Wow.


More than 5.5 years after the collapse of Lehman Brothers crippled the financial infrastructure of the Western World, the aftershocks of the catastrophe are still being felt. Still, just how is it possible that our collective credit card debt is much, much lower than its level at the eve of the meltdown and has remained just about flat for about four years now? After all, the recession is long gone and the recovery, such as it is, has pushed us onward. Not to mention that the population has just kept growing. Well, here we have more of the same in February.

American Consumer Debt — A Mixed Picture


First, here is the overall snapshot.


American Consumer Debt -- A Mixed Picture

Credit Card Debt down by 3.4%


Credit Card Debt down by 3.4%

Non-Revolving Consumer Credit up by 7.5%


Non-Revolving Consumer Credit up by 7.5%

Student, Auto Loans Up


Student, Auto Loans Up

Overall Consumer Credit up by 5.3%


Overall Consumer Credit up by 5.3%


So the divergence between the path credit card debt has been on for several years and that of all other debt categories could not be more striking. What should we expect in the months to come? I have no idea… share these charts with others by clicking on the buttons below.


Image credit: Wikimedia Commons.

Tuesday, April 8th, 2014

People Have Really Had It With Debt Collectors. Yet Life Would Be Worse Without Them. Yes, Really.

Tags: debt collection, Federal Reserve

Why Do We Need Debt Collectors?


That is the question tackled by three researchers in a new paper for the Federal Reserve Bank of Philadelphia. On the face of it, third-party debt collection should have no place in our financial system. “Informational, legal, and other factors”, the researchers note, “suggest that original creditors should have an advantage in collecting debts owed to them”. Not to mention that, when doing the job themselves, the original creditors keep all they can recover, whereas when relying on others, they only get back about 80 percent of the collected debt, on average. Yet, third-party debt collectors not only exist, but they thrive, employing more than 140,000 Americans and recovering more than $50 billion each year. How can that be?


Well, the researchers identify one major factor, which they believe is giving third parties a sizable advantage and is the reason why original creditors are hiring them. It all comes down to the collection methods employed by the two parties. The original creditors, the paper argues, convincingly, tend to use softer debt collection methods, because they care about their reputation. Lenders don’t want to antagonize debtors who may, in due time, become profitable customers once again, nor do they want to create a bad name for themselves and scare away potential new customers. Oh, and they certainly don’t want to attract regulatory attention.


Third-party collectors, for their part, exist solely for the purpose of recovering debt, which means that they don’t have to worry about maintaining customer relationships. After all, debt collectors’ customers don’t choose to do business with them — they simply fall into their laps. The customer whose happiness a debt collector really cares about is the lender who hired her. All that being the case, we can understand why a third-party agency would be less lenient with debtors than the original creditor could afford to be.


But the paper’s main point is that third parties do bring efficiency to the debt recovery process, which is why lenders rely so heavily on them and is also why we have developed a specialized payment processing solution for them. The paper also lends support to another recent Philadelphia Fed paper, which found a direct negative correlation between the level of strictness of debt collection regulation and the availability of consumer credit. But let’s take a look at the new paper.

Third-Party Debt Collection — an Overview


Debt collection is the primary mechanism of contract enforcement in consumer credit markets and affects millions of Americans, the paper reminds us. Creditors can try to collect debt on their own or they may outsource collections to third-parties and they utilize both approaches.


The third-party debt collection industry is large and represents most of the debt collection activity in the U.S., the authors remind us and proceed to give us some statistics. In 2011, about 14 percent (or 30 million) of American consumers had credit accounts that were placed with third-party collectors. The industry recovered about $55 billion from debtors in 2010 and returned approximately 80 percent of this amount to the creditors which hired them. Third-party collectors employ more than 140,000 people who make more than 1 billion consumer contacts every year.


And third parties are more successful than the original creditors, even though “there are a number of reasons to think that creditors enjoy a substantial absolute advantage over third-party collectors”. For example:

  • Original creditors typically have available more information about their borrowers than do collection firms.
  • Creditors are generally less constrained by regulation than are third-party collectors in the U.S. This is because federal and many state debt collection laws explicitly exclude from their jurisdiction the activities of original creditors collecting on their own loans.
  • The debt collection industry is much less concentrated and more geographically segmented than the credit card market, which is both concentrated and national in scope. The majority of third-party collections firms employ fewer than 10 people. Therefore, outsourcing debt collection to third-party agencies may not provide additional benefits from economies of scale compared with what creditors can achieve by keeping debt collection in-house.


And yet, third-parties are thriving. Why? Well, here it is.

Why We Need Debt Collectors


Debt collectors can create value for creditors, the authors assert, despite all the benefits of collecting in-house. The biggest advantage of outsourcing debt collection is that it “enables creditors to protect their relative reputations in a competitive credit market with rational borrowers”. When doing it on their own, creditors tend to use softer collection practices for fear of damaging their reputations, which would, in turn, reduce demand for their services.


A third-party agency collecting on behalf of several creditors, for its part, is free to use “harsher” debt collection methods than the creditors would. Crucially, the authors posit, those practices will be associated with all creditors, for which this agency works, so “borrowers cannot discriminate against individual creditors”. The upshot is that “all creditors that hire third-party debt collectors may have bad reputations, but no individual lender may be seen as any worse than any other individual lender”. So, creditors may all be bad, but they are equally bad. And then the researchers proceed to test their assumptions.

The Third-Party Advantage


To test their assertion that debt collectors use harsher debt collection practices than original creditors, the researchers examine the consumer complaints filed with the Federal Trade Commission (FTC). And what they find is striking: there are about 10 times as many complaints (on a per-collector basis) in the third-party collections industry, as there are in the industry as a whole. Here is the graph:


The Third-Party Advantage


So that seems to be definitive. Then the researchers proceed to test the one-creditor-many-collection-agencies paradigm, which they suggest makes the use of third parties to do the dirty work particularly appealing. Well, here are the data:

The average collection firm serves 422 clients. Creditors, in turn, tend to allocate their accounts across multiple collection agencies. The U.S. Department of Education, for example, uses 22 debt collection agencies (Department of the Treasury 2011). In addition, creditors often move accounts that have not been liquidated from one collection firm to another. In a recent survey, 75 percent of the value of charged-off debts were placed with a first collector and 25 percent with a second or third collector (ACA International 2011). Even though we do not explicitly model reallocation of accounts here, such reallocation suggests that creditors typically use multiple collection firms at the same time.


So yes, creditors do indeed use multiple collection agencies. And although it is really difficult to prove that they do so in order to protect themselves more successfully against charges of bad treatment, this remains a highly plausible possibility.

The Takeaway


Here is the gist of the paper’s findings:

We study the economics of contract enforcement in consumer credit markets and show that outsourcing debt collection to third-party agencies can create value for creditors, despite the costs associated with transferring accounts for collection from original creditors to debt collectors.

We show that third-party agencies use harsher collection practices than original creditors, consistent with the behavior we observe in the data. When multiple creditors hire multiple third-party agencies, each creditor must hire a sufficient number of debt collection agencies, which explains the usual practice of having multiple agencies collect on behalf of the same creditor.


Finally, the paper shows that “more effective debt collection increases the supply of unsecured consumer credit”. This result dovetails nicely with the findings of another recent Philadelphia Fed paper, which told us that even marginally stricter regulation of the debt collection industry leads to a substantial reduction of available revolving lines of credit — credit card limits. So, despite the bad rap they get, collection agencies are a force for good in the economy.


Image credit: Flickr / msaari.

Wednesday, April 2nd, 2014

You Will Never Realize What Makes Mobile Payments So Fascinating… Til You Take A Closer Look.

Tags: Federal Reserve, mobile payments

Mobile Payments Continue to Fail in Taking over the World


There is a huge divergence in the way and speed with which mobile payments are taken up in the developed and developing world. Just last week, we reviewed Tanzania where in September 2013 mobile financial services were adopted by 90 percent of the adult population — up from zero just five years earlier — and are actively used by about half of them. Of course Tanzania was following in the footsteps of Kenya, whose example is also being followed by other developing countries.


In developed countries, however, the story has been very different, even though mobile payments technologies are much more abundant there than they are in emerging markets. Yes, there have been some notable success stories and perhaps the stand-out m-payments technology in the rich world is the direct billing, which allows consumers to charge small-amount payments to their monthly cell phone bill. Of course, Square also comes to mind here in the U.S., as well as its countless clones on both sides of the Atlantic. Yet, none of these, or any other, rich-world m-payments services can boast anything close to M-Pesa’s success in Kenya, where the company is facilitating transactions worth 43 percent of the country’s GDP.


Well, the latest Federal Reserve Consumers and Mobile Financial Services survey and report is helping us figure out why we treat m-payments the way we do in the U.S. and is giving us the most current data. I, for one, wasn’t surprised to learn that the biggest reason for the relatively slow adoption of both mobile banking and mobile payments is that for many consumers these new technologies aren’t needed: their needs are already being met perfectly well by non-mobile options and they don’t see any clear benefits from using the new alternatives.


Still, albeit slowly, mobile payments are taking hold, helped by the ever increasing number of smartphones and the Fed researchers reasonably expect that the use of both mobile banking and mobile payments will continue to increase. Let’s take a closer look at their findings.

Use of Mobile Banking, Payments Up


The Fed defines mobile banking as “[s]ervices that allow consumers to obtain financial account information and conduct transactions with their financial institution” using their phones, whereas mobile payments are services that “allow consumers to make payments, transfer money, or pay for goods and services”. Both have become more widely used over the past year. Mobile banking usage has increased from 21 percent of mobile phone users and 42 percent of smartphone users in December 2011 to 28 percent and 48 percent, respectively, in November 2012 and 33 percent and 51 percent in 2013.


Use of Mobile Banking, Payments Up


The use of mobile payments has increased less rapidly. In December 2011, 11 percent of mobile phone users and 23 percent of smartphone users reported using mobile payments. By November 2012, these ratios had increased to 15 percent and 24 percent, respectively, but in 2013, there has been no progress: 17 percent and 24 percent.

In-Person still Preferred Way of Banking


As you can see in the figure below, the preferred way of interacting with a bank remains in-person at a branch, with 82 percent of consumers with a bank account reporting that they had visited a branch and spoken with a teller in the past year. ATM use was the second most common means of access in the past 12 months, at 75 percent, followed by online banking at 72 percent. About a third of all consumers with bank accounts used telephone banking and just 30 percent used mobile banking, virtually unchanged from the 29-percent ratio in 2012. And the ratio of Americans who have made a mobile payment has actually fallen from 15 percent in 2012 to 14 percent in 2013.


In-Person still Preferred Way of Banking

The Young Lead the Way


No surprise here. In the 2013 survey, consumers between ages 18 and 29 account accounted for about 39 percent of mobile banking users, relative to 21 percent of mobile phone users overall. These ratios were pretty much unchanged this year.


The Young Lead the Way


Minorities, Hispanic users in particular, are disproportionately more likely to adopt mobile banking than non-Hispanic whites, comprising 19 percent of all mobile banking users relative to 14 percent of mobile phone users overall, as illustrated in the table below:


The Young Lead the Way

Checking Account Balances Most Common M-Banking Activity


Checking account balances and making transaction inquiries are still consumers’ favorite mobile banking activities, with 93 percent of users having performed at least one of them in the past 12 months, up from 87 percent in 2012. Transferring money between accounts is the second most used mobile banking feature — 57 percent of users have reported that they had done so in the past year, up from 53 percent in 2012 and from 42 percent in 2011.


Checking Account Balances Most Common M-Banking Activity


Among users, the frequency with which they use mobile banking has decreased over the past year, we learn. The median reported usage declined from six times per month in 2012 to four times per month in 2013.

Who Needs Mobile Banking?


This is the most striking result from the survey. In 2012, 54 percent of the respondents said that the main reason they didn’t use mobile banking was that they believe their banking needs are met otherwise. Well, in 2013, that ratio had grown to 89 percent! Similarly, the ratio of respondents who see no reason to use mobile banking has increased from 47 percent to 75 percent.


Who Needs Mobile Banking?

Mobile Payments Limited but Growing


Mobile payments continue to have limited adoption and are less common than mobile banking. Only 17 percent of mobile phone users said that they made a mobile payment in the past 12 months, up from 15 percent a year before and from 12 percent in 2011. Bill payment continues to be the most common type of mobile payments activity, at 66 percent, up from 42 percent in 2012. Online purchases were second at 59 percent, up from 35 percent in 2012. Using mobile phones for person-to-person (P2P) money transfers has also become more common — about 39 percent of users said they did so in the past 12 months, up from 30 percent in 2012.


Point-of-sale (POS) purchases with mobile phones have also increased in popularity, with 17 percent of smartphone users reporting to have made at least one. Additionally, 39 percent of users reported to have scanned a barcode or Quick Response (QR) code to make a payment (up from 9 percent in 2012) and 18 percent saying that they used a mobile app to pay for a purchase (up from 9 percent the year before). The share of users waving or tapping a mobile phone at a cash register to pay for a purchase (using NFC technology) has once again more than doubled from the previous year, to 14 percent in 2013, up from 6 percent in 2012 from just over 2 percent in 2011.

Security Concerns, Alternatives Slow Down M-Payments Progress


Among consumers who do not use mobile payments, the biggest reason they have not adopted any of the available technologies is that they see little or no value or benefit from using mobile payments. As you can see below, 76 percent of respondents say that it is easier to pay with other methods (up from 36 percent in 2012) and 61 percent report that they do not see any benefit from using mobile payments (up from 35 percent in 2012)


To make matters worse, consumers’ concerns with the security of m-payments are also becoming more prevalent: that reason for not using the new technologies is cited by 63 percent of the survey’s non-user respondents, up from 38 percent in 2012.


Security Concerns, Alternatives Slow Down M-Payments Progress

The Takeaway


So it is quite clear that, even as Americans continue to adopt mobile banking and mobile payments, they are not exactly ecstatic about the new technologies. Yet, it is also the case that most of the technologies in question, and especially NFC, are still very much in their infancy and consumer attitude towards them may well become more positive as they mature.


I fully expect that once a true mobile wallet — one that can store all of your payment cards, bank accounts, cash and checks and is widely accepted by merchants — becomes available, people will start using it. As of now, however, all available digital wallets are limited in the payment instruments they support and few merchants accept them. Most other types of m-payment services are similarly handicapped. But that will change over time and m-payments will gradually become as mainstream as web payments.


Image credit: YouTube / Square.