When Apple CEO Tim Cook announced Apple Pay in October 2014, only about 2.7 percent of retailers that accepted credit cards had the technology to compatible with the mobile wallet. In 2015, only 0.2 percent of sales were made with mobile wallets, according to survey by research firm eMarketer. However, that same research firm predicts that by the end of 2016, nearly one in five smartphone users will use mobile payments.
After several years of various mobile wallets trying to gain momentum, three factors — all are related to the switch most retailers made last October to accept chip cards (also called EMV) — are predicted to drive a big shift towards mobile wallets. Updates at retailers to accept EMV cards also often include compatibility for near field communication (NFC), the tap-to-pay technology used by many mobile wallets.
Because chip cards have to be inserted and kept in the reader until the transaction is approved. While some say the matter of extra seconds for chip cards add up, others say it’s just a perception that chip cards take longer to process. Still, shoppers may switch to mobile wallets as a faster payment alternative.
One of the biggest hurdles for shoppers accepting mobile wallets has been security fears. EMV chip cards are not only harder to replicate than swipe cards, but they also create single-use payment codes when used. These single-use codes mean the stores don’t have and store shoppers’ credit card data, to avoid the big security breaches that happened when information was stolen from retailers like Home Depot and Target. (Now, if a counterfeit swipe card is used to make a purchase, the responsibility is on the retailer, not the bank.) Mobile wallets not only use the same one-time “tokenization” of numbers as the new chip cards, but they also often require a thumbprint identification or a passcode, making a stolen phone harder to use to make fraudulent charges than stolen cards. Now that shoppers are more familiar with the idea of tokenization, they may be more willing to embrace mobile wallets.
Is this finally the year of the mobile wallet? Here are the pros and cons to the current top contenders.
According to Apple, the usage of Apple Pay increased in the second half of 2015, a boost that could be due to the more readily available NFC technology and users of the Apple Watch, which can use Apple Pay without the corresponding iPhone. However, according to a January 2016 survey, only 15 percent of those who tried Apple Pay reported using it more than once a month. Last fall, Apple teamed up with American Express for plans to expand Apple Pay beyond the U.S. and the U.K. to five additional countries: Canada, Australia, Singapore, Spain, and Hong Kong.
Setup: Apple Pay is set up through the Wallet (formerly PassBook) app installed on Apple devices. It is compatible with the iPhone 6 and 6 Plus, the iPad Air 2 and iPad mini 3, and later devices, as well as the Apple Watch. Setup is fairly simple and you can use the iPhone camera to add up to eight cards, though users may have to make some phone calls or provide extra verification to banks. Cards have to be added separately for use with the Apple Watch. Most major banks are compatible with Apple Pay.
Payment: Users paying with the iPhone rest their fingers on the Touch ID and hold the phone within an inch of the reader until they see “done” and a checkmark on the display. (If you don’t rest your finger on the Touch ID, the phone will display other options than your default payment.) Apple Watch users hold their wrists to the reader and will feel a gentle tap for payment verification and can switch from the default card by double-clicking the side button. To pay within an app, select the Apple Pay button or payment method.
Loyalty programs, gift cards, coupons: The PassBook app was originally designed to hold loyalty cards, gift cards, concert and movie tickets, and coupons, so it’s fairly easy to scan and store things like boarding passes and coupons. You can also opt to have the rewards card appear automatically when you are in the store.
Security: To use Apple Pay, you have a passcode for the device and/or Touch ID. Apple Pay uses tokenization — that one-time code — for secure payments, and the info is stored on a chip within the device itself. Apple doesn’t store your actual card numbers on Apple Pay servers or in the iCloud and, if you use a camera to upload cards, the images aren’t stored in the photo library. Concerns arose last year when it was reported that scammers were uploading stolen cards to Apple Pay, however banks and Apple responded that the fraud wasn’t widespread. (Apple also noted that the responsibility lies with banks for lost or stolen cards.)
Apple doesn’t store transaction details and doesn’t collect information about what you buy, though iAd interactions are anonymously tracked. If the phone is lost or stolen, use Find My Phone to put it in Lost Mode, which will suspend Apple Pay. Or you can completely erase all information, including credit and debit cards, from the phone.
Introduced in 2015, the Android Pay app addressed some of the issues that plagued its predecessor, Google Wallet, which was launched in 2011. Namely, users had to open the app to pay, and Google Wallet had a physical card option that created confusion. Now, Android Pay is a simple tap-to-pay mobile wallet. Google’s commerce head Sridhar Ramaswamy told Fortune that more than 60 percent of those setting up Android Pay are new users who didn’t have Google Wallet.
Setup: Android Pay is installed on newer devices and can be downloaded from the Google Play store on devices that run KitKat 4.4 or later and are NFC-enabled. Cards from participating major credit cards and banks can be added online or added on the phone by snapping a photo or entering the card info manually.
Payment: To pay, unlock the phone and hold the back of the phone to the payment terminal. Users can also pay within apps like Lyft and GrubHub using the Android Pay button.
Loyalty programs, gift cards, coupons: As with credit cards, users can add loyalty cards through the phone’s camera or manually. Users will be prompted to use loyalty cards, and at participating retailers, loyalty points are automatically applied at the checkout, with plans for transferring mobile loyalty app points into the Pay app. (This integration with loyalty cards is also an improvement over Google Wallet.)
Security: Like Apple Pay, Android Pay uses a tokenization method, so the retailer doesn’t have the card number. Once users make a purchase, they receive a payment confirmation that shows the amount of the transaction with the retailer’s name, location, and phone number. If the phone is lost, you can lock the phone using Android Device Manager.
When Samsung Pay launched in the summer of 2015, it had a major advantage over other mobile wallets: In addition to NFC technology for payments, it was compatible magnetic strip readers, meaning it works anywhere that accepts credit cards. (You’ve probably seen the Samsung Pay commercial featuring comedian Hannibal Buress, who shows skeptical Katz’s Delicatessen workers that Samsung pay works wherever credit cards are accepted, including the landmark New York City deli.) Samsung Pay is also available in South Korea and China, with plans to launch in Australia, the U.K., Canada, Singapore, Brazil, and Spain.
Setup: Samsung Pay is compatible with the Galaxy Note5, Galaxy S6 and later devices and is available as a download on Google Play. Samsung Pay works with Visa, MasterCard, or American Express cards issued by select major banks. To add up to 10 payment cards, use the camera to upload the information or enter the info manually on the phone.
Payment: To pay, swipe up to launch the app, confirm with your fingerprint or entering a PIN, and then hover over the card reader. The biggest challenge to using payment could be dubious retail employees who don’t believe Samsung Pay will work.
Loyalty programs, gift cards, coupons: Samsung Pay works with gift cards, though loyalty card compatibility is still in the works.
Security: Samsung Pay uses one-time tokenization so personal information isn’t stored by Samsung or on the phone. Samsung Pay also has its own mobile security platform, Samsung KNOX, as well as ARM TrustZone for added security. If your phone is lost or stolen, lock the device using Find My Mobile to disable payments.