While mobile wallets have attracted consumer interest, they are failing to yield true adoption, with just 16 percent of mobile device owners having made an in-store purchase with their phone in the past three months, according to a new report from Yankee Group.

According to the “U.S. Mobile Wallet Roundup: Gauging the Future Potential of Today’s Solutions” report, two-thirds of consumers are interested in mobile wallets, but this has yet to translate to mass adoption. The report also points to PayPal as the leader in the space, with 15 percent of consumers having used its application in the past month to make an in-store purchase.

“With the hype surrounding mobile wallets building on a daily basis, separating the signal from the noise has become increasingly difficult,” Jordan McKee, analyst at Yankee Group, Boston, wrote in the report. “The harsh reality is that despite billions in investment across the ecosystem, adoption of such mobile payment technologies has been far from illustrious.

“Just 16 percent of mobile device owners have used their phone to make an in-store payment in the past three months,” he said. “More concerning, of those using mobile wallets, 73 percent are doing so fewer than five times per month.

“Clearly, the way we pay for goods and services is not slated to change anytime soon. But although cash and cards may enjoy dominance for some time, with fully two-thirds of consumers remaining interested, it’s important to recognize that the mobile wallet is far more of a latent opportunity than a pipe dream.”

Leaders in the space
Yankee Group tracked seven current-generation third-party wallet initiatives with physical-world payment capabilities by conducting consumer surveys and speaking with wallet providers, retailers, card networks, payment processors, issuers, mobile network operators and point-of-sale vendors. The report assigns each mobile wallet solution with a high, medium or low potential.

The mobile wallets with high potential are PayPal and MCX. The ones with medium potential are LevelUp and Google Wallet, and the ones with low potential are Square, Isis and Loop.

According to the report, PayPal is seeing nearly four times the adoption as its closest third-party wallet competitor, Google. With 15 percent of respondents having used it to make a purchase in a store in the past month, PayPal is way ahead of its competitors.

To put that into perspective, Starbucks — while not third-party — came in second with 6 percent of respondents having used its mobile wallet in the past month. Google Wallet came in at 4.2 percent of respondents.

Forty-nine percent of respondents said that they would be most likely to use PayPal’s mobile wallet as opposed to other options.

While MCX has yet to divulge details about its solution, its support from retailers makes it a high-potential competitor in the space. With 59 merchants, more than 110,000 store locations and 30 percent of consumer spending volume, MCX is likely to provide a mobile wallet that benefits both merchants and consumers.

Less potential
The medium-potential solutions — LevelUp and Google Wallet — lack the adoption PayPal and MCX are seeing or can expect. LevelUp is mainly used in its home city, Boston, and less than 1 percent of consumers have used it in the past month.

However, LevelUp offers merchants attractive payment processing fees and the ability to acquire new customers.

Google Wallet’s main struggles stem from its choice of technology, NFC. However, its recent partnerships with coupon provider, ValPak, may be able to refine Google’s strategy towards becoming more of a passbook than a payment app.

Low-potential solutions Square, Isis and Loop may be struggling because of their business models. Square’s per-transaction rates are not attractive, and Isis requires merchants to install new hardware.

Loop requires consumers to purchase hardware, which is a big obstacle to overcome.

Looking forward
For third-party mobile wallet providers to truly succeed in the space, Mr. McKee advises going after smaller businesses first. These merchants see more value in mobile wallets and can pave the way for greater merchant adoption.

He also suggests prioritizing personalization and targeting consumers with customized offers through the mobile wallet.

The other important factor is partnerships with merchants and other companies that can aid adoption.

“As with all industries focused on a new technology, the mobile wallet space is characterized by high levels of saturation and an all-out arms race to proliferate,” Mr. McKee said. “This, of course, is a significant factor inhibiting uptake.

“However, as the market and value propositions gradually mature during the next three to five years, Yankee Group expects the industry to pivot in the appropriate direction—the result of which will be a dramatic uptick in merchant and consumer adoption,” he said.

“Inevitably, winners will become more pronounced, but we anticipate only a select few wallets being able to successfully cash in.”

Final Take
Rebecca Borison is editorial assistant on Mobile Commerce Daily, New York