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Proximity payment is fastest-growing segment of mobile payments: Forrester

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January 22, 2013

Mobile proximity payments are picking up steam

The growth in mobile proximity and in-store payments will far outpace growth in mcommerce and mobile peer-to-peer transactions over the next several years, according to a new report from Forrester Research.

While consumer and retail adoption of mobile payments has been relatively small to date, during the next five years, mobile payments overall are expected to move toward the mainstream to reach $90 billion by 2017, according to the Forrester report “US Mobile Payments Forecast, 2013 To 2017.” The expected significant growth in mobile proximity payments over the next few years will result in a dramatic shift in share, with mcommerce dropping from a 90 percent share of overall mobile payments to 50 percent while proximity payments will jump from a 4 percent share to 45 percent.

“The growth of mobile proximity payments, mobile remittances, and mobile remote payments hinges this reality – each must deliver a better, more convenient option to consumers than the next best payment alternative for a given purchase at a given time,” said Denee Carrington, an analyst at Forrester Research, Cambridge, MA, in the report.  

In-store takes off
Forrester segments mobile payments into three categories: mobile proximity payments or in-store payments, mobile peer-to-peer or remittances and mobile remote commerce or mcommerce. While all three will grow over the next few years, the growth in mobile proximity payments will far outpace the growth of the other two.

In 2013, mcommerce volume is expected to reach $18.2 billion, mobile proximity payments $1.1 billion and mobile remittances $1.2 billion. By 2017, mcommerce volume will total $45 billion, mobile proximity $40.1 billion and mobile remittances $4.2 billion.

Proximity or in-store payments will be the fastest growing segment over the next few years with an aggressive 137 percent compound annual growth rate.

In contrast to mobile proximity payment’s fast growth over the next several years, mcommerce will put in the slowest growth rate at 31 percent CAGR. However, it will still remain the largest overall mobile payment category.

Mcommerce growth will be driven by more convenient experiences, better security and more integrated solutions

Convenient commerce
Forrester expects the mobile proximity payments to reach its greatest acceleration in 2014 and 2015 following a year of testing and learning on the part of both consumers and retailers in 2013.

The fastest growth in using mobile phones to pay for in-store purchases is expected to be with lower-cost purchases and in contexts where there is the greatest efficiency and convenience such as for vending machine, parking and transit transactions.

Other areas where added convenience will drive mobile proximity payments includes in quick service, fast casual and casual dining restaurants and with tier-one retailers that have integrated access to coupons, offers and rewards into the payment experience.

“Mobile is actually unleashing convenient commerce and enabling consumers to purchase how and when they want whether on a phone or in a store,” said Christina Koshzow, co-founder and chief marketing officer at Branding Brand, Pittsburgh, PA.

“In-store is not dead – it is only going to get more interesting,” she said.

“We definitely see PayPal  making big progress getting in-store and making brand partnerships. The fact that it is in a bunch of stores will help.”

Mobile wallet adoption
Forrester also expects that as retailers such as Starbucks demonstrate that mobile payment solutions are easy for consumers to adopt and as NFC implementations spread, this will also drive expansion of mobile proximity payments.

Most proximity payments solutions will exist in the context of mobile digital wallets that include value-added services such as offers, coupons, loyalty and e-receipts, giving consumers a reason to trial proximity payments. However, consumers will need more of a reason to motivate ongoing, sustained use and adoption.

Mobile payment products that integrate purchase context and insights about a consumer’s alternatives to deliver a more convenient experience at a specific location at a specific moment will achieve consumer preference and sustained use over time.

“Buy-in is key,” Ms. Koshzow said. “If it is not convenient – meaning it has to be in more than just one store – it is not going to take off.

“For the mobile wallets, it is a land race – they need widespread adoption,” she said.

“The best technologies have a way of sussing themselves out. The customer will decide.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York

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