Cash, credit card use slowing disappearing as digital wallets grow

Few consumers take out cash today to pay at the register. In the near future, credit or debit cards may also disappear during transactions.

The recent launch of Apple Pay could result in more people using their smartphones instead of credit cards or cash to pay for purchases, despite consumers’ reluctance so far to adopt mobile payments technology, local experts said.

Nearly 80 percent of U.S. consumers are aware of so-called “digital wallets,” which allow users to pay for items at retail cash registers with a wave of their smartphones, but only 32 percent have used the technology, according to Kettering-based Thrive Analytics, a digital marketing research firm.

Introduced last month, Apple Pay will fuel faster adoption of mobile payments over the next 12 to 18 months because of the proliferation of iPhones, said Jason Peaslee, Thrive Analytics’ managing partner. In addition, the new technology addresses security and ease-of-use concerns that were roadblocks for consumers.

The U.S. proximity-based mobile payments market is projected to be $62 billion by 2016, according to eMarketer, a New York City-based market research company.

“Everyone wants to get a piece of that action, including large merchants,” Peaslee said.

Apple said more than 1 million credit cards were activated on Apple Pay in the first three days after the system launched. The system supports payment cards from American Express, MasterCard and Visa. It is accepted at 220,000 retail and restaurant locations including Macy’s, McDonald’s, Meijer and Subway.

Last week, Ohio-based First Financial Bank and PNC Bank both announced they would offer Apple Pay service.

Merchant Customer Exchange, a consortium of retailers including Walmart, Best Buy, Target and Sears, is test-marketing a rival mobile payment system, dubbed “CurrentC,” that is expected to launch next year.

Currently, Starbucks has the most successful mobile payment system in the U.S. The coffee chain said it averages 6 million weekly transactions, or 15 percent of all Starbucks purchases, via mobile devices.

Thrive Analytics’ research shows growing adoption of mobile payments in low-dollar transactions such as coffee and food items. Seventy percent of typical digital wallet transactions are under $30, the report said.

Peaslee doesn’t expect consumers to give up cash any time soon. But given the number of credit, debit and loyalty cards people carry in their wallets, a secure frictionless payment system on a mobile or wearable device “would be wonderful in consumers’ eyes,” he said.

Mobile payment systems such as Apple Pay and Google Wallet, a competing technology developed by Google, use NFC, or near-field communication, a short-range wireless technology that allows two devices in close proximity to exchange data. To accept mobile payments, retailers’ checkout systems must be equipped with an NFC reader, which can cost between $250 and $300.

Last year, Dorothy Lane Market upgraded the checkout systems at its three area stores with NFC capability, said Marcus Levin, the local independent grocery chain’s information technology manager. The DLM stores in Oakwood, Springboro and Washington Twp. now accept both Apple Pay and Google Wallet.

Levin said DLM is seeing growing digital wallet usage, particularly among “Generation X” consumers, which includes people born between 1965 and 1980.

“As the iPhone 6 reaches more market saturation, it will start to catch on more,” Levin said.

Currently, Apple Pay only works on iPhone 6 and iPhone 6 Plus smartphones, as well as the new iPad Air 2 tablet for online payments. Google Wallet requires an NFC-enabled Android device.

DLM stores added Apple Pay and Google Wallet to allow customers to pay using the method of their choice.

“It’s a matter of convenience to them. If they want to leave their purse in the car, they can just pay with their phone. Or if they still want to shop by the old method, it is still going to be the same,” Levin said.

Thrive Analytics said concerns about security was the top reason people haven’t used digital wallets.

Apple Pay purchases must be authorized using the mobile device’s fingerprint scanner. Actual credit card numbers are not stored on the device.

“Apple offers an easier and safer way for transactions, and is a massive improvement, but by no means is it perfect,” Peaslee said.

Many retailers are supporting MCX’s CurrentC because it will collect customer data across a number of participating stores, allowing them to better target consumers with deals and loyalty programs.

In contrast, Apple Pay doesn’t collect any transaction information that can be tied back to the user.

Peaslee said retailers will be taking a step back in terms of the data they typically get from credit card purchases.

“Retailers won’t know what shoppers are buying because one-time payment numbers and dynamic security codes will be used to complete the transactions. You won’t see what was purchased,” he said.

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