Overcoming the Mobile Payments Adoption Chasm

Navigator Edition: December 2012
By: Matt Zalubowski

Are mobile payments here to stay? Considering ISIS has launched, Square has established itself and its mobile solutions through its relationship with Starbucks1, Google Wallet is accepted in over 150 unique merchants in the United States2, and the Merchant Customer Exchange (MCX) is in the process of developing its own mobile payment solution, it would appear as though the answer is yes. All signs indicate the future of mobile payments is bright. Despite these strong headwinds, a great deal of uncertainty remains regarding consumer adoption. This uncertainty has been reinforced by recent rumors that Google intends to introduce a plastic card that would allow a consumer without a Near Field Communications chip-enabled phone, to make purchases linked to her Google Wallet.

While merchants have taken steps to help facilitate mobile payments adoption (e.g., mobile shopping), further action is required to bolster the business case for mobile payments solution investment. Retailers need to demonstrate how mobile functionality improves upon the current credit card purchase process. Integrating a company’s loyalty program, whether tender neutral or proprietary card specific, with mobile technologies is just such an example that is detailed below. Without this foundational justification, mobile payments will have an even more difficult time overcoming the adoption chasm that all disruptive technologies face.

For those unfamiliar with the technology adoption chasm, it is the gap between Early Adopters and the Early Majority as found in the Everett Rogers’ Technology Innovation Adoption Lifecycle (see Figure 1). There are five consumer categorizations: Innovators, Early Adopters, the Early Majority, the Late Majority and Laggards. The premise behind Rogers’ lifecycle: the actions of one group have a marked impact on whether the subsequent groups adopt a new technology.

Figure 1: Technology Innovation Adoption Lifecycle
Source: Diffusion of Innovations, Fifth Edition – Everett M. Rogers – August 5, 2003.

Innovators and Early Adopters, both of which have begun testing mobile wallet solutions, will play a critical role in mobile payments diffusion. Given the small percentage (15%) of consumers that make up these two categories, merchants must look to target Innovators and Early Adopters and provide real incentives for using mobile payments that will attract the attention of the Early Majority.

Examining the process by which most consumers decide whether to adopt a new technology will help determine what actions merchants should take, and in what order, to convince Innovators and Early Adopters to advocate the adoption of mobile payments. The Stages in the Innovation-Decision Process, developed by Rogers to further explain the Adoption Lifecycle (see Figure 2), outlines the five stages a consumer goes through when determining whether to adopt an innovative technology. The process begins by gaining Knowledge as to what the product or idea does. During the Persuasion stage, the consumer seeks out, or is provided, information to aid in evaluating the product. Third, the consumer makes a Decision to try the product. Four, Implementation occurs and the consumer experiences the technology. Finally, Confirmation occurs and one’s experience dictates adoption or discontinued use.

Figure 2: Stages in the Innovation-Decision Process
Source: Diffusion of Innovations, Fifth Edition – Everett M. Rogers – August 5, 2003.

Initial retailer efforts, given Early Adopters have already moved through the first two stages of the Innovation-Decision Process, should focus on the third stage, Decision. Providing an incentive for an Early Adopter to utilize a given mobile payment solution can begin by blending existing loyalty programs with location-based smart phone / application identification (a practice which is in its infancy). For example, a consumer enters a retailer outlet with the intention of making a purchase. The store’s systems identify the consumer as having installed the retailer’s mobile shopping application on her smart phone and as a member of the loyalty program. The systems then query the company’s loyalty database, determine the consumer is redemption eligible, and send the consumer’s phone an instant message indicating she can redeem her rewards on her next purchase. This one-to-one loyalty communication provides a tangible call to action that the consumer otherwise would not have been made aware. This ‘surprise and delight’ communication demonstrates how a mobile solution can improve upon the traditional credit card payment process. This positive interaction addresses steps four and five in the Decision Process (Implementation and Confirmation), and helps to solidify repeat use. The customized treatment provides a compelling story the Early Adopter will want to share with her friends. Per Rogers’ Technology Innovation Lifecycle, the positive word-of-mouth ‘buzz’ will influence the Early Majority to more seriously contemplate mobile payments adoption.

Despite the media attention that mobile payments have received, Knowledge, the first step in determining consumer adoption, should not be overlooked as it relates to the Early and Late Majority. Retailers should build simple communications demonstrating what the technology is, how to obtain it, and how to use it in their stores. Without establishing this foundation of how mobile payments work, Early Adopter loyalty integration efforts, as well as any other efforts targeting the subsequent steps in the decision making process, will become irrelevant.

Loyalty integration should not be viewed as a mobile payments panacea. Given the complex mobile payments landscape, financial institutions, card networks, technology providers and retailers all must work together to facilitate mobile payments adoption. The recommendations outlined above are intended to demonstrate one example of how retailers can contribute to this effort. While integrating a retailer’s loyalty program with mobile and in-store technologies alone requires resources, it does so in order to provide a stronger foundation from which to justify further investment in and accelerate the adoption of mobile payments.

Square’s website: https://squareup.com/news/releases/2012/square-starbucks
First Annapolis Consulting 2012 Top 100 Mobile Retailer Study

For more information, please contact Matt Zalubowski, Manager specializing in Credit Card Issuing, matt.zalubowski@firstannapolis.com

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