Mobile Payments Still Tiny, Set to Explode in Next Four Years

Transaction Volume to Grow From $650 million to More Than $62 Billion In 2016

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A few people have traded in their wallets for their phones to make small purchases like coffee and movie tickets, but we're about to see explosive growth in the market as more consumers use smartphones to pay for things like groceries and gas, according to eMarketer's first estimate of the market.

The research firm estimates that the total transaction value for mobile payments in the U.S. will be $640 million this year, but that will grow to more than $62 billion in 2016 as a bigger segment of the population uses their phones to buy medium-ticket items, including fast-food restaurants.

U.S. Proximity Mobile Payment Transaction Value, 2011-2016
U.S. Proximity Mobile Payment Transaction Value, 2011-2016

The average user of mobile payments will spend $62 a year with their phones in 2012, but that grows to $1,294 in 2016, according to eMarketer's estimate.

The steep growth curve assumes merchants continue to adopt mobile payments and that using phones for purchases demonstrates enough value to consumers to replace credit cards and cash. It also assumes that a smaller group of dominant platforms and technologies emerge from the array of confusing standards competing in the market today.

"EMarketer believes the number and scope of the different mobile payment solutions currently available or preparing for launch in the next 6 to 12 months will have contradictory effects on the market," the company said.

The mobile payments market today includes startups like Square, LevelUp and The Protean Echo; services backed by credit card companies like Visa (V.ME) and American Express (Serve); a consortium of big merchants like Target and 7-11 and CVS (MCX); tech companies like PayPal, Google Wallet and Apple's Passbook; not to mention Verizon, AT&T and T-Mobile which have their own consortium, ISIS. Confused? Ad Age made a handy chart for you.

While the array of platforms and technologies creates confusion for consumers, it will also raise awareness broadly, as payment options become more ubiquitous and various players spend on marketing to gain users. (Square, for example, recently started airing a TV ad.)

EMarketer came up with its estimates by culling other available estimates -- mostly of the global market--and combining that with interviews with startups, financial services firms and merchants. They also accounted for predicted shipments of mobile phones equipped with near-field communication technology, which is the most widely used at checkout.

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