April 03, 2013

Javelin predicts significant growth in mobile payments and moderate growth in prepaid cards, with further decline in cash and checks, in its 2013 Retail Point of Sale Update and Forecast, released today. The report used information from consumer surveys conducted by Javelin and U.S. census data to identify current trends in payments at the point of sale and projected how those trends will continue or decline up through 2018.

The report said that the highest growth for any payment type from now until 2018 will be in mobile payments. Mobile proximity payments accounted for only .01% of the $3.98 trillion in retail point of sale payments last year. Javelin predicted that mobile adoption and industry push for mobile payments that the total amount of mobile payments at the point of sale would increase from $398 million last year to $5.4 billion in 2018. “We’re seeing a big push for mobile payments. Networks and banks are pursuing mobile opportunities and merchants are more actively involved. You can look at some of the big merchants who have seen success with loyalty programs that involve mobile, such as Starbucks,” Aleia Van Dayke, a payments analyst for Jaevlin, and the author of the report, said.

While the cost for merchants to update their hardware for mobile payments may seem like an obstacle to adoption, Van Dyke mentions that merchants who meet the coming deadlines for EMV will already be on their way to accepting mobile payments. “The technology required for EMV is very similar to what is required for NFC [payments]. The terminal providers are already putting in NFC capabilities for their solutions,” Van Dyke adds. Van Dyke predicts that mobile payments adoption will start to take off once merchants make the switch to accepting EMV in the next few years.

The growth in mobile payments will in turn spoil the need for cash as customers get used to paying with their mobile device, the report forecasted. The report found that 81% of customers had used cash to pay for an in store purchase in the last 30 days, down from 83% in 2011. But checks are expected to have the steepest decline in the next few years, the report said, and will decline to just 5% of point of sale payments by 2018.

[See Related: Bank of America and the "Point-of-Sale Revolution"]

Consumers are also getting more comfortable using credit again as the U.S. slowly pulls out of the recession, the report indicated. While debit cards had overtaken credit cards as the most popular form of point of sale payments during the recession, credit cards took back the top spot last year, according to the study. Credit cards were used in 32% of retail point of sale purchases last year, compared to 30% for debit cards. Both credit and debit cards are expected to increase their share by 2018, to 35% and 32% respectively, at the expense of cash and checks.

Prepaid cards are also growing in popularity at the expense of gift cards. Prepaid cards accounted for $120 billion of point of sale transactions in 2012, and the report said that will increase to $158.5 billion in 2018. Over the same time gift cards will decline from $145 billion to $130.2 billion. More customers are interested in prepaid cards as some of them (such as BlueBird from American Express) are starting to offer many of the features of a full checking account such as online banking and transfers, and mobile check deposit. “The winners in prepaid cards will be real accounts with online and mobile management capabilities. Customers won’t want to just get a prepaid card,” Javelin’s Van dyke said.

ABOUT THE AUTHOR
Jonathan Camhi is a graduate of the City University of New York's Graduate School of Journalism, where he focused on international reporting and interned at the Hindustan Times in Delhi, ...