Some of the biggest companies in America have been slugging it out for years to be the one that puts a “mobile wallet” in your pocket, but the company that finally might have pulled it off is Starbucks. Obviously.

Why obviously? Because Starbucks is the company that has a compelling story to tell about how your life will be better when you tap and pay, instead of pulling out a card or even cash. The free Starbucks mobile-pay app allows you to order on your way, and then just walk in and pick it up without standing in line behind a dozen people waiting to recite their elaborate cappuccino recipes.

Introduced in 2009 in just 16 stores, one in five Starbucks orders in the U.S. is now sent and paid via mobile. That’s five million orders a month, an increase of 32% in a year, according to 

Otherwise, about $7.3 billion was spent in retail transactions via mobile in 2015. That’s a bit over one-tenth of 1% of American retail spending.

Needless to say, mobile payments haven’t caught on in the United States as much as their boosters once hoped. In part, that’s because consumers and retailers were merely confused by the many players competing for their business and boosting several distinct technologies. But it’s also because nobody gave them a good reason to adopt mobile payments – until Starbucks.

It appears that mobile payments finally will start taking off well beyond the coffee business in 2016, for two reasons:

  • At least one major app for mobile pay probably will be preloaded on the next new phone you buy.  
  • Merchants are being forced to upgrade the credit card payment processing devices they use to enable more secure EMV technology, and many of the new devices are ready for tap-and-pay use. That means that tap-and-pay is now available, or soon will be, at more retailers that accept major credit or debit cards. (Many merchants are already using the new equipment, but some card issuers are allowing merchants until late 2017 to upgrade.) 

Four Top Mobile-Payment Services

Three of the four most widely used mobile payment services are Apple Pay, Android Pay and Samsung Pay. The fourth, and currently the most used of all, is PayPal, which can be used with any phone and has the benefit of familiarity to customers of its original parent company,  

All but PayPal are practically a default choice, depending on which phone you have, and they work much the same. You download the free app, upload the numbers of all of your major credit and debit cards and “tap to pay” with your phone at any retailer who accepts that service.

PayPal works the same way, and with the same card reader, if the merchant has signed up to accept PayPal payments. (PayPal is not as widely available in brick-and-mortar stores but it is ramping up, with Macy’s signing on in fall 2015.) It has a couple of features that its big rivals currently lack, including the option of connecting to a bank account, and the ability to send and receive virtual money person-to-person.

So, that’s two big barriers to consumer acceptance that have been cleared away. Mobile pay is already on your phone (or will be soon) and it’s accepted everywhere (or will be soon). But one big question remains in consumers’ minds: How secure is mobile payment?

It seems that the big players have spent a lot of time and effort making sure that mobile payments are more secure than using a physical card. First of all, a merchant will never see your credit card number or the authorization code from the back of your card or even your name. And, when you make a purchase, instead of your credit-card number being used, a one-time encrypted number is generated – a token – to authorize the purchase. It expires shortly afterward.

But What If You Lose Your Phone?

Even if your phone is lost or stolen, there are layers of protection. Mobile wallets are behind a lock screen, requiring a PIN number or fingerprint authentication to use. So access is restricted. What’s more, your credit or debit card numbers are not stored on the phone. Finally, there are features that the companies urge you to activate in case you lose your phone: Android Pay users, for instance, are warned to turn on the Android Device Manager so that the phone can be located if it’s lost or stolen, and locked remotely if needed. For Apple Pay, the Find My iPhone feature lets you suspend the mobile wallet remotely.

A comparison of security and other features of the four biggest services, and some other players, is available at evaluates the services from the small business owner’s viewpoint. 

Slow Adoption – in Some Places

After security worries, the big barrier to acceptance of mobile payment has been, to put it bluntly, indifference.  Most Americans are just not that fussed about the bulky-wallet issue, and not that psyched about the convenience of tapping instead of swiping.

The mobile pay services can be expected to offer some sweeteners to consumers, such as bonus point programs. They also have built in, or are planning to build in, benefits like coupon and loyalty card access.

The American attitude is in sharp contrast to that of Chinese consumers, who have embraced cash-free living. In 2015, almost 358 million Chinese consumers used mobile payments, an increase of nearly two-thirds in a year, according to a government report. They use their mobile phones to pay for taxis and meal delivery, in Walmart stores and at mom-and-pop market stands. Alipay, owned by Alibaba, is the dominant Chinese service. (For more, see Will Apple Crack China's Mobile Payments Market?)

In China and in other developing nations, where many have never used a traditional bank, many newly minted consumers are avoiding banks and substituting a mobile payment service. Alipay users can deposit their money in a money market account that currently pays 2.6% interest, a better deal than the banks offer.

The Bottom Line

The tap-and-pay system isn’t yet ubiquitous in the U.S., but it soon will be. The four big players mentioned here have the upper hand for now, but there are others that hope to win a share of your business. This is good news for the consumer, who may look forward to special rewards programs for signing up.

You may also be interested in reading What's a Good Price for Cell Phone Service?


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