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US mobile payments survey shows banks still trying to catch PayPal

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US mobile payments survey shows banks still trying to catch PayPal

JPMorgan Chase & Co. has work to do if it wants Chase Pay to have the same kind of customer adoption as PayPal Holdings Inc.'s digital wallet, based on the results of a recent survey commissioned by S&P Global Market Intelligence.

About 39% of the individuals who used a mobile payment app to pay for an in-store retail purchase in the 30 days prior to taking the survey had used PayPal, versus 13% for Chase Pay.

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This was one of several findings of the survey, which began with 904 respondents. Of those, 405 had not used a mobile payment app in the past 30 days, which gave us insight into why respondents would not want to use such services. The 499 who did use mobile payment services, meanwhile, yielded clues on what people do with their apps, such as the aforementioned in-store retail purchases. That was the most common use of mobile payment services, based on our survey, with roughly half the 499 mobile payment users having done so.

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We also looked at Chase Pay in relation to apps from companies like Starbucks Corp. and retail stores such as Kohl's Corp. and Walmart Inc. There, too, Chase Pay lagged, although it came out ahead of Dunkin' Donuts. JPMorgan CEO Jamie Dimon seems to be willing to give Chase Pay more time, based on remarks made at a conference in September 2017. "I'm pretty sure it will pay for itself. Whether it becomes a virtuous cycle of substance, we'll see down the road … but we think the payments business is critical," he said, according to a transcript.

Even for PayPal, in-store payment options are a work in progress. It is reportedly doing away with two payment options: the ability to pay using a phone number and PIN, and the ability to use special payment codes in stores, according to a Feb. 27 Bloomberg article.

If you can't beat 'em …

Despite offering alternative services, Chase Pay recently partnered with PayPal, letting clients link their cards to their PayPal accounts through Chase Pay to access the PayPal wallet. This is not uncommon, as PayPal partners with other large banks and credit card issuers, such as Bank of America Corp. and Citigroup Inc., to link customer cards to their app.

As our survey data illustrates, respondents often used more than one wallet service. For instance, more than half the 97 survey takers that used PayPal for in-store retail purchases also used at least one of four other providers: Apple Pay, Samsung Pay, Android Pay and Chase Pay. This is perhaps due to the fact that different merchants might accept one payment type but not others.

But lack of merchant acceptance does not appear much of a deciding factor in whether to use mobile payment services. Only a small portion, around 5%, of the survey takers that did not use a mobile payment app indicated that it was because it was not accepted where that person shopped. The major reasons for not using them, according to the survey, were security concerns and the view that using cash, checks and cards was easier.

Getting personal

PayPal also dominated in the survey question regarding person-to-person payments. Nearly 70% of those that had transferred money to an individual used PayPal, and the third most-used app was Venmo, which PayPal also owns. One of the features that attracted PayPal to Venmo was its popularity among younger users, which seems shrewd based on the results of our survey. The survey shows a strong trend of mobile payment apps being more popular with younger users; roughly 60% of the survey takers that had used a mobile payment app in the 30 days prior to taking the survey were under the age of 38.

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Another feature that attracted PayPal to Venmo was its social feed, which allows users to share the record of transactions they have made with others. PayPal CFO John Rainey said in September 2017 that upward of 90% of all transactions on Venmo had the social feed enabled, according to a transcript of remarks made at a conference.

The fact that Venmo is free to use in certain cases had historically raised questions about its profit potential. Venmo does not take a cut if the user deposits money into the app, links a bank account or uses a debit card. Venmo does, however, charge the user for person-to-person payments if they are made with credit cards, for which the company takes a 3% fee. It also charges a 25-cent fee for instantly transferring a balance out of Venmo — a standard transfer is free.

But PayPal began seriously monetizing Venmo in October 2015, when executives announced a trial program whereby Venmo users could use the app to make online payments at selected PayPal merchants. PayPal has done a major push since then; in October 2017, it announced that the service is available at more than 2 million retailers. Merchants can offer Venmo as a payment option both on native apps, which are apps built specifically using the languages on which mobile phone operating systems are based, and mobile web apps, which are apps that are made using web languages that look like native apps.

Banks have responded to PayPal's and Venmo's popularity with Zelle, a service that allows users to send or receive money for free. Dozens of banks have partnered with Early Warning Services LLC, the entity behind Zelle, which means that users can use Zelle through the app of their current bank. If the user's bank is not a partner, he or she can download the stand-alone Zelle app. Zelle has been growing quickly, already eclipsing Venmo in the value of transactions processed. Zelle processed $75 billion in aggregate transaction value in 2017, while Venmo processed approximately $35 billion in payment volume. Venmo is just a part of PayPal's person-to-person platform, however. PayPal's total person-to-person payment volume was roughly $27 billion in the fourth quarter of 2017, for an annualized run-rate of $108 billion.

Based on our survey, bank apps were slightly more popular than Venmo for person-to-person payments, with about 25% of respondents saying they had used a mobile bank app and about 23% saying they had used Venmo.

Methodology

The S&P Global Market Intelligence 2018 mobile payments survey was fielded between Feb. 8 and Feb. 14 across a nationwide random sample of 499 U.S. respondents 18 years and older who had used a mobile payment service on a smartphone, tablet or smartwatch in the 30 days prior to taking the survey, and 405 respondents who had not used mobile payment services. Results have a margin of error of +/- 4.5% at the 95% confidence level based on the sample size of 499, and +/- 5.0% based on the sample size of 405. The results of the 2017 survey can be found here.