Consumers Are Still Seeing Seams in the Mobile Wallet

LIBBY CATHEY and her sorority sisters fumbled with pesos as they split the bill at Señor Frog’s in Cancún, Mexico, over spring break last month.

But the return trip was painless. For the cab ride from the airport to New York University, two of her sorority sisters took out their smartphones and, with a few taps, reimbursed her for their portions of the fare in just a few seconds. This, according to a cadre of start-ups and big corporations, is how consumers will pay for everything in the future, from babysitters to four-star dinners, as checks become cumbersome and exact change harder to find.

New payment apps are trying to replace your physical wallet with a seamless, Internet-connected experience known as the mobile wallet. But these technologies â€" from giants like PayPal, Google and Chase as well as upstarts like Venmo and Square â€" are still in their early stages, and as they vie for attention and users, many consumers are failing to see the point, according to a report released in late March by the Federal Reserve.

“It’s a chicken-and-egg problem,” said Ginger Schmeltzer, the senior vice president for emerging payments at Fiserv, a financial services technology company. “Until there are consumers demanding to use whatever the payment option is on their mobile devices, or until there is a compelling cost saving or revenue increase that businesses feel comfortable about, the real turning point in mobile payments is not going to happen.”

The Fed found that 17 percent of smartphone owners used their devices at least once to make a payment in a brick-and-mortar store last year, compared with 6 percent of smartphone owners in 2012.

Those like Ms. Cathey who used their devices to transfer money to other people’s accounts made up 15 percent of smartphone owners last year, the Fed reported. (A little more than half of the adults in the United States own smartphones, according to a survey last June by the Pew Research Center.)

The money transfer services (or peer-to-peer payment services, as the industry calls them) do not release data about their regularly active users. But the numbers in the Fed survey â€" which include people who have tried the services just once or twice â€" point to the hurdles facing the mobile wallet on its quest for widespread acceptance.

Such services do have their converts. Ms. Cathey, 20, a junior at N.Y.U. and the president of the university’s chapter of Delta Phi Epsilon, uses “Venmo” as a verb. She and her sorority sisters rely on the app to pool money for events.

After entering their debit card and bank account information, users of Venmo can easily send money to others in their network. The service, which includes a social element, “made money matters not so awkward anymore,” Ms. Cathey said.

College students are often early adopters of technologies that become widely popular, as Facebook demonstrated. Venmo appears to be a favorite at N.Y.U., where members of the Zeta Beta Tau fraternity use it to pay dues. Another start-up, Clinkle, is aiming to appeal to college students, though that company has yet to release an app and has had a couple of high-level staff departures in the last month.

Although Silicon Valley has bet hundreds of millions of dollars in the last few years that the mobile wallet will go mainstream, many of these services are still in early stages, and it is not certain that they will ever become profitable.

One service, Square Cash, does not collect any revenue. Venmo, a five-year-old start-up based in Manhattan, earns no revenue from its primary app. Venmo did buy itself some time to develop new products and gain users: It became part of eBay last year when PayPal, an eBay subsidiary, bought its parent company, Braintree. (Venmo’s cryptic ads featuring an unsmiling man named Lucas began appearing on the New York subway late last year.)

Another obstacle facing Venmo and similar apps is that all the parties to a transaction need to be willing to use the service. Digitally splitting a check at a restaurant, for instance, might appear to be easy, but this use is “still very much in its infancy, and very small,” said Ron Shevlin, a retail banking analyst at the Aite Group, a research and consulting firm.

The other major use of the mobile wallet â€" making payments in stores, often by tapping or scanning a smartphone near the register â€" has been slow to catch on. But proponents of these services say they appeal to shoppers and businesses alike because they may incorporate loyalty programs and can reduce the time it takes to pay.

The widely acknowledged leader in adopting this technology is Starbucks, which says that 14 percent of all transactions in its stores are conducted through mobile devices. Starbucks â€" which has a close partnership with Square, the payment start-up run by Jack Dorsey, a co-founder of Twitter â€" says that paying with a smartphone is simply more convenient.

“You’re more likely to have your phone in your hand when you’re in line at Starbucks than you are to have your credit card in your hand,” said Adam Brotman, the company’s chief digital officer. “So it’s actually more convenient to use your phone.”

This reasoning fails to impress Andrew Kortina, the co-founder of Venmo, who says that mobile payments in stores will not catch on unless they offer something that traditional cash or credit card payments don’t. That could mean, say, allowing shoppers to skip the checkout line and walk out with an item with a few taps on their phone, as is already possible in Apple stores. Or perhaps automatically delivering items to a shopper’s home. (Starbucks says it plans to introduce a way for customers to order ahead with their smartphones and pick up their coffee in stores.)

“Thinking about replacing a cash register with something else is the wrong framework,” Mr. Kortina said. “There’s just so much more you could do with a phone.”

One evangelist of the mobile wallet, Carey Kolaja, the vice president for global product solutions at PayPal, said she tried to go as long as possible without using cash. During a recent trip to São Paulo, Brazil, with her team, she said, she lasted the entire week without using any reais, the Brazilian currency, though she did often resort to her credit card.

A place that regularly stymies her goal? The nail salon.

Still, the technology has not made inroads with everyone. Ben Miller, 39, an assistant professor of English and communication at Georgia State University, who was visiting a Starbucks at N.Y.U. on a recent Friday, said he saw no need to pay with his phone. “You have to carry a backup credit card anyway, so it becomes a redundant option,” he said.

Paying with a smartphone in stores “has been the next big thing for many, many rounds of next big things,” said James Wester, a research director at IDC, a technology advisory firm.

“We assumed we’d be further along by now,” he added. “We’re now just at the end of the beginning.”