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Feature

In-App Payments

By Allan Reynolds powerful platform for self-checkout as well as integrated loyalty. Walmart, for

Mobile payments come in several forms, including: example, is adding complimentary grocery pickup in several U.S. markets,
an order-in-advance model ideally suited for the mobile app. We expect

1. Using a mobile phone as the physical form factor at the point of sale that evolution of integrated commerce, loyalty, and payments to eventually

(e.g., paying with Apple Pay in-store) accelerate growth of app commerce within the retail sector (as observed

2. Completing a payment within a mobile web browser today at Starbucks).

(e.g., shopping on amazon.com with a tablet) Our estimates for the sector mix of in-app payments in 2016 and projected

3. Transacting within a mobile app forward to 2020 is illustrated in Figure 4.

(e.g., purchasing an airline ticket through the British Airways app) We also expect regulation to be a catalyst for the growth of in-app payments

As of 2016, the overwhelming majority of mobile payments fall into the latter in Europe. PSD2 intends to increase e-commerce security by requiring strong
(two-factor) authentication. As the PSD2 current language is written (still in

(see Figure 1). App commerce in particular is growing rapidly (50%+ CAGR). draft form), merchant card vaults, which drive a substantial portion of mobile
First Annapolis recently estimated current in-app payments volume and commerce today, will not comply with strong authentication requirements for
found it to be €60 and €125 billion in Europe and North America, transactions that exceed €10. Creating frictionless use cases for two-factor

respectively (see Figure 2). U.S. consumers clearly set the trend Figure 1: Estimated 2016 Splits of Mobile Payments by Use Case
for mobile usage, as of July 2016 spending half of their total ‘digital in Europe and North America
media’ time in mobile apps according to comScore. European

markets trail on the adoption curve by 1-2 years, while China is

also one of the highest in the world. Europe North America

While increasing smartphone penetration will lead to more ‘mobile 2% 6%
payments’ across use cases, both consumers and merchants are 21%
increasingly embracing app commerce and in-app payments. In-
app payments are cannibalizing other traditional types of payments Phone as form 32%
as app commerce use cases displace physical transacting at factor @ POS
the POS, traditional MOTO payments, and e-commerce. This 61%
gravitational shift is illustrated in Figure 3. App commerce

Digital sectors lead the way for app commerce today as much 77% e-commerce via
of the e-commerce volumes in these sectors migrate into apps mobile device

which offer greater feature/functionality than traditional internet-

based environments. For example, Zynga, an online gaming

company, noted that 76% of its Q1 2016 bookings came from a Source: First Annapolis Consulting analysis and estimates.
mobile device. Transportation and travel are also leading sectors

for app commerce given the utility created by

apps for people on the go (Uber being the Figure 2: Estimated Sizing and Splits of Consumer Consumption in
classic example). Europe and North America

Growth in in-app payments will increasingly Europe North America
be fueled by emerging in-store use cases
as quick service restaurants drive increased (€ billions) (€ billions)

Swedish burger chain, reports that half of POS e-Comm* POS e-Comm*
all sales now come from digital channels, € 3,985 € 750 € 4,101 € 785
including self-checkout kiosks and the Max
mobile app. Digital channels are attractive MOTO *Consumer consumpOon esOmates MOTO
because the customer experience is superior € 80 exclude B2B payments, pure ?nancial €95
and produce higher average order sizes for transfers, and direct debit billings
Max. According to Max, the app and other In- (i.e., our focus is on consumers to In-App
digital channels have gone from being a App merchants). € 125
support function to being the chain’s primary € 60
channel.
Source: First Annapolis Consulting analysis and estimates.
Retailers are still learning the ropes of app
commerce; today, retail lags other sectors in
app commerce penetration. We expect this
to change, however, as apps can serve as a

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