• by Mark Walsh  @markfwal, February 27, 2014

Despite all the buzz, investment and start-up activity around mobile payments, a key ingredient for success is still missing: consumers. Only 16% of mobile device owners have used their phone to make an in-store payment in the last three months, according to a new Yankee Group study.

Furthermore, of those actually using mobile wallets, 73% are doing so fewer than five times per month. "The harsh reality is that despite billions in investment across the ecosystem, adoption of such mobile payment technologies has been far from illustrious,” stated Jordan McKee, a Yankee Group analyst and author of the report.

Among the players with the biggest backing to date are Google Wallet, the carrier-led Isis initiative, LevelUp, the Merchant Customer Exchange (MCX), PayPal and Square. Among these, PayPal is the early frontrunner, with 15% of consumers having used its app in the last month to make an in-store transaction. It has almost four times the uptake of its closest third-party wallet competitor, Google.

The study found that smaller merchants, who are eyeing lower-cost alternatives to traditional Point of Sale (POS) systems, see more value in offering mobile payment options than their larger counterparts. Square, for instance, initially focused on appealing to small businesses and restaurants with its plastic attachment for accepting credit cards via smartphone or tablet.

But the Square Wallet app for paying without pulling out a credit card has yet to gain traction with consumers. As such, the report rates the company’s wallet offering, with only 2% adoption, as having the least potential of the seven solutions analyzed.

While only twice as many people surveyed by Yankee Group have used Google Wallet in the last month, the research firm sees more promise in the search giant’s competing product. That’s because the latest version of Android (KitKat 4.4) removes key problems that have plagued Google Wallet’s NFC-based technology in the past.

In particular, the host card emulation (HCE) technology built into the updated Android platform means that payment card information can be stored in the cloud rather than in phone hardware, where wireless operators have more control. One result is that Google Wallet’s payment feature can spread beyond just Sprint, according to McKee.

Along with PayPal, he projects MCX, the consortium of big-box stores, as having the best shot at long-term success in mobile payments. The venture has buy-in from a group of 59 national retailers like Walmart, Target and Best Buy from the outset. In recent months, it has also signed on Paydiant, Gemalto and FIS to power its mobile payment platform.

One major force that may yet shake up the mobile payments space is Apple, with a long-rumored iWallet that taps into its millions of iTunes credit card accounts.

During the company’s fourth-quarter conference call, CEO Tim Cook said Apple has been “intrigued” with mobile payments area and suggested it could power that capability through the iPhone’s Touch ID feature. For now, the Yankee Group study projects that he way most people pay for goods and services won’t change anytime soon.

That said, a majority are interested in learning more about switching to a mobile wallet offering. “With fully two-thirds of consumers remaining interested, it’s important to recognize that the mobile wallet is far more of a latent opportunity than a pipe dream,” noted McKee.