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Making money with mobile payments

Most players have realized by now that there is little money to be made in payments (alone). Interchange fees are under pressure, retailers are forming own networks, consumers are getting averse to paying fees - and that only scratches the surface.

The "mobile wallets" (as well as Square copycats) stampede is still on, but it's not hard to see where most of them are heading to (dead-end or the cliff edge). Swords are drawn over the current status and future (if any) of NFC - as well as other interface options, for that matter, such as QR codes.

So, what is a viable business model for a company looking to enter the mobile payments market?

HP. Sell a printer for the peanuts, charge a banana on a regular basis for cartridges.

Let me elaborate. When ten of your customers buy espressos at Starbucks and pay with your m-wallet, you get pennies in profit (at best). If you are smart enough to be both on the consumer and the merchant sides of the payment chain, you'll get a bit more.

Think how much competing retailers could be prepared (or persuaded...) to pay you to bring those ten customers to their outlets. And then to keep those customers loyal.

And then to cross- and up-sell. With your help.

Once you figured out how to use your m-wallet to do all of the above (and more), it becomes the "Matrix" moment. The rest is just noise.

On a semi-related note, one of the recent articles on NFC stated that "most of [NFC-related] commercial problems amount to one thing: a failure of NFC and mobile payments to drive enough value to elbow its way into a payments model which has been set in stone for nearly 50 years; a model where incumbents are clinging to their positions and resisting sharing their revenue with new players. And they don't have a compelling business case for doing it all themselves."

Incumbents. Clinging. Resisting. Revenue Sharing. Compelling. Business case.

Substitute "NFC" with "MP3 player" and "payments" with "music" in the above quote. Apply to the music industry ecosystem in the late 90s. Enter iPod. Think of where 90% of that prior ecosystem and "clinging incumbents" are today. Dead. And the industry? Flourishing (minus silly prices).


Comments: (11)

A Finextra member
A Finextra member 17 October, 2012, 12:33Be the first to give this comment the thumbs up 0 likes


great post.


Please consider reading our Mobile Payment report 2012, where we try better defining the 'mobile payment' definitions and contexts:

John Dring
John Dring - Intel Network Services - Swindon 17 October, 2012, 15:18Be the first to give this comment the thumbs up 0 likes

Yes, great post.  A 'man cannot live by payments alone' blog.

Operators on the other hand, did very nicely out of 1st gen content mobile payments (pSMS).  But that's declining.  Their issue is getting into the App payment chain with Direct Carrier Billing, as an alternative to paying with credit cards.  That's revenue which is completely bypassing them todate, and still comes with a healthy margin for managing the billing relationship.  In short, there's still profit in Digital Goods, including MP3.

A Finextra member
A Finextra member 17 October, 2012, 20:17Be the first to give this comment the thumbs up 0 likes

There is no money in is everything other than the payment where a new entrant can add value and there make revenue.

Most new payment players will play in the before and after payment spaces and make more money out of that then your card scheme's, PSP's and banks.

A Finextra member
A Finextra member 18 October, 2012, 09:54Be the first to give this comment the thumbs up 0 likes

Closing the loop and processing more internally (On-Us Traffic: where you are both the Issuer and the Acquirer) is the best way to drive value out of the payment chain - not only that but you are also the end-to-end custodian of usage data that can assist BI systems segment and target end consumers more effectively.

Nick Collin
Nick Collin - Collin Consulting Ltd - London 18 October, 2012, 11:35Be the first to give this comment the thumbs up 0 likes

But Alexander, you can already do everything you describe with plastic cards (preferably chip cards).  Substitute "NFC Mobile" with "E-Purse" and you'll come to a different conclusion.  I refer you again to my blog at  

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 20 October, 2012, 17:23Be the first to give this comment the thumbs up 0 likes

Agreed that, say, Dunkin Donuts might be willing to pay you (i.e. mobile wallet provider) a lot of money to bring 10 Starbucks customers to DD. The only way you can prevent Starbucks from terminating its relationship with you would be to persuade Starbucks that you can make this work in the reverse direction, whereby you can use transactional data to hand over 10 customers from DD (or McDonalds or some other coffee store brand) to Starbucks. So far, so good. However, isn't this customer disloyalty at its extreme? How can an m-wallet provider causing this disloyalty then go back to the merchant and claim that it boosts customer loyalty and helps in upselling and cross-selling?

For reasons explained here, our work with banks has shown that merchants are not very enthusiastic about doing personalized deals on the basis of transactional data. I don't see why the hurdles facing banks using transactional data won't apply to m-wallet providers in the same position.

A Finextra member
A Finextra member 20 October, 2012, 18:40Be the first to give this comment the thumbs up 0 likes


There is no repationship with Starbucks, they are just one of the merchant where our m-wallet is used. Even if we cannot see SKU-level data, we can see a profile (i.e. "coffee shop").

I provided drastic example, but you can run cross-sell promotions too. As for retailers not being enthusiastic - they have no control over the process. It's the same as consumers doing "window-shopping" (using barcodes and Amazon) in-store and then buying online. Tough, but that's how things are. As m-wallet provider, I'd prefer to be consumer-driven, rather than focusing on retailers.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 October, 2012, 09:36Be the first to give this comment the thumbs up 0 likes

I guess a certain degree of focus on merchants is inevitable since they're the ones willing to pay the mobile wallet provider for carrying their offers.

On a side note, since the article contains an analogy with HP, in 10 years, I've bought 4 HP All-in-One multifunction devices. The first one worked fine for the entire 6 years period that I'd had it. The second one had a small problem one year after I purchased it. I was able to solve it with a little bit of help from HP via Instant Messaging. The third one broke down after 10-odd months. It couldn't be repaired. While waiting for a replacement, I'd to go without a printer for almost one month. My latest HP AIO device has broken down within a month of purchase. I'm waiting for HP to fix or exchange it. This leads me to wonder if, apart from charging "a banana for cartridges", HP has also started dropping its product quality with time in order to create a viable business model. Hope mobile wallet vendors don't imitate this facet of HP.

A Finextra member
A Finextra member 22 October, 2012, 10:18Be the first to give this comment the thumbs up 0 likes

Interesting view of the HP example, I agree. Perhaps I should have used the "razor and razor blades" analogy.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 October, 2012, 14:13Be the first to give this comment the thumbs up 0 likes

Agreed, "Razor, Razor Blades" is a better analogy. Although it's a bit more complicated, "Razor, Razor Blades & Reward Points" might make an even better analogy: A few years ago, I'd bought the then newly-launched Gillette Mach3 razor for a price that was not too high. When the blades that came along with the razor got over, it was time to buy replacement razor cartridges (looks like "cartridges" will enter all discussions about viable business models!) and I got a sticker-shock when I went shopping for them. But, since I had no choice, I had to go ahead and buy them. The next time I visited the reward redemption websites of my two credit cards, I noticed that both of let me redeem my reward points against the said Mach3 razor cartridges. The points-to-currency ratio was weighted heavily against me and in favor of Gillette or the bank or both but, since the transaction didn't involve any actual cash outflow, I opted for it on that occasion and every time thereafter. Although convoluted, this business model does manage to deliver win-win for all parties concerned.

Andrew Rothwell
Andrew Rothwell - House of Mozz - Sydney 22 October, 2012, 17:54Be the first to give this comment the thumbs up 0 likes

Issuers own the card-holder. Acquirers own the merchant.

Closed loop systems only work if the product / service is considered of sufficient (and specific) value (to merchant and card / wallet holder).

Open loop systems tend to generic in their product / service offerings, and often uncompetitive on price.

The third way of course is for new entrants to use existing payment rails provided by Visa, MasterCard, etc, and their own where possible; providing unique value add products and services on top of these rails. That way new entrants can scale up, and deepen merchant relationships, and therefore "stickiness", and hopefully margin.

In my opinion, the way forward for new entrants is to really understand how payments are made in different market segments, and then devise new methods to support these ways of paying. This often involves working with point of sale (POS) vendors, because they know their customers better than most, and, better payment experiences / methods involve the POS.

Hooking up mobile payments, including loyalty to a merchant POS is one of the most important things an existing acquirer can do. Isn't it?

The merchant will love you, because you've brought their customers closer to them, and they are able to purchase outside of the store. The customer is happier because they have yet more convenience and choice. (eCommerce has provided this for years now...How many POS's have online shopping cart or payment facilities? Now, how many actually support mobile payments / loyalty?) 

NFC, QR codes, etc are all technologies that allow us to implement payment experiences, but by themselves are not a panecea for promotion of radically new payment offerings.

Existing payment providers that understand these things and have the capacity to provide them will do well.

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