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Will Merchants or Consumers drive Mobile Merchant Payments?

The GSMA recently issued a discussion paper on mobile merchant payments (or eWallet Merchant Payments as they label them). In it they laid out three conditions that they felt needed to be in place to drive customer uptake of mobile merchant payments - namely consumer demand, a clear consumer benefit, and an eWallet stored value (i.e. a positive balance on your mobile wallet account).

With the second of these conditions being the most critical (if there is no benefit to the consumer from using mobile payments they will not switch from cash), and the third only really applying in the case of mobile-led offerings (bank-offered wallets can draw down from linked bank accounts), it is perhaps the first condition that is most open to debate. Does a latent consumer demand need to exist for mobile merchant payments before merchants start accepting them – or is it the case that merchant acceptance itself will be a catalyst for driving consumer demand?

To say that consumer demand will be a primary driver for merchant payment acceptance is to ignore how card companies first developed their business models. From the issuance of the first store and charge cards through to the development of credit cards, the business model has been ‘acceptance-led’. That is, it was the merchant’s willingness to accept card payments that drove customer demand rather than the other way around. Merchants were happy to accept these payment as they generally denoted a more credit-worthy and higher-value spend customer. Once card payments (and their associated loyalty bonuses) were more widely accepted, consumers were in turn happy to use them and thus demand was stimulated.

Today the card payment business model is less about loyalty (though clearly that is still part of the business model for some) and more about the convenience of not having to carry large amounts of cash around. However in many emerging markets, card payments have been slow to be adopted primarily because of issues around merchant acceptance. Often this will be due to a lack of willingness to pay the interchange fee, the high cost of the POS terminals or the lack of reliability of the communication networks that those POS terminals depend on. Cards are being issued in these markets and consumer demand exists, but due to the lack of merchant acceptance often there is nowhere to use them.

Mobile payments can clearly circumvent some of the issues around POS cost and communication reliability but the problem of merchant acceptance still remains. So how do we translate the card payment ‘acceptance-led’ model of old to the modern mobile payment business model of today? How can we drive merchant acceptance of mobile payments, particularly in emerging markets? And what incentives do merchants have to accept mobile payments in the first place? Once we can answer these questions, then we can look at how to encourage consumer demand for mobile merchant payments. That is a theme we will be returning to here in the coming weeks.


Comments: (3)

A Finextra member
A Finextra member 19 December, 2012, 09:43Be the first to give this comment the thumbs up 0 likes

I think all of the questions here are valid. I have only been loosely involved in the payments industry for a few months now, but working in a heavily cash based business it is something we keep an eye on.

In terms of mobile payments, the main problem seems to be the lack of
standardisation rather than a lack of accessibility or knowledge from the
consumer, however for the merchant it seems to be the opposite. The innovation is evidently leaning towards the consumer experience where even if uptake is unanimous there is an inherent lack of back end infrastructure to easily process the transactions. I believe that NFC on mobiles is far more valuable when used in conjunction with the display of information and driving consumer traffic via marketing. Location based information at the 'tap' of a phone is clearly hugely convenient; take 'tap for a taxi' in Taiwan for example.

Acceptance of the contactless credit and debit card has been, overall, a successful one, and rightly so if you ask me. The one amendment I would be looking at is ridding of the single point of sale. I would like to see a 'pay on the move' concept whereby you are never restricted as to where you pay or make a transaction within a store, hence iZettle etc.

Killian Clifford
Killian Clifford - Mobile Money Consulting - London 19 December, 2012, 12:20Be the first to give this comment the thumbs up 0 likes

Thanks Jack. I deliberately left out the consumer experience because as you rightly point out, it is where the majority of the focus around payments has been (and rightly so). But in emerging markets, and to a lesser degree developed markets, merchant acceptance of mobile payments has been low. Why is that and how can we incentivise them are the questions I want to put out there.

A Finextra member
A Finextra member 19 December, 2012, 12:50Be the first to give this comment the thumbs up 0 likes

This is largely what I assume to be the case but here goes. I would hazard a guess and say that the reason the uptake from the merchant side is slow is due to a lack of standardisation - merchants don't know what to be accepting and what not to accept because there is no concrete stats behind how many people are using this, that and the other mobile wallets that are out there. No one can seem to approach a merchant and fully prove that they have a critical mass of people to make it worth their while. Even the big names (google) are pivoting almost weekly. I almost see it as a huge market being developed like a lean start-up!

In terms of incentives I am searching for those answers myself to be honest. Passbook seems to be the most feasible offering as atleast it offers a platform for more than one wallet to be accessed from one single place. I think at the minute I would be looking to partner banks as the non cash incentive of a banks brand is probably a lot more useful to get their customers (a significant proportion of which you would assume are merchants) using such a service. They could affectively push the service as an add on to their normal business account and boast benefits like real time processing to their accounts rather than it having to go through third party transaction processors.