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Killian Clifford

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Killian Clifford - Mobile Money Consulting

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Can Corporate Mobile Payments drive Merchant Acceptance?

10 January 2013  |  6214 views  |  2

In our last blog we raised the question of how to encourage merchant acceptance of mobile payments so that consumer demand for such payments might also be stimulated. We highlighted the conundrum that exists for physical card payments in many emerging markets, where, despite issuance and demand from consumers for these payments, the lack of merchant acceptance means that they are yet to take hold. The same problem exists today for mobile payments.

So, how should we incentivise merchant acceptance of mobile payments? What if they too had a reason to use them as well as accept them?

If corporations and their distributers were to start accepting mobile payments then merchants would also be encouraged to do so too. Whereas the direct benefit to merchants of acceptance may not be immediately obvious to the merchants themselves, it is surely obvious to those corporations, such as consumer goods companies, that have to engage in cash collection. The cost of cash collection, especially in less developed markets, can be as much as 20%, especially when the cost of transportation, securing and processing are considered. Even in developed markets this can approach 10%. And, in certain markets cash sales can comprise 75% or upwards of revenue, meaning that cash collection can be a massive overhead for many companies. Mobile can eliminate most of this cost.

If companies can save as much as 20% on the cost of collecting cash just by using mobile, then they have every reason to encourage mobile payments  -or mobile collections – through their distribution and supply chains. And what better way to incentivise your distributers and merchants to pay with mobile than to pass on some of those savings in the form of discounting for invoices paid by mobile?

For that to happen the merchant will need to be in possession of his/her own mobile wallet which can be funded either by topping up at a bank or an agent, or – more pertinently – by accepting mobile payments from consumers. Incentivisation of mobile payments through discounting could even extend to the consumer, thus adding a clear value proposition where there is uncertainty today. Of course this logic doesn’t just apply to consumer goods companies and can be extended to other industries, particularly where cash comprises a proportion of revenue collection.

This top-down, acceptance-led development of the mobile payment ecosystem runs contrary to much of the models in existence today, where it is assumed that demand will be driven upwards by the consumer. But it is every bit as important and could potentially be more successful if savings are passed through the supply chain.

The Cost of Cash Collection TagsMobile & onlinePayments

Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 11 January, 2013, 17:59

Not sure why cash collection should be so costly. In this Finextra post, I've cited the example of an airline in India that has recently launched cash-on-delivery as a new mode of payment for booking air tickets. It has outsourced the cash collection to a third-party at a cost that is no greater than the MDF / MSC it incurs for accepting credit / debit card payments.

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Killian Clifford
Killian Clifford - Mobile Money Consulting - London | 12 January, 2013, 10:45

@Ketharaman I think if you sit down with any corporate treasurer and ask them to itemise and quantify the cost of using cash in their distribution chain you will soon find that it quickly adds up once you consider invoice delays in cash payment collection, cost of collection itself (labour, vehicle, fuel), transportation of collected cash, securing it and risk of theft and fraud, insurance and manual back office reconciliation processes. I would be more than surprised to find that it all added up to less than the merchant service discount charged in any country. The COD example cited considers one cost in that list - the cost of transporting collected cash and ignores the others. The fact that we have a whole industry dedicated to removing cash from the system and a push by governments and central banks globally would suggest the cash isn't just a benign contributing factor on the cost of payments.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 12 January, 2013, 11:42


I'd rather believe what corporate treasurers do than what they say. And on this, I'll point to my comment here to avoid repetition.

Just to clarify, in the airline COD example I've cited, I don't think the airline has ignored any cost: The third-party COD provider in question bears all the costs you've specified including cash collection, transport, deposit into the airline's bank account, cash-in-transit insurance, reconciliation, etc., and charges one flat fee to the airline, which is no higher than MDF / MSC. For the airline, this is the total cost of getting "cash in its bank account" and I don't see any extra costs being applicable relative to card payment. In fact, at no extra cost, the airline has also received a bank guarantee from the COD provider indemnifying the airline from the possibility of the COD provider going bankrupt during the T+2 day settlement cycle. 

Maybe the COD provider has underestimated its total cost and has quoted an unrealistically low fee to the airline but that's not the airline's problem. On second thoughts, I'll rule out the possibility of any gross underestimation since the same COD provider has been providing this service to at least 100 other OTAs and e-tailers over the last two years and it has managed to survive so far.

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