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Mobile payments and Contexts: changing checkout


Mobile payments are changing the checkout experience. This is valid for both in store transactions and for online ones. Payments, once limited to passive instruments like cash, checks and cards, can now be carried out with smartphones, which pack technologies that can be used for a variety of purposes, including marketing and identification purposes. The pace of these developments is forcing merchants to embrace the challenge and exploit the opportunities brought by these new technologies.  


In this article we highlight the main differences between mobile payments in emerging and developed markets, how they add value to the checkout experience and how companies can learn from success stories in specific markets.


Both online and offline checkout experiences are evolving: technological innovations allow for new services and solutions to be integrated at the payment, be it online or at the counter. The payment interaction is now becoming a point of contact with the client, but the main challenge for merchants is how to best use the technologies available. By exploiting the possibilities now available, merchants are able to effectively identify customers and to better address different categories, offering them tailored services.


These new technologies allow more services to be included in the checkout experience: coupons can be redeemed, loyalty points stacked, and everything is integrated in the payment procedure. The checkout experience includes payment and delivery in the case of an offline in-store transaction. Placing an order and completing the payment in the case of online transactions is also a process that is being affected by new paradigms in marketing campaigns and enriched by the evolution of mobile payment technologies


The term “Multichannel” is also used more and more in the retail and marketing strategies of merchants. Many merchants are operating in both online and offline environments, thus making it more difficult to identify customers across channels. 

For these merchants it is important to be able to identify which customer is new and which customer is returning: to be successful you need to tailor interactions with the customer accordingly.

Consumers tend to never leave their smartphones behind, and phones can be used to redeem a code or coupon that was received and stored in a previous moment . As smartphones pack various technologies that can be used to interact with other devices, a plethora of solutions has been developed over the recent years that make use of them. 


Operating mobile payments in multiple channels also raises the question of how to categorize those payment solutions. Often we see confusion as per the names used to define mobile payment solutions, and for the sake of clarity, we developed what we call a 'context model' to better identify mobile payment solutions. In our context model mobile payment methods are categorized according to the relationship between the parties involved and their relative location. Different reports and analyses available in the market use different methods to analyze the same topic, and we believe that our model effectively allows for identification and description of the solutions currently available in the market. We also developed this model as it allows Innopay to be agnostic towards technology and therefore reuse it to describe future mobile payment solutions.


Transaction services are always subject to the context in which they are used in. Mobile payments can be used at a supermarket to pay for the groceries, to split a bill with a friend at the restaurant, or to order products online. These different situations pose different requirements on payment instruments. ‘Mobile payments’ cover several types of payment that can be carried out in different contexts with different technologies. This context defines what people expect from a service, demand from technology and what business case can be applied to it. It will be clear that mobile payments have to be tailored to the context they are going to be used in.


Contexts and markets


Mobile payments, as we already anticipated, come in different flavours. Some of those have specific affinities with developed countries while others have more affinity with emerging markets.

In developed markets, mobile payments are still not as commonly used as in emerging countries, as a lack of standardization is limiting their commercial adoption. One of the main reasons why mobile payments are still lagging behind in developed countries can be explained by the conflicting interests of the main stakeholders involved (e.g. Telecom operators, Banks, Financial Institutions). 


One of the most visible trends in mobile payments that can be identified when talking about developed countries is the focus on the interaction between the consumer and the merchant at the point of sale (POS). Various initiatives have been launched to facilitate this interaction and to exploit the full potential of mobile devices. In fact, this is the context where the most initiatives are being represented, out of the four identified in our model.


If in developed markets the focus is on the interaction at the POS, in emerging markets the attention is shifted towards enabling remittances between peers. The reasons behind this important difference can be found in the level of access to financial services in both cases: in our developed markets, financial services are readily available. 

Mobile payment solutions are focused on creating additional value for users, and for emerging markets the main proposition is to allow users to get access to these services, which are not as readily available as for those who live in more advanced economies.


Developed markets: focus on in-store payments.


In developed markets, higher standards of living enable the population to have good access to financial services (such as debit and credit cards, bank accounts and credit lines) and access to smartphone devices. The combination of these two factors enable companies to develop compelling propositions for merchants and users to interact during the payment experience. One of the key success factors in this area is the fact that smartphones enable merchants to develop compelling and interactive marketing campaigns. Interactive campaigns target users groups based on information gathered via the mobile device, and make use of the same device to 'close the loop' of marketing & loyalty programs.


The drivers behind this focus on proximity B2C payments also rely on the availability of advanced technologies. Contactless technologies, first implemented in the credit cards, are now often embedded in mobile devices, creating an opportunity which was identified by various different players (examples in this use case are: Google Wallet, UK’s QuickTap by Orange...). Unfortunately, despite the large investments in Near Field communication (NFC)-based solutions, this paradigm is still struggling to succeed.


Mobile devices are being used to initiate the payment (consumer side) but also to 'receive' or acquire the payment (merchant side). Over the past couple of years, Square became the first company to become globally famous for enabling individuals to acquire credit card transactions. Square enables this by swiping credit cards in a dongle connected to their smartphone. After Square, many other companies started offering similar services. By using one’s own mobile device with a special designed dongle in which the customer’s credit card can be inserted, there’s no need for merchants to sign costly and long-term contracts. This also creates the opportunity for smaller entrepreneurs and individuals to finally accept credit card based payments.


In developed markets, companies focus on proximity B2C payments, as only few peer to peer payments initiatives have been launched (and even less became successful). This is due to the fact that in general, in advanced economies users already have access to financial instruments which serve the purpose in an effective way. 

One of the few successful examples is the Barclays PingIt service in the UK, where a single bank produced an app for smartphone devices where users can sign-up and transfer funds among each other just by sending money to their relative phone numbers. The solution became successful as clients of competing banks could also join the service (even though the funding mechanism is more convenient for Barclays' customers).  

Developing markets: mobile payments as financial inclusion tools.


In emerging markets, banks have had a hard time reaching a good number of potential users, which, because of the lack of services offered to them, we call under-banked. Most of the times, the main reason for this lack of reach is due to the high costs of setting up local branches in distant villages and rural areas, which make it uneconomic to happen. Through the use of mobile devices to manage the (basic) financial instruments available, mobile operators have been able to partner with financial institutions to offer these services wherever a wireless phone connection is available. The game changer that lead the 'mobile revolution' was the ability for users to top up their mobile phones and exchange airtime (or currency) directly through the handset.

This development enabled users not to use cash (which in some cases was scarce and hard to find) to buy food and to pay for various services, but instead to transfer money between the client and the merchant's phones.


The life-changing potential of mobile financial services is perhaps more immediately evident for consumers in developing markets than for users in developed ones.

In these markets, mobile financial services are often the only viable alternative to otherwise hardly available, low-quality and inaccessible financial services; they have developed to become accessible and affordable precisely because they make the difference between existing and not existing from a financial standpoint. Mobile financial services make use of the abundant mobile infrastructure and render dedicated payment/financial infrastructure that are not readily available, obsolete.


By enabling a faster, more secure checkout experience, mobile payment products in emerging markets are becoming agents for change, empowering the unbanked and enabling the fast, reliable disbursement of funds from governments and NGOs.


Players that aim to become global leaders in the mobile payments space have to keep in mind the differences in markets served and develop solutions that offer the best blend of services and innovations for the context they are designed to. Local and regional differences can be exploited to better tailor consumer services and lessons can be learnt from other regions and other markets. Mobile payments have the opportunity to innovate and disrupt the way consumers interact with merchants and the way they spend, the time is ripe for players to succeed in this market and there is demand from consumers to embrace these products. We are only missing a global leader to develop a compelling proposition for clients to use.


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