Who will drive Mobile Merchant Payments – Consumers or Merchants?

mobile-paymentsThe 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.

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  • Great topic…

    yes, why aren’t merchants jumping on board more aggressively? with Square and other similar devices in the market, hasn’t POS cost gone down to almost zero? and why shouldn’t we expect emerging market consumers with electronic alternatives (cards or phones) to increase their spending at merchants, just as occurred in developed markets, particularly if loyalty and other devices are used? so why aren’t we seeing more uptake, particularly with merchants that are affiliated with large wholesalers? throughout emerging markets one sees countless examples of clusters of merchants selling the same wares, clearly an opportunity for differentiation through ease of service…is it really that the merchants resist? or is the problem more because the payments service companies, be they card- or phone-oriented, haven’t really targeted this market? with mobile the emphasis seems to have been on consumer money transfers and G2P, not on more routine B2C and B2B…the SME Finance Forum is very interested in thoughts on this…see http://www.smefinanceforum.org and our LinkedIn discussion group

    • Killian Clifford

      The opportunity is certainly there for both the banks (corporate payments) and the PSP’s (merchant payments) but are unsure about how to approach it. I think one of the issues is merchant and corporate awareness, educating and training. Many are unaware of the existence or potential of mobile payments for their business. Which I guess is where someone like the SME Finance Forum come in? Would love to hear more about what you do and how we might be able to connect the different parts of the industry

  • Great Topic,

    The uniqueness of mobile payments compared to other electronic channels, is that it affords everyone a platform for usage. Everyone is a user, no matter what end of the stick you are holding, as a merchant, a business, a financial institution, an MNO etc.

    As regards your topic Gillian, i would like to say that a merchant has to be separated into 2categories. The first is the merchant who can develop a mobile payment application for his business because he sees the potential for having a straight-through presentation of his product and services. The second merchant is the one who just accepts payment for products and services rendered to end-user of his business.
    The first in that category will drive clients to his business using his app, the second will be driven to provide the service because of the popularity of mobile payments and the eventual replacement of POS with mobile payment capabilities.

    In emerging markets and developing countries, it is worth-while to note that there are parameters and factors to consider for the success ratio of mobile payments to supersede the success ratio of the POS deployed in merchant locations, and these factors will be the pivot to success or failure, depending on how they are utilized.

  • Specially in emerging markets, the demands should come from the consumer. They are too attached to cash to switch without an incentive. And the incentive will force them to ask for mPayment. Although we should not underestimate the power of the merchant as well, if the network is not spread enough and encourage with other incentive, they will be in position to lead the demand. In a first time it should be a parallel approach, to have to consumer who needs to claim that payment method because of certain incentive, but if the consumer has no place to pay with his mWallet, he will cash out immediately.

    • Killian Clifford

      Agreed Pascal – there needs to be a twin track approach, though the merchant acceptance angle is often overlooked