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.