The future of mobile payments – a Swedish perspective

Technology

The advent of smartphones has made wireless connectivity ubiquitous, yet we are still carrying physical wallets full of cash, credit cards, and loyalty cards. Both tech and financial giants have fought over their position in the value chain of mobile payments – leaving consumers and retailers confused. Will the tide change? If so, when? And how?

Background

3gamma regularly collaborates with educational institutions and partners in our ecosystem to build common expertise, create mutual value and advance thinking within the field of IT Management. During 2015, we partnered with students at Chalmers to study the future of mobile payments and we are very proud to now present the result of their excellent work in this article. Part of the research was conducted in Silicon Valley where the students Shahin Zarrabi, Rickard Wendeberg, Tommy Engqvist and Mattias Kristiansson interviewed key people with insight into the field.

Executive summary

Mobile payment solutions, often based on NFC or QR technology, offer retailers a wide array of advantages: reducing checkout time, identifying consumer behaviour and trends, improving self-service offerings, and merging the online and offline worlds. A mobile payment offering also help retailers by creating or sustaining an innovative image for existing and potential new customers. It is not surprising then that the area of mobile payments is currently being fought over by players from all across the value chain. As card associations, banks, tech giants and even mobile network operators are trying to get their share of the market, different possible future scenarios arise. On one hand, companies like Apple and Google might take over the value chain. On the other hand, existing infrastructure might give incumbent players the advantage. In this uncertain development of the industry, proprietary solutions have become more popular: retailers enjoy all of the advantages while avoiding technological lock-in to a solution that may or may not succeed. For retailers to offer a satisfying proprietary mobile payment solution they must: (1) clearly identify and understand internal and external value, (2) design a good solution that fits customers as well as staff and (3) test the solution with their core customer group. Following these steps, retailers increase their chances to see their mobile payment ambitions materialize in a successful implementation.

Introduction

The term mobile payments was used as long as thirty years ago but the industry around it has still not converged on any standards. From contactless credit cards and SMS to QR codes and NFC, consumers and retailers alike have been slow to adopt any potential revolution in their day-to-day payment processes. Innovation has certainly been prevalent in mobile payment terminals – Izettle, Square and PayPal come to mind – but true mobile payment has yet to make its way into our otherwise mobile lives.

Economically, marketed competitive advantages for retailers are two-folded: customer data leads to easier decision-making and tailored offerings, and an effective checkout process increases throughput rates at the point-of-sale (PoS). But the advantages have not been as clear for customers who have still not adopted the technology at significant rates. The crowded space of mobile payments has instead confused end users, and therefore not convinced retailers in going mobile. Moreover, EU ambitions for a single payment market through the regulatory framework PSD2 might open up for more innovation in the area. By introducing applicable rules for all payment services within the EU, making cross-border payments as easy as national, there are expectations of new entrants, reduced costs for retailers and end consumers, and higher adoption rates of mobile payments. However, legal and social issues arise when data collection on consumers is made easier. Who will own the data and how will it be collected?

These factors all make for a disjoined market, with several parts of the value chain – banks, retailers, credit card companies, mobile network operators and mobile wallet providers – racing to increase their cut of the value. In a near future, banks and credit card companies might be outmanoeuvred by the Silicon Valley giants, while retailers try to increase the control of their customers. In the end, consumers will decide if mobile payments are to succeed.

Mobile payments – why retailers should care

Innovation within technology has always enabled new and beneficial means of doing business and there is no exception within payments. Several forces are driving retailers towards an implementation of mobile payments, most notably in the areas of identifying consumer behaviour, spotting trends, and improving operational excellence.

“It saves our customers time by enabling them to avoid the lines and waiting for the orders to be filled, resulting in shorter lines, faster service and improved in-store execution and an elevated experience,”

– Howard Schultz, CEO of Starbucks, speaking of their mobile payment solution.

Reducing checkout time

One of the most important marketed advantages with mobile payments is that of reducing checkout time. Without the need for counting cash or pulling out cards, the checkout process becomes more effective and lines are no longer a problem. This advantage is debatable, as pulling out a smartphone arguably takes the same time as pulling out a card. The real advantages are realised when allowing for payments away from the physical point of sale (i.e. ordering and paying away from the actual store). Further efficiency can also be achieved by the use of biometrics (e.g. fingerprint scanning) for authentication, removing the need for PIN codes or signatures.

Identifying consumer behaviour and trends

Although already possible with physical cards, smartphones potentially allow for a more sophisticated interface to access consumer behaviour by help of other software in the smartphone (e.g. social media profiles). This technology can be used to analyse purchases and trends to give tailored offerings and discounts to consumers and thereby increase customer retention rates. Insights also enable actors to keep inventory efficiently and plan the use of resources by quickly responding to shifts in consumer interests. Such insights have historically only been available for bigger retailers, while mobile payments can bring them to the whole spectrum of players.

Improved self-service offering

Furthermore, moving the PoS (point of sale) to mobile creates new self-service opportunities – enabling retailers to completely change the process of delivering products. This can currently be seen at fast-food chains and cafés, where pre-ordered food and coffee is already paid for and simply picked up at the location. Personnel can do most of the work beforehand and as a result, products are available immediately when the customer enters the store. A more substantial benefit, however, is that costly physical points of sale can be partially or entirely replaced by the consumers’ smartphones, thus even personnel can be reduced.

Merging the online and offline worlds

The use of mobile wallets and payments are of course not only bound to a physical PoS. By moving payments to the smartphone, consumers get an increasingly converging way of paying for anything anywhere, whether it is buying a new pair of jeans at a physical store or ordering them off the web. The complexity around payments is reduced, meaning lower hardware and software costs for maintaining different systems.

Creating an innovative image

Apart from the practical advantages, accepting mobile payments is a way to signal a company’s efforts to stay on the cutting edge and think out of the box, as well as a way to appeal to customers that are early adopters of technology and influencers among their peers. If investment costs are defendable, accepting mobile payments could enhance the image of a company whether the practical advantages are realised or not.

From phone to bank – the technologies

Mobile payments centre on the concept of a mobile wallet. A native or third-party app in the consumer’s smartphone works as a connection to his or her bank account. This connection is either direct – the app is wired to your debit account, charging it immediately – or through some intermediary, such as emulating existing credit, debit, or loyalty cards that can be filled up, which the consumer enters in the app beforehand. The mobile wallet can then be used either online (e.g. for takeaways) or at a terminal when the smartphone is near (replacing card or cash).

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In wireless communication technology for payments, the two most prominent solutions are Near Field Communication (NFC) and Quick Response (QR) barcodes. NFC requires two devices – the consumer’s smartphone and the retailer’s payment terminal – to exchange data with radio waves in centimetre-ranges, allowing for payment terminals that have NFC enabled to accept payment and security information, authorize it, and finally charge the consumer. Technologies based on QR instead rely on visual cues, where the QR barcode is shown at the PoS and scanned by the smartphone or vice versa, then authorized and charged. Other solutions include entering manual codes generated at the PoS, Bluetooth, or stickers placed on devices to enable radio wave communication. However, these technologies have enjoyed little success for PoS payments.

Head to head – NFC vs. QR
NFC QR
For the consumer Technology must be enabled in smartphone. This is becoming less of a problem as NFC is becoming a standard feature of smartphones (64 % worldwide  penetration expected in 2018). Any smartphone with camera functionality can scan barcodes, as well as showing barcodes. Sweden enjoys a high smartphone penetration of 73 % (2013).
For the retrailer Requires NFC being enabled in the payment terminal; potentially a bigger investment for retailers without NFC terminals. Requires a screen to show barcodes or a scanner to scan them, meaning existing terminals with screens can be utilized.
Ease of use Can be triggered and activated on the consumer-end by the terminal, meaning no user interaction is needed before communication. Requires the consumer to start an app to either show or scan a barcode.
Notable users Apple Pay, Android Pay (Google Wallet), and SEQR (on NFC-enabled terminals). CurrentC (US only) and SEQR.

 

Sweden – a country of innovators and early adopters

Sweden’s central bank names Sweden one of the most efficient retail-payment markets in the world – largely a result of the high pace of innovation in the country’s financial technology sector. The country is in the forefront of mobile payments and is the prime example for analysis of the Nordics. Cheques are now almost totally abandoned and cash is following the same path with only 7 % of payments in Sweden being made with cash. Beyond cards, Swedish services such as Klarna and Izettle are taking the world by storm, while the bank initiative Swish has been widely adopted by Swedes themselves. Smartphone usage in the country reached 73 % of the population in 2013, and when Internet users were polled about mobile payments, 34 % claimed they were interested in in-store mobile payments. Among the youngest age group, 15 to 22 year olds, the corresponding number was 52 %, an indicator of how interest will develop in the future. Players from all involved industries are trying to capitalise on this market, with several retailers even developing their own solutions.

Current endeavours – mobile payment solutions in Sweden
SEQR Arguably Sweden’s largest mobile wallet provider launched by global mobile payments company Seamless. 4 000 retailers are included in the network spanning 12 European countries. In Sweden, connected retailers include McDonald’s and Axfood companies Hemköp and Willys. In 2014, several retailers dubbed the solution as a ‘flop’, with McDonald’s representative Kajsa Dahlberg citing the low numbers of consumers that actually use the service. Seamless shares declined 70 % in 2014, but have remained steady in 2015. As the name suggests, SEQR utilises QR-codes shown at the PoS.
Swish Although not a solution for pure PoS mobile payments, Swish recently launched an initiative for retailers. Swish was created in 2012 by Sweden’s top six banks and uses Real-time payments, a back-end service provided by clearing house Bankgirot to enable real time transfers between bank accounts. While focusing on customer-to-customer transactions through the use of phone numbers, companies can also apply for a generic phone number in order to offer customers the ability to use Swish payment for their services and products, a solution that is being increasingly adopted among smaller retailers.
WyWallet Created in connection to the Swedish “law on electronic money” by the country’s top telecom operators Telia, Telenor, Tele2 and Tre. It is now owned by payment processor Payex. Consumer reception has been mild, with criticism on processes that essentially force users to connect to the service. While initially not focusing on PoS payments, such a service has been launched and is now being piloted in Telenor stores across Sweden. Uses a technique where consumers either put a sticker on their smartphone or enter their telephone number manually at the store – later accepting the payment in their smartphone.
Proprietary solutions
(ICA, Max, Espresso House)
Several Swedish retailers have decided to create their own solutions. Convenience store chain ICA has launched a QR-based app that connects to their own ICA credit cards. Fast food chain Max recently built an app for consumers to both order and pay for meals in advance, choosing when to pick up the food themselves. Coffeehouse chain Espresso House gives customers discounts and personalised offers for mobile payments. Proprietary apps are often complemented with heavily customized functionality from the retailer (e.g. generating shopping lists based on cooking recipes).

 

Driving forces – looking at the many players in the mobile payment game

There is reason to expect rapid change in the near future; several players are driving the development of these payment solutions within a landscape where newly introduced laws and regulations aim to speed up the development of the payment technology. Some players want to reap financial benefits by offering payment solutions themselves, while others want to protect their current stake in the value chain of payments today.

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Retailers

For retailers, it has historically been important to be aware of opportunities to enhance the PoS experience for customers, as it can lead to higher retention rates and increased sales. Mobile payments offer opportunities to reduce hassle at the PoS, while also streamlining the customer flow.

The cost of implementing a mobile payment solution, and the degree of dependency on other parties, such as banks, card associations and providers of terminals, varies with the solution chosen and heavily affects adoption rates. Depending on past consumer behaviour and the retailer’s old payment system, consumers might also be insecure about new systems and experience a learning curve when adopting new payment solutions (compare with e.g. self-checkout terminals), factors that might stave off retailers.

Retailers have nevertheless been active in the field of mobile payments. In the U.S, the Merchant Customer Exchange (MCX) consisting of Sears, 7-Eleven and Walmart among others, are in the process of launching CurrentC, a mobile wallet for use in MCX merchant stores. The product will directly debit customers’ bank accounts, as a long-term goal of the merchants is to bypass transaction fees to the major card associations. In Sweden, SEQR applies a similar approach, using their own infrastructure and making transactions cheaper for the retailer. Also, the convenience store group ICA has recently launched a proprietary mobile payment solution, used in conjunction with the corporation’s own credit card.

Being responsive and able to cooperate is crucial for long-term success, and both retailers and consumers must benefit from the mobile payment solution to avoid a chicken-and-egg scenario where retailers are reluctant to embrace mobile payments unless consumer adoption increases, and vice-versa.

End users

The end users of mobile payments are the consumers who use the technology to pay when shopping in a store or online. If mobile payments are to be successful, end user concerns regarding privacy and security connected to the purchases must be resolved. Consumers tend to value the knowledge of who has (or does not have) access to their data, what the data is used for, and if the data is shared with third parties. Security issues include the consequences of a stolen smartphone or if wireless transmissions can be intercepted with malicious intent. Furthermore, end users are inclined to use products that are integrated in their existing software and hardware ecosystem, rather than having yet another service provider with third party apps and solutions.

However, the biggest obstacle for the adoption rate of mobile payments is that the technology must be faster and easier to use than today’s alternatives. Even if reliability and security concerns are overcome, there is no reason to switch to mobile payments if it is easier to swipe a credit card. While security and privacy is important, they are second-tier concerns, and efficiency will be key to adoption.

Mobile wallet providers

At present, the attributes of mobile wallet providers are widely diverse; a whole range of businesses, from small startups to huge global companies, offer mobile wallet solutions. The lack of convergence in technology has meant that no solution has been able to advance into a strong lead. In Sweden, banking group Swedbank’s Bart was scrapped after failing to gain traction. SEQR, a complete mobile payment solution based on QR codes and launched by Seamless, is used by many of the country’s top retailers, but has been criticised by retailers for the lack of end user adoption.

Providers of mobile wallets generally practice a classical middleman model, generating revenue by charging retailers a fee for each transaction. The future brings more interesting business models for wallet providers. The possibility to gather big data on consumers and their behaviours can potentially create a new revenue based on sale of data. This raises the question of both privacy and security, with consumers judging mobile payments by taking these factors into account.

Internationally, Apple Pay and Android Pay (Google’s pure mobile payment solution, as opposed to Google Wallet) are seen as the major players in the mobile wallet arena. With their existing user base, launching a mobile wallet immediately solves half of the chicken-and-egg-problem while also creating opportunities to find synergies between the wallet and other services offered by the tech giants.

Banks

From a payment perspective, banks earn money from transactions and card fees. By venturing into mobile payments, banks hope to maintain this role and further strengthen their transaction revenue streams. By launching their own solutions, banks are also able to compete for customer ownership with both mobile wallet providers and retailers.

As new players are entering the changing payment industry, revenue streams get more contested, posing a threat to the income of banks. An example of such a threat is Apple, who deduces 15 basis points of payment value from the interchange fee in the US. In connection to the new regulations on interchange fees in the EU, revenue streams could be affected even further. However, when launching Apple Pay in the U.K this year, banks showed strength in managing to negotiate a better deal with the tech giant, leading to a dropped transaction fee deduction.

Additionally, the EU-wide initiative – The Regulation on Interchange fees – was introduced in June 2015 with the purpose of capping interchange fees for card-based payment transactions. The law limits issuing banks’ earnings potential, and also impairs the wallet providers’ prospect to get a share of the fee.

Card associations

With global infrastructure for handling payments and transfers, Visa, Mastercard, American Express, and the likes have not remained static as payments face a new era. Most mobile wallets are already based on existing credit and debit cards from the major card associations, but they themselves have also launched initiatives in hope of solidifying and capturing new revenue streams. VISA and MasterCard have launched PayWave and PayPass terminals respectively. In the switch to mobile, the card associations have enabled third-party apps to use their infrastructure to communicate with their terminals. A result of this is that both Apple Pay and Google Wallet/Android Pay can be used with PayWave and PayPass terminals – suggesting that card associations might try to retain their position by providing terminal technology rather than mobile wallets.

However, card associations have as of today not taken an active role in the development of mobile payment solutions, but rather had a reactive approach, following the lead of others. So far, card associations have not capitalised on their strong brand recognition, giving them the possibility to get a dominant design in an early phase of the mobile payment industry. Instead, they are now lagging behind in a growing industry, risking valuable market share to new entrants.

The card associations face their biggest problem in retailer initiatives such as CurrentC, or future repositioning by other mobile wallet providers such as Apple or Google, who actively try to build solutions that do not rely on the card associations and their transaction fees. Nevertheless, they still present the most robust and reliable highway into frictionless and global transactions, enabling them to maintain their position for now.

Mobile network operators

With their central role in smartphone connectivity, mobile network operators (MNO’s) are indeed interesting players in the mobile payment industry. In some countries, MNO’s have tried to influence mobile payments, with low to moderate success. In Sweden, for example, the four major MNO’s created the SMS-wallet WyWallet (later sold to Payex). Since then, the service has expanded to piloting a mobile payment solution in select stores across the country, but has not yet approached a larger audience.

The problem remains however – MNO’s have no obvious part in the value chain of mobile payments, and have no integral role in the ecosystem of financial services or the software around it. Unless they are able to radically change the industry, efforts from MNOs will continue to be futile when facing banks, card associations and tech giants.

Exhibit

Security and privacy – new challenges with new technologies

There is always a transition phase when introducing new technology, and with several somewhat similar technical solutions available, this process is influenced by uncertainties before a dominant one is adopted. Generally, when it comes to payments, this process is highly influenced by security concerns, and in the relatively complex realm of cell phones, users tend to worry even more.

Security

A mobile wallet raises the question of what happens when the smartphone gets lost or other people unlawfully get access to the wallet to withdraw funds from your account. Being able to provide a safe payment solution is absolutely crucial for adoption, and security concerns have so far been a major challenge for the development of mobile payments.

“However, the most important question for me is: who is responsible? If my wallet is stolen, I phone my bank and cancel my cards. But if my phone is stolen, who do I call? My bank? My mobile network provider? Apple?”
– Jens Bader, Chief Commercial Officer at Secure Trading, on mobile security issues

Most solutions require storage of sensitive personal data, which becomes a magnet for hackers with bad intentions. This means there has to be a strong authentication mechanism (such as the personal pin and physical microchip for cards), as well as legislation specifying the division of responsibilities in the event of theft and fraud, in order to allow a breakthrough of the technology.

However, one must remember that mobile payments is a relatively new technology and recent security improvements have been tremendous. Today, the most common technology for securing credentials is based on Host Card Emulation (HCE) in combination with tokenisation. With HCE, an exact representation of the card is created using only software, and tokenisation allows limited-use virtual cards to be stored on the phone itself, bypassing the need of connecting to the internet every time stored credentials are needed.

Furthermore, the increasing usage of biometrics in smartphones such as fingerprint scanning, not only allows increasingly accurate and secure authentication procedures, but also increases convenience as consumers only have to bring their hands.

Privacy

To adopt a solution that requires providing sensitive information, users must perceive that the protection of his or her privacy is sufficient. What kind of data will be collected when a user registers for a certain mobile payment solution? What will the data be used for, who will have access to it, and how will it be protected? There are strong incentives to own the data since the owner basically equals the one who owns the customer. This would mean that the owner would be able to identify consumer behaviour patterns that allows targeted marketing and potentially significant revenue streams. The benefits of players from owning the data might be perceived as a breach of trust from the customer’s perspective. Thus, the data handling process has to be transparent in order to achieve satisfying adoption rates.

Generally, the underlying infrastructure is unknown among users. However, it is crucial that it is clarified when a payment is executed. Payment providers will have to convince consumers that their payment infrastructure is secure as well as justify their collection and usage of consumer data, convincing them it does not violate their privacy.

Mobile payments – what can we expect?

Players from many different industries are pushing new payment solutions. The question is: do consumers want them? With these players racing for bigger stakes in the payment value chain in combination with unresolved uncertainties, several possible outcomes can be expected and the future is somewhat blurred.

Based on the players’ quest for competitive advantages and unresolved uncertainties in the present situation, we identify four different scenarios. They vary in terms of the degree to which the solution is specific to retailer (i.e. a proprietary or general solution), and whether the players delivering payment services are incumbent or newcomers in financial technology. The final scenario discusses the possibility of continued low rates of adoption.

1. Welcoming newcomers to the world of payments

Tech giants will without doubt try to stay in the mobile payments game in the foreseeable future. Newcomers in the payment industry such as Apple, Google and Samsung have all launched or have plans to launch mobile wallets (Apple Pay, Google Wallet/Android Pay and Samsung Pay). Tech giants may also expand into other parts beyond the mobile wallet, but incumbent companies might not allow that. Will the newcomers extend the value chain, or will they integrate into it?

Newcomers extend the value chain 

At the time, we are seeing new players extending the value chain by making use of the existing payment infrastructure. Solutions from Apple, Google, and Samsung all build upon existing credit or debit cards. In doing so, they make use of existing card associations such as VISA, MasterCard and American Express, while not competing with them. It is simply a matter of digitising the physical card. For retailers, it is just a question of which terminals to buy, and for end users, it creates one more option when choosing how to pay.

As mobile payments are on their way to become a securer alternative and higher transaction fees cannot be defended, the new mobile wallet providers’ incentives will not come from transaction fees. Instead, they will fill another role in which they can offer retailers sophisticated insights into consumer behaviour and use data to give end users a highly customised shopping experience. For Apple, Google and Samsung, providing a mobile wallet natively in their phones can also be a big driver for smartphone sales.

Payment industry is disrupted by tech giants

“They can outcompete the rest of the world”

– Kent Eriksson, Professor at KTH, on the power of Silicon Valley giants.

Extending the value chain might not generate enough incentives for the newcomers. To capture new revenue streams and further take control of customer ownership, mobile wallet providers might instead seek to disrupt the payment industry by integrating into the value chain and replace the incumbents. With the massive amount of data they hold and the opportunities this gives, it is not far-fetched to see them offering bank or bank-like services. Tech giants like Apple and Google are among the richest companies in the world with huge cash assets, and they have the financial muscles needed to expand into new kinds of business. They are already showing signs of expanding their business beyond current ventures (e.g. automotive), and financial technology is certainly interesting for the Silicon Valley powerhouses. Even without integrating to the bank sector, mobile wallet providers may outmanoeuvre card associations by connecting directly to bank accounts, pushing at least one player out of the game.

2. Incumbents withhold the Silicon Valley ambush

Just as tech giants may attempt to integrate into the value chain, incumbents can fight back. Banks, card associations and MNO’s are all important players in the value chain and their roles are needed for mobile payments to be a reality. We might therefore see more initiatives where they expand their business into providing mobile wallets. Although Swedbank-launched Bart failed, Swish is prospering and can prove to be a way in for banks in the Swedish market.

By offering mobile wallets, these players have a chance of increasing their cut of revenues in the industry. Not only by increasing transactions through their own systems, but also by getting access to big data on consumers in a completely new way – either to be used internally or sold to retailers and third-parties. Banks will be able to avoid third-party wallets and card associations and assume full ownership of customers. If instead card associations are successful in providing a full-fledged solution, they will have the opportunity to solidify their role in the value chain and continue the lucrative middleman business model and expand it with new customer data – keeping consumers in the existing payment infrastructure. MNO’s, while a bit of an outsider, can utilise their otherwise important role in connectivity and get a more central role in the payment industry.

With regards to security and privacy, bank and card incumbents have the advantage of being trusted players – a reputation built upon decades of handling financial transactions. This is something the tech giants cannot replicate overnight, and incumbents would be wise to capitalise on it.

3. Proprietary solutions rise from the lack of convergence

As no mobile payment solution has gained wide traction so far, many retailers have begun developing their own proprietary solutions – a trend that might continue. While this approach makes mobile payments less accessible – customers will have to download several apps – it offers retailers a way to capitalise on smartphone penetration without depending on a new solution that may or may not fail. It also enables retailers to customise users’ experience in a much more favourable way, instead of retailer-agnostic solutions where retailers are locked to the provider’s framework.

As previously mentioned, several large US retailers have launched joint venture MCX and its mobile wallet CurrentC, a proprietary solution connected directly to customers’ bank accounts. The rationale behind this was mainly to get rid of high card processing fees, a phenomena which is not as prevalent in the EU as in the US. Instead, the forerunners in the Nordics are rather offering applications using existing payment infrastructure. For example, the fast-food chain Max offers an application supporting in-app ordering and payments, while the coffeehouse chain Espresso House provides digital prepaid loyalty cards for use in the stores.

Since creating mobile payment solutions is not a core competence among retailers, it opens up the possibility for white label solutions. While an external company develops and maintains the mobile payment solution, the retailer can brand it with the company’s identity. For example, Paydiant – an external player – develops and maintains the MCX solution CurrentC.

There are obvious incentives for retailers. In-app ordering and payment in particular increase convenience for both customers and businesses as it does not require the customer to be present in the store. Waiting times are reduced and stores can expect a more efficient customer flow, compared to in-store purchasing using NFC or QR. An advantage with providing retailer-specific wallets is the customer lock-in which supposedly increases customer spending. As customers transfer funds to their retailer-specific wallet, they are more likely to spend the money they deposit. To sell this deal to the customers, stores may offer a discount rate when using their wallet, as a way to promote it and make customers use it.

Speaking against proprietary solutions, one may argue that they are unlikely to achieve broad acceptance. Customers will probably only download apps for the stores they visit most frequently and neglect the rest. Furthermore, card associations and banks are likely to fight payment solutions that cuts their revenue (e.g. by offering direct bank transfers and avoiding transaction fees, rather than paying by card).

Nevertheless, proprietary solutions have started to appear and are likely to continue popping up. Retailers can simply not afford to wait for new standards to gain acceptance while missing out on the advantages of the smartphone era. If the major players in the mobile payment industry do not act fast to innovate their value proposition, we might have to get used to a future with a plethora of payment apps, and it might be hard to attract customers who have already gotten used to them.

4. A market still under development

Although there is an abundance of players in the industry, there are indicators and arguments pointing in the direction that mobile payments as we know them today will not reach widespread adoption in the foreseeable future. First, benefits for end users are not substantial, as evidenced by the lack of consumer adoption. If not coupled with the possibility to do out-of-store ordering and payment, mobile payments will not save much time, is not very different with regards to safety, and many of its advantages can be replicated by offering apps alongside physical cards. The situation can be compared to that of credit and debit cards, which have been available for over 60 years, but still not made cash payments obsolete. In the same way, mobile payments might not be able to outcompete cash and card payments for a while. Instead, we may end up with several different ways to pay, depending on both consumer and retailer adoption (cash, card and/or mobile).

Furthermore, the advantages for retailers are debatable. No doubt, access to consumer data will be easier at hand, but several card issuers already provide consumer behaviour analysis services for retailers. Efficiency and customer flow at the PoS might improve but the technology is too young to make any broader conclusions. For solutions not provided by VISA and MasterCard, retailers will need to invest in separate terminals or proprietary solutions, without being sure of the long-term benefits this may entail.

In addition to end users and retailers who will need to adopt the new technology, mobile wallet providers could also face a hard time. Due to payment regulations, primarily in the EU, players providing mobile wallets will possibly not make enough profit for it to be worth the effort.

Even if before mentioned challenges are overcome, the technology for in-store mobile payments is still not quite there. Projections show that only 64 % of the smartphones shipped in 2018 will have NFC technology – cutting out many available solutions that rely on it. Finally, current smartphones have battery times ranging shorter than one day, making it hard to completely rely on mobile payments. These factors can lead to a more problematic future for mobile payments than expected.

Taking the leap into mobile payments

For retailers looking to implement mobile payments, the options are many. The industry has not reached any standards and users are still not adopting the technology at fast rates – largely due to insignificant advantages. Current card readers already offer NFC functionality through VISA and MasterCard, which means there is no need for additional terminal technology to allow for new solutions as long as these are based on NFC or QR.

Tech giants such as Apple and Google will inevitably enter the Swedish market and could possibly extend their value proposition by pushing out banks or card associations. Initiatives such as SEQR and WyWallet may also grow as uncertainties coupled to mobile payments are overcome. Meanwhile, retailers are only recently going cash-free and a new payment revolution is not near. Taking decisions based on speculations of the future will most probably be fruitless as the industry is far from mature and ever-changing.

Waiting too long, however, is not advised. This would mean that benefits are lost while waiting for convergence, as well as the possibility for some retailers venturing into mobile payments to leave competitors behind. A proprietary solution for mobile payments might therefore be the perfect middle way between waiting and going all-in on an existing solution. With a limited investment, using different existing technologies in composing a mobile payment offer, retailers and users can explore the technology together. Retailer benefits are realised as consumer loyalty will most certainly increase where it is fast, fun and easy to make purchases, at the same time as they can receive discounts and various advantages. When (or if) mobile payment technology finally converges, the retailer will then have gained experience and be prepared for a change with customers already used to a new era of payment. This especially applies to out-of-store payments (such as the Max Hamburgers or Espresso House solutions), where benefits from efficiency – both for the retailer and the consumer – can be maximised.

Looking further into the future, it is not impossible that the industry will look back at mobile payments as just another trend in a bigger payment revolution. Technological improvements in areas such as biometrics – including fingerprint reading, eye recognition or even implanted chips – are becoming more interesting with the possibility of rapidly changing conditions for several industries, payments included. These solutions still lie far in the future though, and implementing a proprietary solution is a big step towards enabling retailers to quickly adapt when standardised solutions arrive in the near and far future. In conclusion, the ubiquity of smartphones and the existing benefits of mobile payments are simply too important for “wait and see”.

Three steps for implementing mobile payments in a retailer business

1. Understanding the value

What value can you as a retailer derive from an introduction of mobile payment solutions? In order to realise the value, it is first and foremost important to find out what your customers want, and which of their needs that can be satisfied through a mobile payment solution. Whether they want a more convenient point-of-sale experience, get rid of cards or receive personalised offers, it is crucial to understand them in order to develop a solution that is going to be beneficial for both parties.

Taking an internal approach is also preferable; besides mapping the customer value onto your organisation, other benefits can arise from a mobile payment solution such as identifying consumer behaviours or getting an innovative image. When you have an understanding of the customers and know the potential value for you as a retailer, it is time to move on to the next step – designing the solution.

2. Designing a good solution

After developing an understanding of the internal benefits and the customer value to be fulfilled from the mobile payment solution, it is time to start designing one. The solution needs to be smart in terms of simplicity and functionality both for the users and the retailer. Decisions regarding provider, functions and design must be taken, and customer feedback is the judge. It is better to try and fail early and redesign, rather than launch a solution that is not in line with customer preferences.

3. Implementation of the designed solution

Next it is time to test your solution on your core customer group, where you can expect credible, high quality feedback that represent your target customer segment. These users are generally loyal to your brand and willing to put effort into the assessment. By persistently gathering feedback and fine-tuning the solution, the mobile payment solution can be implemented successfully when finally going live to the general market.

About the authors

Shahin Zarrabi, Rickard Wendeberg, Tommy Engqvist, and Mattias Kristiansson are last-year M.Sc. students at the Management and Economics of Innovation (MEI) programme at Chalmers University of Technology. With experience spanning web startups to equity research, they recently returned from an exchange programme in Silicon Valley, where they visited industry leaders such as Google and Facebook.


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