MVENTUR MEMO Q1 2013: PAYMENTS

MOBILE PAYMENTS WILL BE WON AND LOST AT THE RETAIL FRONTLINE

by Graham Brown, MVentur

MASTERCARD SAYS MOBILE IS THE BIG PLAY

Ed McLaughlin, Chief Emerging Payments Officer at Mastercard, describes MasterPass as his company’s “Big Play” for the next generation of payment technology.

Worldwide purchase volume over mobile devices will exceed $1 trillion by 2017, according to IDC Financial Insights. Mobile is set to become the “next big thing” in payments but the solutions need to be led by customers not technology.

The current mobile payment market is fragmented between multiple providers (the Big 4 being Paypal, Google, Mastercard and Square).

Providers need to focus less on impressing their technology on the market and more on winning the decisive youth market.

Why Youth?

1) Build on the Youth Beachhead

Young people are already using mobile payments more than others: 39% of millennials use mobile payment services compared to 31% (Gen X) and 18% (boomers) (source Deloitte).

2) Leverage Youth Influence

William Gibson, the author who first coined the term “cyberspace” once wrote, “the future is already out there, it’s just not evenly distributed”. This maxim holds true with technology and the youth market today. The trickle-up of usage starting with youth is a common trait of technology adoption (examples being Facebook, SMS and digital music). If you want to know how adults will be paying for goods tomorrow, look at what youth are doing today.

Youth influence in mobile payments is a 3 way process* Youth influence each other: 65% of youth bought or used technology based on what their peers, not what ad agencies or brands said.* Youth influence adults: youth were key to the wider adoption of SMS, Facebook and BBM within the adult market. Often older children would educate their parents on usage.* Youth grow up: Loyalty to payment methods and technologies begins at a young age. The habits formed in early teenage years transfer into adulthood.

3) Youth absorb the risk of new product development

Internet author Clay Shirky described the wealth of excess innovation in the internet as its “cognitive surplus”. The success of many technologies owes a lot to the cognitive surplus of the youth market.

Before mobile operators began monetizing SMS (a technology widely disregarded by the industry due to its limited form factor) youth were experimenting and adapting the format. From these early usage scenarios, the industry was able to develop effective charging models.

More recently, youth have led the mobile video chat trend. Our research shows that young people discovered video chat apps like Oovoo which

then gained popularity through word of mouth. Mobile providers can leverage this established user base without engaging in high-risk experimentation and product launches with the higher spending adult market.

RESEARCH: IDENTIFY NEED GAPS

People want to pay for their purchase, not pay with mobile.

The telecoms and payment industry advocates a “push” approach - new technology followed by user education. However, Industry jargon, like NFC, QR codes and digital wallets means little to people who pay for items they purchase everyday. New technology provides people with more payment options but does not necessarily address their underlying issues or motivations. Mobile payments, especially in mature markets, has yet to figure out what consumer problem it is trying to solve.

“The NFC payments debate will slowly die in 2013. Is tapping a phone on a terminal any easier than swiping a credit card? I don't think so – it's not solving a real consumer problem and it's not providing additional value to encourage me (or anyone else for that matter) to change my behavior," Paypal's President David Marcus wrote on the company website in December.

Successful mobile payments systems like M-Pesa were first built on solid ethnographic insights. In Uganda, Nokia found young migrants were disenfranchised from the financial system because they were excluded from traditional payment mechanisms (e.g. bank accounts). Migrants began using mobile airtime to transfer money back to their families long before the industry pushed a solution onto the market. Ethnography helps providers identify where innovation opportunities exist by revealing the market “pull”.

In developed markets, existing research is based on the old paradigms of retail experience. But retail is changing fast and ethnographic research will help identify the second market “pull”.

"There will be more change in how consumers shop and pay in the next three years than there has been in the last 20," Ebay CEO Donahoe said. "Mobile is at the very center of that."

Research needs to go beyond the traditional approach of polling youth preferences for technologies and start understanding the motivations behind usage. Consumer ethnography of young smartphone owners in

the US and Western Europe will reveal pain points and need gaps. Building on these insights, payment providers like Mastercard and PayPal can innovate with young customers to address the “pull” of current market shortfalls.

MARKETING: LEVERAGE FRONTLINE TO BUILD TRUST IN MOBILE PAYMENTS

Mobile payment providers need to drive numbers at the Frontline.

Data on global payment usage in the Mobile Youth Report shows youth tend to use whatever payment technology is most widely available, as opposed to the best solution. Youth pick mobile payment methods they can access. In Kenya youth prefer using SMS (73%) to make payments while PayPal is the dominant tool in Germany (53%) (source Mobile Youth report 2013). The key to success is getting large numbers of youth on board.

Trust is a major stumbling block that prevents more customers from adopting mobile payments. Trust is not something that can be bought through expensive media buys and high-profile celebrity endorsement, it’s earned through customer interaction at the Frontline.

Starbucks demonstrates the importance of Frontline engagement in mobile payment adoption. As with Apple, the brand experience and customer trust occurs at the daily touchpoint, not in advertising collateral. Just as Apple’s Genius crew are key to driving in-store sales, the relationship between young customer and barista is key to the success of new payment systems.

Starbucks leverages its existing customer Frontline to facilitate the adoption of mobile payments. 7 million customers use their mobile payment apps, translating into 2.1 million mobile payment transactions each week. 20 percent of card transactions at Starbucks locations were conducted using the mobile app (source Starbucks).

Where mobile payment providers are working to push technology, Starbucks is focused on improving the retail experience. The payment technology isn’t the end, but a means to facilitate that end. Mobile payment providers need to develop a better understanding of the retail experience at the Frontline and look at how they can integrate offerings with existing loyalty programs and employees.

Providers need to focus on integrating and building on technology youth already have access rather than providing new solutions they have to learn from scratch.

About MVentur

MVentur is the world’s first youth mobile consultancy.We have 2 roles:

1) Advisor to our clientsWe oversee marketing plans, act on advisory panels and consult our clients. Find out more about our consultancy work.

2) Commercial think tank for the mobile industryWe promote progressive marketing ideas that help mobile companies go beyond advertising. Read more about our youth mobile opinion pieces.

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