Mobile payments & the billion rand feature

THEBILLION RANDFEATURE

PG 1 of 8 Market Research Insights Paper 13 October 2014

The Consequence of Mobile Paymentsin Bars, Restaurants and Coffee Shops.

Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014

Market Research Insights Paper 13 October 2014

PG 2 of 8 Market Research Insights Paper 13 October 2014Compiled by: &Innovation Consulting [Pty] Ltd

Copyright: &Innovation Consulting [Pty] Ltd, 2014

THE CONSEQUENCE OF MOBILE PAYMENTS

Changes in technology often have large ramifications that are not anticipated or fully understood. An example of this can be seen in how changing payment models impact both the business process and user experience, especially of restaurants, fast food outlets and coffee shops – which are early adopters of this technology. Consider the impact on tipping as cash is reduced and payment processes change. On the surface, this appears to be an insignificant issue, but according to Stats SA and the DTI, restaurants and coffee shops were reported to have a turnover of R21 billion for 2012, and tipping is estimated to be worth just under R2 billion annually. This is R2 billion in remuneration to staff that coffee shops do not pay for, and a change in this behaviour could significantly impact the margin of the industry or the final price to consumers as merchants increase their prices.

This paper aims to highlight how small changes have ecosystem-wide effects and how a structured approach to innovation allows you to analyse technology shifts from a business perspective. It is focused on a very narrow segment of mobile payments, primarily mobile app payments, as an indicative factor of behaviour shifts.

Requirements

Market Awareness

Requires POS camera

Limited consumer awareness, stronger merchant awareness

Requirements

Market Awareness

Limited consumer awareness locally

Requires QR printing

Market Awareness

Requirements

High consumer awareness, Heavily advertised by

Standard Bank

No hardware required. Dynamic code can be used with QR printer

Market Awareness

Requirements

Limited awareness

Requires PayPoint POS app

Mobile Payment Contenders


PG 3 of 8 Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014Market Research Insights Paper 13 October 2014

Mobile Payments in South Africa; Would You Like Coffee with That?

Mobile payment technologies have been in existence in South Africa for a number of years in the form of MTN mobile money, Vodacom M-Pesa and other players. However, they have primarily been used for money transfer and not for payment to a vendor.

Recently, however, Cape Town CBD has been inundated with new smartphone-based mobile payment options that seem to be making a splash. These new platforms are gaining better traction as payment models and may indicate a shift in consumer behaviour and adoption. You would be hard pressed to find a café, restaurant or bar in the Cape Town CBD that does not accept one of the four locally developed mobile payment options. This paper reviews these developments and analyses the early behavioural impacts.

Potential impacts of mobile payments could include:

Four apps are currently competing for the South African market, namely FlickPay, GUST Pay, SnapScan and Zapper. All of these were developed in South Africa, although Zapper has already achieved some success in Europe, where it was launched prior to coming to the South African market.

Three of the four apps involve scanning a Quick Response (QR) code with a smartphone in order to initiate the payment process. SnapScan and Zapper are similar in that they require the consumer to scan the merchant’s QR code when making a payment. Zapper generates a unique QR code for each purchase on the merchant’s specially enabled POS whilst SnapScan uses static QR codes which merchants print out and display on their counter. SnapScan can, however, be upgraded to a system that generates unique QR codes, if required. Once the QR code is scanned, the app prompts the user to enter a payment amount, which will then be processed using the pre-entered card details stored on the user’s smartphone. The merchant will receive notification of payment on their cell phone, or their servers’ cell phones, depending on the package.

POS IntegrationPOS IntegrationPOS IntegrationPOS Integration

Full integration with TabletPOS and Humble, API

can also be used or else added as alternative payment method

Integrates with existing POS system

Integrates with existing POS system

Does not integrate

Counter Service Before

Order

Pay

Receive


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Market Research Insights Paper 13 October 2014

FlickPay also uses a QR code, but requires the merchant to install a scanner at the POS terminal that is used to scan the QR code that the consumer generates on their smartphone, using the FlickPay app. Once scanned, the transaction will be processed using the pre-entered card details stored on the user’s smartphone and the user and the merchant will get notification of payment.

GUST Pay uses a unique system whereby the customer’s smartphone and the point of sale is paired with the merchant’s (POS)

User JourneysTo better understand the effect of the new mobile payments, we used a process from Human-Centered Design and UX (User Experience) Design, called “user journeys”. This process identifies high points and low points in the user experience, in order to create empathy between the designer/analyst and the consumers.

Two distinct user journeys emerged from our research, namely the counter order and table service journeys. The counter order user journey is typical of a coffee shop, or somewhere where a consumer will order, pay and receive their goods at a counter.

Positive

Neutral

Queue Pay Receive

Negative

Walk In Order Wait

Copyright: &Innovation Consulting [PTY] Ltd, 2014

Counter - Before

Smell of coffee

Seeing the queue

the queue

Making payment

an order

Use card machine/fumble

for cash

Order is wrong

Place order

Receive coffee

Counter Service After

Pay

Skips Queue

Order

Receive




Positive

Neutral

Pay Wait

Negative

Walk In Order Recieve

Snap to jump the queue

Smell of coffee

Show payment notification

Internet is down

coffee Order is wrong

Place order

Receive coffee

Counter - After - SnapScan

Mobile payments have a significant impact on these stores. Regular customers who know how much items cost can use apps like SnapScan – which does not require the merchant to initiate the transaction – to “jump the queue” by paying first and then ordering.

Keeping track of orders and reconciling them with payments can be challenging at the best of times, and this places extra pressure on the merchant’s staff members to communicate and coordinate.


Positive

Neutral

Queue Pay Receive

Negative

Walk In Order Wait

Counter - After - Generic

Smell of coffee

Seeing the queue

the queue

Making payment

an order

Internet isdown

Order is wrong

Place order

Pay withapp

Receive coffee

The table service user journey occurs when consumers sit down at a table in a bar or restaurant and order their food and/or drinks, receive them and then pay. Mobile payments are not as frequently used in this case, but our research indicated that consumers prefer mobile payments in these instances where there is either a time factor involved (the consumer would like to pay and leave quickly), or the establishment is busy and any other payment methods may be long and tedious. Hygiene and security have also been cited as deciding factors for wanting to use mobile payments, as consumers can avoid handling cash or credit card machines that have been used by countless others, by simply using their own smartphone.



Table - Before


Positive

Neutral

Sit Down Wait Wait For Bill Pay

Negative

Walk In Order Receive

Place order

Receive food and/or

coffee

Smell of food/coffee

Being seated

order

Order is wrong machine

bill

MakePayment

be seated


Positive

Neutral


Negative


Table - After - Generic

Place order

Receive food and/or

coffee Snap/ Zap/ GUST pair

to pay


Being seated

order

Order is wrong machine machine

bill

MakePayment

be seated


Positive

Neutral


Negative


Table - After - Flickpay/Basic SnapScan

Place order

Receive food and/or

coffee


Being seated

order

Order is wrong machine

Internet isdown

bill

Pay at till

MakePayment

be seated

Tipping Function Tipping Function Tipping Function Tipping Function

Payment Process Payment Process Payment Process Payment Process

Not available in app Tipping option displayed under total Tipping slider where consumer

can add a tip based on the service they received

Not available for standard merchants

If at a restaurant, must physically go to till point

QR on bill QR at till point or on bill

Tipping Frequency Tipping Frequency Tipping Frequency Tipping Frequency

Tipping Amount Tipping Amount Tipping Amount Tipping Amount

Decreased Unchanged Increased Decreased

Decreased Increased Increased Decreased


Although the benefit of not having to carry cash is often touted as a driving factor for using mobile payments, our research indicates that the main benefit in using mobile payments is speed. Consumers are able to shorten the amount of time they spend queuing and paying. This works especially well during peak or busy times in outlets like coffee shops, when customers are on their way to work, or grabbing a quick lunch during a workday.

It is important to note the distinction between speed and ease. Most mobile app payments are not easier to make than conventional card or cash payments. For example, FlickPay, Zapper and GUST Pay still require the merchant to initiate the transaction by generating a QR code or pushing the bill to a customer’s smartphone, and they take almost as long a time as a credit card (save for having to enter a PIN and waiting for the credit card machine to dial up to the bank’s system), but apps like SnapScan are self-service therefore allowing users to pay without having to wait.

Speed - The Driving Factor

The reduction of the time spent queuing and paying appears to come at a cost, not to the consumer, but instead to the service staff. The actual time that is saved by using these new payment methods are diminishing the personal service moments. The loss of such moments decreases the perception of quality of service, and accordingly the need for or value of tips from the consumer’s

For coffee shops especially, the move away from cash reduces the amount of change customers carry, and have at hand to drop into the tip jar, impacting tips significantly.

Tips - Higher or Lower?


Despite the loss of personal service moments when customers self-pay, where apps prompt consumers to tip, frequency and value of tips have remained unchanged. By including an additional option to tip at higher than 10% for better than satisfactory service (as with Zapper), our research shows that the size of tips have increased.

This is a great example of decision architecture and the framing bias, where the behaviour of users is manipulated through the exposure to seemingly binary options. The user is now deciding between how much they will tip versus whether they need to tip or not. Anchoring the minimum tip at 10% and providing easy reference for better service. The net effect of the decision architecture (frequency of tipping) and framing (value) means higher remuneration for staff.

The impact of this on the restaurant business may be significant and one may see a clear preference for apps that generate higher tips for their staff.

Tipping as a Feature

The apps all use the “card not present” method of payment, and do not utilise the PIN code on the credit card for additional security. All one needs to do is take a photo of your credit card, which then uses Optical Character Recognition (OCR) in the app to fill in the credit card number whilst the remaining details (name, date of expiry and CVV) are entered manually. The app can then be used for payments. Multiple users can utilise the same credit card at the same time (as we have tested on SnapScan) without raising any alerts via the apps. The risk for fraud is therefore significant, even though the amounts involved are small at this point (because of the nature of the vendors using these payment platforms). A big risk to the adoption of these mobile payment models is how the banks and card issuers will respond to the increase in fraud or even perceived risk of fraud.

PG 8 of 8

WHO WE ARE WHAT WE DO applied strategic innovation – based on creative ideas and real world insights gained through

human centred design processes and other methodologies.

For more information, please visit: 72 Loop Street, Cape Town, 8001

Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014Market Research Insights Paper 13 October 2014


Currently, mobile payments are generally only being used for smaller transactions, which links back to the speed factor, where consumers only use such methods in order to save time. Higher value purchases that involve a longer period of time are paid for by credit card or cash. As consumers become more comfortable with mobile payment models, this behaviour is likely to change.

Value Threshold

Advantage SnapScan

Our Methodology

Note: Fraud Risk

Our researchers held direct interviews with 15 merchants in the Cape Town CBD and observed user behaviour at these locations. Ten consumer interviews were also held to verify insights. Desk research utilising Stats SA and DTI data on the restaurant industry was utilised for market sizing.

distinct first mover advantage when it comes to widespread adoption. Due to the network effect, many stores and consumers take cues from each other to see which app is the most popular before implementing it and using it respectively. The more users (both retailers and consumers) that adopt the app, the greater the benefit to non-users to download the app. At this stage the advantage belongs to SnapScan, who is being backed by Standard Bank and benefits from extensive advertising.

Internationally, Starbucks, M-Pesa, Square and others have proven the attractiveness of mobile payments to consumers

there is still a high level of uncertainty whether or not mobile phone linked payments will be the clear winners.

In conclusion, for mobile payment app developers, and their merchant clients, it is important to consider the impact on consumer behaviour and what this will mean for their eco-system as a whole. Consumers will migrate to whatever is easiest and most convenient to use without much thought being given to what the negative implications may be for merchants or their staff. But for now, happy Flicking, Snapping and Zapping!