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(MVentur) DOWNLOAD Mobile Payments will be won or lost at the Frontline


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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).

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(MVentur) DOWNLOAD Mobile Payments will be won or lost at the Frontline

  1. 1. MVENTUR MEMO Q1 2013: PAYMENTSMOBILE PAYMENTS WILL BE WON AND LOST AT THE RETAILFRONTLINEby Graham Brown, MVenturMASTERCARD SAYS MOBILE IS THE BIG PLAYEd McLaughlin, Chief Emerging Payments Officer at Mastercard,describes MasterPass as his company’s “Big Play” for the nextgeneration of payment technology.Worldwide purchase volume over mobile devices will exceed $1 trillionby 2017, according to IDC Financial Insights. Mobile is set to becomethe “next big thing” in payments but the solutions need to be led bycustomers not technology.The current mobile payment market is fragmented between multipleproviders (the Big 4 being Paypal, Google, Mastercard and Square).
  2. 2. Providers need to focus less on impressing their technology on themarket and more on winning the decisive youth market.Why Youth?1) Build on the Youth BeachheadYoung people are already using mobile payments more than others:39% of millennials use mobile payment services compared to 31% (GenX) and 18% (boomers) (source Deloitte).2) Leverage Youth InfluenceWilliam Gibson, the author who first coined the term “cyberspace” oncewrote, “the future is already out there, it’s just not evenly distributed”.This maxim holds true with technology and the youth market today. Thetrickle-up of usage starting with youth is a common trait of technologyadoption (examples being Facebook, SMS and digital music). If youwant to know how adults will be paying for goods tomorrow, look at whatyouth are doing today.Youth influence in mobile payments is a 3 way process* Youth influence each other: 65% of youth bought or used technologybased 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 wouldeducate their parents on usage.* Youth grow up: Loyalty to payment methods and technologies beginsat a young age. The habits formed in early teenage years transfer intoadulthood.3) Youth absorb the risk of new product developmentInternet author Clay Shirky described the wealth of excess innovation inthe internet as its “cognitive surplus”. The success of many technologiesowes a lot to the cognitive surplus of the youth market.Before mobile operators began monetizing SMS (a technology widelydisregarded by the industry due to its limited form factor) youth wereexperimenting and adapting the format. From these early usagescenarios, the industry was able to develop effective charging models.More recently, youth have led the mobile video chat trend. Our researchshows that young people discovered video chat apps like Oovoo which
  3. 3. then gained popularity through word of mouth. Mobile providers canleverage this established user base without engaging in high-riskexperimentation and product launches with the higher spending adultmarket.RESEARCH: IDENTIFY NEED GAPSPeople want to pay for their purchase, not pay with mobile.The telecoms and payment industry advocates a “push” approach - newtechnology followed by user education. However, Industry jargon, likeNFC, QR codes and digital wallets means little to people who pay foritems they purchase everyday. New technology provides people withmore payment options but does not necessarily address their underlyingissues 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 phoneon a terminal any easier than swiping a credit card? I dont think so – itsnot solving a real consumer problem and its not providing additionalvalue to encourage me (or anyone else for that matter) to change mybehavior," Paypals President David Marcus wrote on the companywebsite in December.Successful mobile payments systems like M-Pesa were first built onsolid ethnographic insights. In Uganda, Nokia found young migrantswere disenfranchised from the financial system because they wereexcluded from traditional payment mechanisms (e.g. bank accounts).Migrants began using mobile airtime to transfer money back to theirfamilies long before the industry pushed a solution onto the market.Ethnography helps providers identify where innovation opportunitiesexist by revealing the market “pull”.In developed markets, existing research is based on the old paradigmsof retail experience. But retail is changing fast and ethnographicresearch will help identify the second market “pull”."There will be more change in how consumers shop and pay in the nextthree years than there has been in the last 20," Ebay CEO Donahoesaid. "Mobile is at the very center of that."Research needs to go beyond the traditional approach of polling youthpreferences for technologies and start understanding the motivationsbehind usage. Consumer ethnography of young smartphone owners in
  4. 4. the US and Western Europe will reveal pain points and need gaps.Building on these insights, payment providers like Mastercard andPayPal can innovate with young customers to address the “pull” ofcurrent market shortfalls.MARKETING: LEVERAGE FRONTLINE TO BUILD TRUST IN MOBILEPAYMENTSMobile payment providers need to drive numbers at the Frontline.Data on global payment usage in the Mobile Youth Report shows youthtend to use whatever payment technology is most widely available, asopposed to the best solution. Youth pick mobile payment methods theycan access. In Kenya youth prefer using SMS (73%) to make paymentswhile PayPal is the dominant tool in Germany (53%) (source MobileYouth report 2013). The key to success is getting large numbers ofyouth on board.Trust is a major stumbling block that prevents more customers fromadopting mobile payments. Trust is not something that can be boughtthrough expensive media buys and high-profile celebrity endorsement,it’s earned through customer interaction at the Frontline.Starbucks demonstrates the importance of Frontline engagement inmobile payment adoption. As with Apple, the brand experience andcustomer trust occurs at the daily touchpoint, not in advertisingcollateral. Just as Apple’s Genius crew are key to driving in-store sales,the relationship between young customer and barista is key to thesuccess of new payment systems.Starbucks leverages its existing customer Frontline to facilitate theadoption of mobile payments. 7 million customers use their mobilepayment apps, translating into 2.1 million mobile payment transactionseach week. 20 percent of card transactions at Starbucks locations wereconducted using the mobile app (source Starbucks).Where mobile payment providers are working to push technology,Starbucks is focused on improving the retail experience. The paymenttechnology isn’t the end, but a means to facilitate that end. Mobilepayment providers need to develop a better understanding of the retailexperience at the Frontline and look at how they can integrate offeringswith existing loyalty programs and employees.
  5. 5. Providers need to focus on integrating and building on technology youthalready have access rather than providing new solutions they have tolearn from scratch.
  6. 6. About MVenturMVentur 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 ourclients. Find out more about our consultancy work.2) Commercial think tank for the mobile industryWe promote progressive marketing ideas that help mobile companies gobeyond advertising. Read more about our youth mobile opinion