CHAPTER FOUR

1. Standards Battles and Design
Dominance
CHAPTER FOUR

2. A Battle Emerging in Mobile Payments
By 2014, there were 6.6 billion mobile phone subscriptions in the
world, and of those, 2.3 billion had active mobile broadband
subscriptions that would enable users to access the mobile web.a
Mobile payment systems offered the potential of enabling all of
these users to perform financial transactions on their phones,
similar to how they would perform those transactions using
personal computers. However, in 2015, there was no dominant
mobile payment system, and a battle among competing mobile
payment mechanisms and standards was unfolding

3. Other competitors, such as Square (with Square Wallet) and
PayPal, did not require a smartphone with an NFC chip but
instead used a downloadable application and the Web to transmit
a customer’s information. Square had gained early fame by
offering small, free, credit card readers that could be plugged into
the audio jack of a smartphone. These readers enabled vendors
that would normally only take cash (street vendors, babysitters,
etc.) to accept major credit cards.c Square processed $30 billion
in payments in 2014, making the company one of the fastest
growing tech start-ups in Silicon Valley

4. For consumers, the key dimensions that influenced adoption were
convenience (e.g., would the customer have to type in a code at
the point of purchase? Was it easily accessible on a device the
individual already owned?), risk of fraud (e.g., was the
individual’s identity and financial information at risk?), and
ubiquity (e.g., could the system be used everywhere? Did it
enable peer-to-peer transactions?). For merchants, fraud was also
a big concern—especially in situations where the transaction was
not guaranteed by a third party, and cost (e.g., what were the
fixed costs and transaction fees of using the system?). Apple Pay
had a significant convenience advantage in that a customer could
pay with their fingerprint.

5. In other parts of the world, intriguing alternatives for mobile
banking were gaining traction even faster. In India and Africa, for
example, there are enormous populations of “unbanked” or
“underbanked” people (individuals who do not have bank
accounts or make limited use of banking services). In these
regions, the proportion of people with mobile phones vastly
exceeds the proportion of people with credit cards. In Africa, for
example, less than 3 percent of the population was estimated to
have a credit card, whereas 69 percent of the population was
estimated to have mobile phones. Notably, the maximum fixed-
line phone penetration ever achieved in Africa was 1.6 percent—
reached in 2009—demonstrating the power of mobile technology
to “leapfrog” land-based technology in the developing world. The
opportunity, then, of giving such people access to fast and
inexpensive funds transfer is enormous

6. The leading system in India is the Inter-bank Mobile
Payment Service developed by National Payments
Corporation of India (NPCI).g NPCI leveraged its ATM

7. network (connecting more than 65 large banks in India) to
create a person-toperson mobile banking system that works on
mobile phones. The system uses a unique identifier for each
individual that links directly to his or her bank account. In
parts of Africa, where the proportion of people who are
unbanked is even larger, a system called M-Pesa (“M” for
mobile and “pesa,” which is kiswahili for money) enables any
individual with a passport or national ID card to deposit
money into his or her phone account, and transfer money to
other users using short message service (SMS).h By 2015, the
M-Pesa system had roughly 12.2 million active users. The
system enabled the percent of Kenyans with access to banking
to rise from 41 percent in 2009 to 67 percent in 2014.i

8. network (connecting more than 65 large banks in India) to
create a person-toperson mobile banking system that works on
mobile phones. The system uses a unique identifier for each
individual that links directly to his or her bank account.