Mobile Payment has been a topic for quite a while in Switzerland – we’ve seen players coming and going. Basically there are three different strategies to build a mobile payment ecosystem. Either you start with P2P (per to peer) payments first, rolling out to merchants in a second wave.
The other one-sided alternative ist to start with merchants first and bring the consumes on your system at a later stage. The third option is a two-sided rollout, acquiring consumers and merchants from the beginning allowing C2M (consumer to merchant) payments.
All three strategies have systematic advantages and disadvantages – in this blog post Guest Blogger Sascha Benz is going to scratch the surface of the different strategies chosen by the Swiss contestants for mobile payment domination. The focus will be on PayMit and Twint – the two largest initiatives. In a second step we will relate the strategies to examples and insights from other countries.
One-sided: Start with P2P
The approach to establish a user / consumer base first by enabling peer-to-peer payments is pursued by providers like PayMit, Klimpr (first-mover, stellar team by the way!) or Migros. The aim is to spark for for merchants to join the network in a later stage by providing access to a large user base.
- PayMit can leverage the participating banks’ customer base, kick-starting the user-base (currently 70k)
Frictionless on-boarding and immediate usage: everyone has a mobile number you can send money to and a bank account to link
- Rollout to merchants can be extensive and fast-paced: SIX daughter company SIX payment solutions to serve as a catalyst: The company has already thousands of payment terminals deployed with merchants (requested public number from SIX)
- The step from P2P to “consumer to small merchants” is nearly frictionless: All you need to accept payments (at a flee market, in a beauty studio or ebay auction) is a mobile number linked to your bank account via paymit. (This pattern can be observed already in Denmark, see image from Mocca in Copenhagen below).
- In the case of PayMit, the system is open loop: Every transaction crosses the network borders twice (credit card or bank account transfers) and causes external costs. These costs may be tiny but could well add up once the system experiences serious traction.
- The provider needs deep pockets and long breath as P2P payments are hard to monetize (users won’t pay for it), but this is given with SIX / UBS.
One-sided: Start with Merchants
To my knowledge there’s no fully fledged “payment ecosystem” being built with this strategy in Switzerland yet. There are certain services like SumUp that allow merchants to accept credit card payments with their smartphones. One of the large advantages is that you don’t have to acquire and educate the users: They just continue to pay with their credit card. On the other hand merchants have a real alternative to current payment terminal solutions.
Two-sided: Start with C2M
Twint, a subsidiary of PostFinance is entering the market with a Consumer to Merchant payments first approach. P2P is planned for the near future according to the company.
- PostFinance has a sales crew with nearly 200 sales people on the ground that can help to spread the system with local merchants as fast as possible.
- The merchants that sign up will (hopefully) serve as multipliers by promoting the payment system at their POS.
- Monetization is much easier as merchants are already used to give away a transaction fee for non-cash payment.
- Twint is facing the Chicken-egg dilemma: To achieve network effects you need both a strong user base as well as a critically high penetration of merchants accepting the solution. Why would someone download and set up a payment app that can only be used in a dozen shops? On the other hand, why should a shop integrate a payment system if no users are using it? This problem in mobile payment has (to my knowledge) not been solved with the P2M approach so far. It’s a huge challenge to “educate” both users as well as merchants at the same time.
- It has not been proven so far that there actually is a consumer-sided need / problem with current payment processes at POS to be solved with mobile payment. (Link) But additional up-/downstream services are expected to release the value in combination with mobile payment: (pre-) ordering, home delivery, loyalty cards.
- The Bluetooth Beacon devices to be set up at the point of sale come at a cost.
Insights from other markets: Square properly executed, Denmark shows us the mobile payment way
Two-sided approach – is it possible at all?
This will be a huge challenge for Twint, to build up a two sided network from scratch and mastering the chicken-egg dilemma. I’m curious to see how they do an wish Thierry and his team all the best.
Also I am not aware of any mobile payment providers that successfully and sustainably entered the market with this strategy. Please come forward if you are aware of any examples!!!
One-sided merchant-first: Excellent execution by Square in the US
Square was the first company to launch credit card readers for smartphones experienced impressive growth in the US as well as copycats all over the world: The best proof of success.
One-sided P2P-approach: Denmark shows the way
I spent a few days in Copenhagen about a year ago and was blown away by the widespread acceptance and natural usage of mobile payments:
- MobilePay was launched by DanskeBank in May 2013 and has currently about 2 million users. This means the App is installed on every second smartphone in Denmark (Source)
- In May 2013 DanskeBank launched MobilePay in Denmark. By Nov 2014 the solution had reached 1.8 Mio users: this means MobilePay is installed on every second smartphone in Denmark.
- In the meantime the system has evolved from a P2P service to a mobile payment ecosystem with solutions for small businesses (7’000 merchants, unconfirmed), online shopping and payments through third-party apps. Further co-operations with large retailers are in place.
- With currently over 200’000 transactions a day and an average transaction amount of approx CHF 33 the system experiences a daily turnover of nearly CHF 7 Mio. The usage is not limited to an certain amount: More than 500 transactions a day are in the range of a midclass car. (See full Report here)
- Nowadays MobilePay is in a position to charge merchants a flat 1% fee (max. 5dkk)
As initially noted all strategies have advantages and disadvantages. Gathering from the experiences and observations in Denmark it is fair to say that PayMit is currently in the pole-position: Similar approach and backed by banking industry. And not for nothing the Telegraph headlines “Denmark is one of the first moving towards being a cashless country” in a comment covering the Danish government’s proposal to get rid of the obligation for certain retailers to accept payment in cash.