Marta Bankowska // 10657142
First Supervisor // Dr. Umut Konuş
2
ndReader// Dr. Evsen Korkmaz
Death or Expansion of the Physical Wallet?
Drivers of Consumers Adoption of Mobile Payment
Systems
1 Statement of Originality
This document is written by Student Marta Bankowska who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
2
ABSTRACT
In recent years mobile commerce has been growing exponentially and this growth is expected to continue in the future. From the commercial point of view, one of the crucial stages in mobile commerce is a purchase phase which is enabled by mobile payment systems (Yang, Liu, Liu & Yu, 2015; Yang, Lu, Gupta, Cao, & Zhang, 2012).
Even though, a few successful mobile payment solutions have been already implemented (e.g. Starbucks mobile payment app, Apple Pay), customers are still reluctant to use their mobile devices to access mobile payment applications mainly due to security concerns (Bertrand & Ahmad, 2014; Cihan, Wan, Shatskikh & Agarwal, 2015; Moulus, 2015; Yang et al., 2015; Zhou, 2015). In addition, high fragmentation of the mobile payment systems market defined by existence of multiple solutions/ platforms being deployed is not likely to improve this situation (Nicholls, 2015).
This thesis investigates the relationship between two outcome variables: perceived appropriateness of use of mobile payment systems and mobile payment adoption and factors which were identified in the literature as their potential predictors. These antecedents were divided into three categories which were perceived benefits of mobile payment systems (perceived ease of use, perceived usefulness, perceived compatibility, and relative advantage), attitudes and beliefs (personal innovativeness in information technology, impulsivity) and sociodemographic factors (education and gender). By knowing which of these variables are statistically significant and what their predictive power is, managers will be able to use marketing resources efficiently by focusing on the factors which will lead to improvement in the perception of mobile payment systems among consumers. Consequently, mobile payment adoption is expected to take off.
Data for this exploratory research was collected with the help of online survey tool, Qualtrics. Using survey data from 292 respondents, it was identified that perceived appropriateness of use of mobile
3 payment systems is associated with perceived compatibility, relative advantage and gender. The variance in mobile payment adoption was predicted successfully by perceived compatibility, personal innovativeness, gender and impulsiveness.
The findings of this study provide understanding of the aspects which influence the adoption of mobile payment among customers. It is expected that the outcomes of this research could help practitioners to design effective marketing campaigns and, consequently, raise revenues coming from the mobile commerce channel. By adopting mobile payment companies not only obtain an additional selling channel, but also gain an opportunity to collect valuable data on customers’ purchasing behaviors. Therefore, it is valuable for companies to know what the drivers of mobile payment adoption are.
The findings of this study have several implications: (1) for future research to undertake a more holistic perspective and to integrate the perspectives of both retailers and customers and to incorporate variables seen as obstacles to mobile payment adoption; and (2) for managers to position mobile payment solutions based on their compatibility with individuals’ lifestyle and values.
Key words: mobile payment adoption, mobile commerce, new technology acceptance, perceived
4
Table of Content
LIST OF FIGURES 6
LIST OF TABLES 7
LIST OF KEY ABBREVIATIONS 8
1. INTRODUCTION 10
2. LITERATURE REVIEW 16
2.1MOBILE SHOPPING 16
2.2MOBILE PAYMENT 24
2.2.1DEVELOPMENT AND DEFINITION 24
2.2.2ADVANTAGES AND DISADVANTAGES OF MOBILE PAYMENT SYSTEMS 26
2.2.3MOBILE PAYMENT AND SOCIAL COMMERCE 27
2.2.4GEOGRAPHIC DIFFERENCES IN MOBILE PAYMENT 28
2.2.5MOBILE PAYMENT TYPES 30
2.2.6MOBILE PAYMENT BUSINESS CASES 34
2.2.7MOBILE PAYMENT TECHNOLOGIES 37
2.2.8MOBILE PAYMENT- CURRENT SITUATION VS. PREDICTIONS 40
2.3DRIVERS OF MOBILE PAYMENTS 42
2.3.1EXPECTED BENEFITS 43
2.3.2USERS ATTITUDES AND MOTIVATIONS 51
2.3.3CUSTOMER CHARACTERISTICS (SOCIODEMOGRAPHIC FACTORS) 54
2.3.4PERCEIVED APPROPRIATENESS OF USE OF MOBILE PAYMENT SYSTEMS 56
2.4HYPOTHESES 58
2.4.1HYPOTHESES REGARDING PERCEIVED BENEFITS OF MPS 58
2.4.2HYPOTHESES REGARDING USERS’ ATTITUDES AND MOTIVATIONS 59
2.4.3HYPOTHESES REGARDING SOCIO-DEMOGRAPHIC FACTORS 60
2.5CONCEPTUAL MODEL 62
3. METHODOLOGY 63
3.2RESEARCH DESIGN 64
5 3.3THE PROCEDURE 66 3.3.1PILOT STUDY 66 3.3.2MAIN STUDY 66 4. RESULTS 68 4.1RELIABILITY 69 4.2CORRELATION CHECK 70 4.3CORRELATION MATRIX 70 4.4LINEAR REGRESSION 72
4.4.1LINEAR REGRESSION FOR PERCEIVED APPROPRIATENESS OF USE OF MOBILE PAYMENT SYSTEMS 72
4.4.2LINEAR REGRESSION FOR MOBILE PAYMENT ADOPTION 75
4.5PERCEIVED APPROPRIATENESS OF USE OF MOBILE PAYMENT SYSTEMS 75
4.6MOBILE PAYMENT ADOPTION 83
4.7MOBILE PAYMENT SYSTEMS AND COMPARISON BETWEEN DEVICES 89
4.8PERCEIVED BENEFITS OF MPS- DIFFERENCES BETWEEN ELECTRONICS AND TICKETS 89
4.9RESULTS OF STRUCTURAL MODEL 91
5. DISCUSSION 94
5.1ACADEMIC RELEVANCE 102
5.2MANAGERIAL IMPLICATIONS 103
5.3LIMITATIONS AND FUTURE RESEARCH 105
5.4CONCLUSION 107
6. BIBLIOGRAPHY 109
7. APPENDIX 129
APPENDIX A.MOBILE PAYMENT LEAGUE 130
APPENDIX B.MOBILE PURCHASES 131
APPENDIX C.QUESTIONNAIRE 132
APPENDIX D.OPERATIONALIZATION OF DV AND IV VARIABLES 136
APPENDIX E.RESULTS OF SIMPLE LINEAR REGRESSION FOR PA 142
APPENDIX F.RESULTS OF SIMPLE LINEAR REGRESSION FOR MOBILE PAYMENT ADOPTION 143
APPENDIX G.SUMMARY OF INDEPENDENT SAMPLE T-TEST FOR DIFFERENCES IN PA 144
APPENDIX H.SIMPLE LINEAR REGRESSION FOR MOBILE PAYMENT ADOPTION 145
APPENDIX I.SIMPLE REGRESSION FOR PERCEIVED USEFULNESS 145
6
LIST OF FIGURES
Figure 1. Mobile Shopping Stages and Activities 21
Figure 2. Relationship between E-commerce, M-commerce and mobile payment 25
Figure 3. Venmo’s app home screen (Van Grove, 2015) 33
Figure 4. Starbucks’ mobile payment system (Roemmele, 2015) 39
Figure 5. Technology Acceptance Model (Davis, 1989) 44
Figure 6. Technology Acceptance Model 3 (Venkatesh & Bala, 2008) 45
Figure 7. Conceptual Model 62
Figure 8. Structural model of Perceived Appropriateness of Use of Mobile Payment Systems. 92
7
LIST OF TABLES
Table 1: Overview of Mobile Payment 41
Table 2: Reliability of scale 69
Table 3: Correlations of Perceived Benefits of Mobile Payment Systems and Personality Traits 71 Table 4: Models explaining the variance in Perceived Appropriateness of Use of Mobile Payment
Systems 74
Table 5: Summary of multiple regression for Perceived Appropriateness of Use of Mobile Payment
Systems 76
Table 6: Summary of Multiple Regression Analysis for Perceived Appropriateness of Use of Mobile
Payment Systems for purchasing Tickets 78
Table 7: Summary of Multiple Regression Analysis for Perceived Appropriateness of Use of Mobile
Payment Systems for purchasing Electronics 79
Table 8: Summary of independent sample t-test for differences in Perceived Appropriateness of Use of
MPS 82
Table 9: Summary of multiple regression for Mobile Payment Adoption 84 Table 10: Summary of multiple regression for Mobile Payment Adoption based on Ticket product
category 86
Table 11: Summary of multiple regression for Mobile Payment Adoption based on Electronics category 87 Table 12: Independent Group T-test between Mobile Payment Adoption and Gender 88 Table 13: Differences between Perceived Benefits of MPS for tickets and electronics 90
8
LIST OF KEY ABBREVIATIONS
2FA Two-factor authentication
Bachelorvsmaster A dummy variable created for education construct comparing individuals having a bachelor degree with ones having a master or higher education level.
Comp Perceived Compatibility
CRM Customer Relationship Management
DV Dependent variable
E_PA Perceived Appropriateness of Use of Mobile Payment systems to purchase electronics
E_PC Perceived compatibility of purchasing electronics via mobile devices E_PEOU Perceived ease of use of using Mobile Payment Systems to purchase
electronics
E_PU Perceived usefulness of using of Mobile Payment Systems to purchase electronics
E_RA Relative advantage of using of Mobile Payment Systems to purchase electronics
E-commerce Electronic Commerce
Edu Education
Females A dummy variable created for gender, coded as 0- males, 1-females Highschoolvsmaster A dummy variable created for education construct comparing individuals
high school or lower education level with people holding a master or higher educational degree
Imp Impulsiveness
IV Independent variable
M-commerce Mobile commerce
9
MPS Mobile Payment Systems
M-payment Mobile payment
M-shopping Mobile shopping
N.s. Not statistically significant
NFC Near Field Communication
P2P Peer to peer
PA Perceived Appropriateness of Use of Mobile Payment Systems PEOU Perceived Ease of Use of Mobile Payment Systems
PI Personal innovativeness
PIIT Personal innovativeness in information technology
POS Point of sale
PU Perceived Usefulness of Mobile Payment Systems
RA Relative Advantage of Mobile Payment Systems
T_PA Perceived Appropriateness of using Mobile Payment Systems to purchase electronics
T_PC Perceived Appropriateness of using Mobile Payment Systems to purchase tickets
T_PEOU Perceived ease of use of using Mobile Payment Systems to purchase tickets
T_PU Perceived usefulness of using Mobile Payment Systems to purchase tickets
T_RA Relative Advantage of Using Mobile Payment Systems to purchase tickets
TTF Task Technology Fit
UA Uncertainty Avoidance
10
1. Introduction
Mobile phones seem to be ubiquitous in the modern society and this phenomenon can be easily represented by the numbers. According to research conducted by Google (2013), 70% of Dutch smartphone users do not leave the house without a smartphone, while this percentage in the USA is even higher, accounting for 83%. In 2012 mobile SIM card penetration reached 130% in the European Union which can be explained by the fact that some people own more than one mobile telephone or have a mobile with a dual SIM card. This rate has increased significantly since 2004 where it stood at 85%. The mobile penetration in the Netherlands was slightly lower than the EU average, and accounted for 123% (Digital Agenda Scoreboard, 2013). Considering only the smartphones which are more advanced regarding functionality, their penetration in Europe accounted for nearly 50% in 2012 (Mobile Economy Europe, 2013). Furthermore, it is predicted that in 5 years’ time 70% of the world’s population will be using smartphones (Lunden, 2015). From these numbers it can be inferred that society has become more mobile and this fact brings new opportunities (Kuo & Yen, 2009) as well as threats to businesses. Companies on the one hand have gained a new distribution channel and therefore have increased the accessibility of their products and services. On the other hand, buyers’ bargaining power has improved through better access to information and comparison shopping websites (Porter, 2008).
Businesses that provide a good mobile experience have a higher chance to create engagement with their consumers, boost traffic and improve their financial performance by generating more sales (Cassidy, 2015). Furthermore, the mobile environment facilitates the process of collecting valuable customer insights which, if properly used, can enhance the effectiveness of marketing activities such as targeting and rendering marketing content contextually valuable to consumers (Gao, Rohm, Sultan, & Pagani, 2013)
Next to smartphones, tablets are a different type of mobile device which have enjoyed a surge in popularity. Comparatively, tablets are bigger in size and therefore can be considered as more user friendly
11 devices. As using the touch screen and clicking on the icons and buttons is easier, the fat finger problem is reduced (Hendricks, 2013). It is argued that this could diminish customers’ dissatisfaction with an application or a website, and consequently increase their perceived enjoyment and enhance the shopping experience. Nevertheless, to the author’s knowledge this issue has not been addressed in the literature yet. Therefore, this statement is only a hypothesis.
Regarding the adoption issues, the rate of tablets’ penetration has been growing considerably. The worldwide penetration rate was 1.2% in 2010 and it is estimated that it will reach around 21% in 2014 (Statista, 2014). The numbers from the Netherlands indicate that the tablet penetration surpassed 60% milestone in 2014 (Marketingfacts, 2015). Such a high level of diffusion is one of the signs that tablet market is about to mature (Glenday, 2015).
One of the potential disadvantages of tablets is that due to their size they cannot be put in customers’ pockets and for this reason, their level of ubiquity is lower in comparison to smartphones. Subsequently, they are usually utilized in a different context than smartphones, home versus “on the go” (Etter, n.d.). Research conducted by Salesforce demonstrated that only 14% of the respondents associated tablets with the word mobile, while 54 % of them made this association with the smartphones (Mobile Behavior Report, 2014). One could argue that tablets are not perceived as truly mobile, but rather at-home relaxation devices. This hypothesis could also be derived from the data which shows that smartphones are used more frequently between 8 a.m. and 6 p.m., while tablets’ usage increases slightly after 6 p.m. (Mobile Behavior Report, 2014). This denotes that situations in which smartphones and tablets are used vary. In addition, tablet users engage more frequently in various shopping behaviors. To exemplify, nearly 40% of tablet users researched product features and compared prices, while for smartphone users these percentages were 23% and 24% respectively (Mobile Future in Focus, 2013). From the retailers’ point of view, tablets bring more value than smartphones since the likelihood of the purchase is twice as high for tablet users as for smartphone users (38% vs. 18%) (Mobile Future in Focus, 2013).
12 Along with the emergence of smartphones and tablets mobile commerce has been born. Mobile commerce, or in short m-commerce, can be described as an extension of e-commerce which refers to all monetary transactions conducted via wireless mobile devices such as mobile telephones or tablets (Au & Kaufmann, 2008; Mallat, 2007; Ngai & Gunasekaran, 2007). It can take place either via a mobile website or via an application which needs to be downloaded and installed on a device. Despite the fact that the penetration of mobile phones and tablets has been rising and the functionality of the devices has improved considerably, adoption of the mobile commerce is still relatively low and its full potential has not been tapped yet (Moulds, 2015). According to research conducted by ING in Europe, on average 33% of mobile device owners have used mobile payment. This number is expected to rise to 51% in the coming twelve months period (ING International Survey, 2015). Remarkably, strong and developed economies such as the Netherlands or Germany lag behind the emerging countries (e.g. Poland or Turkey) with regards to mobile payment adoption (ING International Survey, 2015).(Appendix A)
Customers utilize mobile devices in a variety of ways in the mobile shopping process. Mobile applications and websites allow users to search for product information and reviews, compare prices and features and, what is probably the most important from the commercial perspective, to make purchases. It is argued that full potential of mobile commerce could never be realized without a wide adoption and usage of mobile payment systems (Aldas-Manzano, Mafe, & Blas, 2008; Yang et al., 2015). Despite the fact that the advanced technologies for m-payment are already available, the adoption and usage of these solutions has been relatively low compared to older payment systems entailing cash and cashless transactions such as credit, debit and e-payment solutions (Dahlberg, Mallat, Ondrus, & Zmijewska, 2008; Zhou, 2014). What is more, there is a paucity of successful mobile payment business cases, except few Asian countries like Japan and South Korea (Bradford, 2007; Yang, 2005; Ondrus & Pigneur, 2007) and, in reality mobile payment adoption is lower than it was expected (Gartner, 2013; Schierz, Schilke, & Wirtz, 2010; Zhou, 2013).
13 As the commercial potential of mobile payment systems has not been optimally used due to low adoption rates, the objective of this research is to identify key factors which will lead to an increase in their diffusion. It is believed that the findings of this research will help practitioners to allocate their resources effectively and implement mobile payment systems which will meet customers’ needs and expectations. It means that businesses involved in marketing of mobile payment solutions will be able to create strategies and design effective campaigns by focusing on the factors which are critical for the adoption of mobile payments. Consequently, acceptance as well as actual usage of the m-payment systems will increase and the return on investment of m-payment systems will grow as a result of using marketing resources in the most efficient way. It could be claimed that by offering mobile payment solutions to their customers companies may be able to gain competitive advantage (Mallat, 2007) and, if m-payment becomes a widespread payment method, organizations which have not implemented it may suffer from competitive disadvantage.
Current data indicates that technology advancement of mobile solutions is insufficient to encourage customers to start using this new payment method. Sales conversion for mobile devices is relatively low, for tablets it accounted for 2.86%, while for smartphones it was considerably lower and was just 0.86% (E-commerce Quarterly, 2015). Conversion rate for desktop was the highest and stood at 3.41%. By looking at these numbers it could be hypothesized that commercially wise, mobile payment has not been used to its full potential.
Since mobile payment systems, when highly adopted, can be beneficial to companies by, for instance, providing them with additional data regarding customer purchasing behavior businesses should be interested in understanding the drivers of m-payment adoption among customers. First of all, receiving this knowledge enables them to tailor solutions to customers’ needs and facilitate the adoption of m-payment. Second of all, these insights allow designing compatible with customers’ lifestyles marketing campaigns. Thirdly, companies which have been developing mobile payment systems could benefit from the determination of mobile payment adoption antecedents by updating their mobile payment solutions
14 and, altering their marketing approaches. It is expected that these measures will lead to a higher conversion rate and better financial performance. Fourthly, this research provides managers with guidance on how to enhance penetration rate of mobile payment by investigating its drivers and impediments. The main contribution from the managerial perspective is to provide managers with the guidelines on how to allocate resources to develop and offer mobile payment services. This research reaches this objective by testing whether selected drivers are significant in explaining mobile payment adoption and comparing their predictive power. Finally, this study is managerially relevant as it investigates whether factors leading to mobile payment adoption vary between different demographical groups and product categories. Recognizing these differences will help managers to tailor their marketing campaigns and develop marketing strategies according to the needs of different target groups. Retailers should be interested in the implementation of mobile payment systems because of two main reasons which are revenue increase (reaching more customers, pursuing new business opportunities) and efficiency gains (an increase in productivity, being more innovative). For the aforementioned reasons, companies should be interested in knowing the predictors of mobile payment adoption.
Considering the theoretical contribution of this study, it focuses on the area which has not been well discussed in the literature. Mobile payment is an issue from the human computer interaction field (HCI) and it is covered by information systems literature (Chen, 2008; Dahlberg et al., 2008) as well as previous research from behavioral sciences and individual psychology (Agarawal & Karahanna, 2000; Agarawal & Prasad, 1998; Venkatesh, Morris, Davis, & Davis, 2003; Wu & Lederer, 2009). Nevertheless, research which takes more holistic view and encompasses notions of instrumentality (e.g. perceived ease of use and perceived usefulness) along with personal traits (e.g. personal innovativeness, impulsiveness) is rather scarce (Yang et al., 2012). This study uses an integrated approach to uncover the drivers of mobile payment adoption related to the characteristics of users and system itself. Hence, it attempts to enhance theoretical understanding of this issue and to address the existing research gap.
15 Structure of the Report
The remainder of this thesis is organized as follows. The second chapter discusses mobile shopping, mobile payment and its drivers. The section on the drivers of mobile payment is divided into three parts which are expected benefits, attitudes and customers’ sociodemographic characteristics. The description of the mobile payment drivers is followed by a theoretical framework and hypotheses which endeavor to explain the relationships between the drivers and the mobile payment adoption. Third chapter, methodology describes the methods and design of the empirical research in more detail. Chapter four presents the findings of the research. The last section of this study discusses the results, implications and limitations of the undertaken research. Finally, the conclusion is drawn.
16
2. Literature Review
The main objective of this section is to provide a review of the existing literature and to determine which research areas require further investigation. This chapter starts with the introduction of literature focused on mobile payment market, its history and technologies utilized. Next section discusses the drivers and obstacles to mobile payment adoption. The division is made based on the characteristics of mobile payment system characteristics and users. The literature review concludes with the conceptual model and hypotheses which are tested in this study. Since mobile payment is a new field in academic research, it should be noted that most of the contemporary research has been published in conference proceedings or on websites focused on new mobile technologies.
2.1 Mobile Shopping
Since the penetration of mobile devices has been rising significantly businesses have been making endeavors to jump on the bandwagon of the mobile trend and create commercial solutions which will be suitable for mobile users; mobile shopping has been born. Mobile shopping can be perceived as a branch of mobile commerce (a second wave of e-commerce) and extension of online shopping. It refers to the activities of consumers who use their mobile devices and wireless Internet services to shop (San-Martín, Blanca López-Catalán,&Ramón-Jerónimo, 2013). The most frequently used mobile devices are generic mobile phones, smartphones and tablets. Mobile shopping is estimated to grow substantially by approximately 21-29% between 2015 and 2016 (Mulpuru, Sucharita, Evans, Roberge, & Johanson, 2014). Consequently, it provides a myriad of opportunities for marketers, retailers and advertisers (Wang, Malthouse, & Krihnamurthi, 2015).
Users of mobile shopping systems, either websites or applications, are able to search for products and services, likewise their reviews. Next to this, mobile shopping facilitates online purchases and enables
17 secure payment over customers’ mobile devices such as mobile phones, smartphones or tablets. From the customers’ perspective main advantage of mobile shopping is its time and place flexibility as it allows for making purchases at any time and at any place. Additionally, mobile devices are currently seen as ‘cultural objects’ (Shankar & Balasubramanian, 2009); smartphones and tablets are for modern youth broadly accepted cultural icon (Ozok & Wei, 2010). Nowadays mobile devices are essential in consumers’ life and they have been influential in areas such as business, education, health and social networking (Genova, 2010; Lippincott, 2010; Sarwar & Soomro, 2013). According to Mobile Behavior Report (2014) prepared by Salesforce, 85% of respondents stated that mobile devices are a central part of their everyday life. While, for the respondents in the age group 18-24 this percentage stood at 90%. People make extensive use of smartphones and tablets and, since recently they can also purchase new type of mobile devices, smartwatches. The high penetration rate of mobile devices and widespread popularity of mobile lifestyle provides businesses with additional opportunities to enhance their customer relationship management (CRM) practices by creating more personalized interactions across time and space. Mobile devices can help brands and retailers to improve their accessibility (reaching more customers) and revenues as it was shown in the findings of research of Wang et al. (2015) who demonstrated that repeat m-shopping behavior leads to an increase in order size and order rate.
Research conducted by Ipsos (2015) on behalf of ING demonstrates that 50% of participants (n= 14,829) have mentioned speed as the reason why they have used a mobile payment app. Consecutive explanations were ease of use (42%) and the fact that it can be used in many different locations (33%). What is interesting to note is that nearly one third (32%) of the respondents decided to use a mobile payment application because they enjoyed using new technology. Enjoyment of using new technology could be linked to the characteristic which is known in new technology adoption literature as personal innovativeness in information technology (PIIT). Social pressure is of low importance since only 13% of the participants stated that their decision to use mobile payment applications was triggered by personal
18 recommendations. For this reason it was decided to omit this variable while analyzing the drivers of mobile payment adoption.
To sum up, the main advantages of mobile shopping can be classified as: mobility, broad reachability, convenience, and localization of products and services attributes (Larivie`re et al., 2013; Turban, 2008). Despite these benefits mobile shopping adoption has been limited (San-Martín et al., 2013). It is expected that this situation is likely to alter in the future as with time adoption rate will increase and, next to it, younger generations are more prone to be the active users of technological innovations like mobile shopping and they will be responsible for major shifts in the market. Furthermore, new research carried out by Annalect found out that more than 1/3 of respondents stated that they would remain more loyal to tech-savvy brands and that technology adds value to a brand (Tadena, 2015). Hence, companies can create additional value by building their mobile existence in the form of mobile shopping website, application and implementation of mobile payment systems.
To exemplify the importance of mobile, in the United Kingdom, a country which can be categorized as one of the forerunners on the mobile commerce stage in Europe (Anderson, 2015; Barclays, 2015), retailers in the second quarter of 2014 received more traffic from mobile web than from desktop web. Nevertheless, considering the actual sales, only 36% of actual purchases in the UK were conducted via mobile devices. An overwhelming majority of these sales took place on tablet (82%), compared to a small 18% on smartphones (Enright, 2014). Furthermore, it is foreseen that by 2018 the majority of internet traffic (57%) will be driven by mobile and portable devices. This is a considerable increase compared to 33% originated with non PC devices in 2013 (Cisco Visual Networking Index, 2014). Rise in the mobile online traffic is likely to result in higher volume of mobile shopping and, consequently, mobile purchases. In other words, mobile commerce is expected to become more frequently used as sales channel and a part of multi-channel or cross-media campaigns (Okazi, Li, & Hirose, 2012). However, the occurrence of this change is strongly dependent on the usage of mobile payment systems since they facilitate conducting financial transactions via mobile devices. In other words, growth of mobile shopping relies vitally on the
19 widespread adoption and utilization of the mobile payment solutions (Constance, 2001; Lee & Benbasat, 2004; Manzano et al., 2008).
Mobile devices can be used in all stages of the customer journey defined as a sequence of events through which customers interact with the company offerings by creating awareness, learning about products and services, purchasing and if needed, also service recovery (Norton & Pine, 2013). Three main phases of customer journey identified by business practitioners are search, purchase and after-sales stage. Smartphones are most regularly utilized during the search stage and comparison shopping. Moreover, it is worth noting that there is a positive relationship between using smartphones while shopping and the volume of in-store purchases. Research conducted by Deloitte found out that consumers using mobile applications during their stay in stores are 14% more likely to conduct an actual in-store purchase (Belsky, 2012). This result is contradictory to a popular belief of showrooming, a practice of examining products in a brick and mortar retail store while buying them online, oftentimes at lower prices (Adler, 2013). Similar research carried out by Google Shopper Marketing Agency found that 80% of shoppers with smartphones spend up to 25% more in brick and mortar stores compared to the customers who use their smartphones during their in-store stay only occasionally (Newman, 2013). It denotes that businesses should put additional focus on mobile shoppers as they are likely to spend more in comparison to other customers’ groups.
The vast majority of the academic research on mobile shopping and adoption of mobile payment puts an emphasis on smartphones and in the surveys participants are usually asked questions pertaining to their behavior and attitudes towards smartphones. As tablets are relatively new devices, there is a scarcity of research on mobile shopping conducted via tablets. Even though tablets first appeared on the market in 1993 with the launch of Appel’s MessagePad, the first commercially successful tablet the iPad was launched in 2010 (Bort, 2013). Since most of the mobile sales takes place on tablets and this trend is expected to continue in the future (Moses, 2013), it is salient that more emphasis will be put on their usage in mobile shopping context.
20 It can be concluded that mobile has multiple functions and it can be seen as a channel on its own and transactional tool. What is crucial for retailers is that they are knowledgeable about their customers’ shopping behavior and design the strategies which will suit their needs. Moreover, as smartphones and tablets have become nearly indispensable devices in people’s lives and their usage is expected to rise, companies should match their business models with customers’ demands by accentuating the mobile aspects of their operations in order to be able to profit from the mobile revolution (Lee et al., 2014). This involves identifying and analyzing factors which drive people’s acceptance and actual usage of the mobile shopping tools. It is believed that by undertaking more customer-centric approach to design of mobile shopping applications and websites, the volume of mobile commerce along with its conversion rate and return on investment will grow.
It has already been suggested that companies which would like to enhance performance of their mobile commerce should gain insights into people’s mobile shopping behavior (Zhang, Zhu, & Liu, 2012). While mobile shopping has become successful in many Asian countries, with China and Vietnam leading the mobile shopping race (respectively 69.4 and 59.8% of smartphone owners made purchase via their mobiles), the rate of adoption in Europe has been much lower (Google, 2014; Velasquez, 2014; Zhang, Zhu, & Liu, 2012). Regarding mobile shopping in Europe, the United Kingdom is a leader with almost one third of smartphone owners who make a purchase via their mobile every month, whereas in France and in Italy a mere 8% of people buy via their smartphone on a monthly basis (Spencer, 2014). These data demonstrate that mobile shopping in Europe is still in the early phase of its development and this new technology has not been widely accepted yet (Ondrus & Pigneur, 2007). Nevertheless, it should not be forgotten that mobile shopping, next to mobile payment, encompasses other activities. Mobile shopping finds applications in each of the stages of customer journey. It allows customers to research product features, compare product prices, purchase goods or services online. In addition, it enables to check store locations, find coupons or deals, control product availability and make shopping lists. Researching
21 product features along with comparing prices were found to be the most popular functionalities in mobile shopping (comScore, 2013).
The diagram below identifies stages of mobile shopping and belonging to them activities.
Figure 1. Mobile Shopping Stages and Activities
It can be predicted that the commercial value of mobile shopping will rise because the younger generation (age 18-34) is more prone to use their smartphones to buy products (Lomas, 2012). Millennials are more likely to be early adopters of technology comparing to older generations (Banjo, 2012). The high rate of new technology adoption among this group denotes that there is a high likelihood that mobile shopping will become a prevailing payment method in the future. Looking further into mobile shopping behavior younger customers are also the ones who more frequently search brands on social networks, read reviews,
22 search products and compare prices on their mobile devices. Consequently, it can be hypothesized that barriers to mobile shopping adoption are higher among older consumers and that perception of mobile services varies between different age clusters (Lian & Yen, 2014; Liébana-Cabanillas, Sánchez-Fernández, & Muñoz-Leiva, 2014; Yang, 2005).
Businesses can use mobile shopping as a tool to communicate information about product and services (product descriptions and reviews), enhance customer loyalty (usage of coupons and other loyalty incentives) and an additional channel to conduct monetary transactions (mobile payment). From the commercial perspective, the moment of purchase is probably the most important one since it is the point of a direct conversion which enables companies to collect valuable information about purchasing behavior of customers.
According to Internet analytics company comScore, the top five goods purchased via smartphones are clothing or accessories, consumer electronics/ household appliances, books (excluding e-books), tickets and personal care/ hygiene products (2014). Different research conducted by Ipsos in Europe (2015) indicates that electronics, clothing, games and music are product categories which are the most frequently bought online (either via a smartphone or tablets). The results also show that there is a distinction between genders considering mobile purchases. Clothing is the most popular category among women (37% of female respondents stated that they have purchased clothing in last 12 months via mobile devices), while for men electronics was the most popular product category purchased using a smartphone or a tablet (39% of males). The detailed outcomes of the survey are presented in Appendix B.
Interestingly, holidays were more often bough via mobile devices than home delivered meals (15.5% vs. 14.5%).This finding is in contradiction with suggestions made by Wang et al. (2015) who argued that higher involvement products requiring an extensive research (e.g. holiday packages) may be less suitable for mobile channels. According to the authors mobile shopping should be more prevalent for low context and habitually bought products as mobile devices are tools for “reinforcing old behaviors not learning
23 new information” (p. 232). Since the study by Wang et al. (2015) focused only on purchases done in an online grocery store and made a distinction between more detailed categories (e.g. baby food, batteries etc.) it is difficult to make a direct comparison between their research and a survey conducted by Ipsos (2015).
The commercial potential of mobile commerce could not be realized without development and adoption of mobile payment systems (Constance, 2001; Lee & Benbasat, 2004). Mobile payment can be perceived as a natural evolution of electronic payments entailing “payment for goods, services, and bills/invoices with a mobile device by taking advantage of wireless and other communication technologies (such as mobile telecommunications networks, or proximity technologies)” (Dahlberg, Mallat, Ondrus, & Zmijewska, 2006, p.165). Success of mobile payment systems (MPS) relies strongly on customers’ demand as without a sufficient number of participants and volume of purchases MPS will become a failure.
The main objective of this research is to identify factors which contribute to the customers’ adoption of mobile payment systems. It can be posited that some of existing solutions have not been developed according to a customer-centric perspective and therefore they have been facing acceptance and adoption problems. By identifying antecedents of mobile payment adoption among customers companies will be able to design their products in a manner which is compatible with customers’ needs and consequently, improve their financial performance.
To sum up, the mobile shopping process consists of three main stages. Firstly customers show interest, then they do research and eventually they purchase a product. As mobile payment has been a point in which a direct conversion takes place, it is one of the most appealing from the business perspective stages in the mobile shopping. This is also one of the reasons why mobile payment was selected to be the main focus area of this thesis. A detailed overview of mobile payment is provided in the section below.
24
2.2 Mobile Payment
2.2.1 Development and definition
The idea of mobile payment is not new and it has been available since the beginning of the 2000’s. First type of m-payment enabled users to purchase digital content such as games and ring tones and pay for it through mobile telecom operator billing system. Since that time technological capabilities of the telephones developed and new mobile devices, tablets and smartwatches, have been launched. Along with these changes, mobile payments have evolved (Olsen, Hedman, & Vatrapu, 2012).
Increasing popularity of mobile commerce and mobile shopping has led to the rise of mobile payment systems usage since these information systems are closely intertwined and can be seen as complementary services (Goeke & Pousttchi, 2010). Mallat (2007) defines mobile payment as “the use of a mobile device to conduct a payment transaction in which money or funds are transferred from payer to receiver via an intermediary or directly, without an intermediary” (p. 415). Gerpott and Kornemeier (2009) in their definition of mobile payment emphasize its applications in paying bills and performing business transactions.
Mobile payment belongs to mobile commerce domain which is a subset of online commerce. Figure 2 depicts this relationship.
25
Figure 2. Relationship between E-commerce, M-commerce and mobile payment
Mobile payment can be perceived as a synonymous to mobile banking. Despite a certain overlap between mobile banking and mobile payment (making use of financial services on mobile devices), these two technologies should not be confused. Mobile banking involves primarily an access to banking functionality through mobile devices and enables a holder of a mobile banking account to check his/her bank account balance and transaction history or transfer funds between private accounts. On the contrary, the main functionality of mobile payment is transferring funds in return for goods or services. It could be simplified that mobile banking is focused primarily on accessing information, whereas mobile payment is about conducting financial transactions so as to purchase certain goods or services.
Development of a successful mobile payment business model is an intricate process as there are many parties in the mobile payment service value chain. These parties include merchants or service providers, banks or credit card companies, payment service providers, mobile network operators, security and
26 authentication providers, handset manufacturers and end-user (Dahlberg et al., 2006). Ondrus, Lyytinen and Pigneur (2009) state that the effective alignment between a business model and environment in which mobile payments is launched influences greatly the extent to which the payment method will be successful. Furthermore, network externalities also play a role in creating value in m-payment systems. The more parties facilitate mobile payment methods, the more customers will be likely to use those (Au & Kauffmann, 2008). Current fragmentation of mobile payment market is viewed as an obstacle to the widespread adoption and usage of m-payment (Au & Kauffmann, 2008; Ondrus et al., 2009). Even though success of mobile payment is to a certain extant reliant on actions undertaken by mentioned above parties, this research will narrow its spectrum by undertaking consumer’s perspective as they are arguably the key stakeholders for the enhancement of mobile payment position in the marketplace (Au & Kauffmann, 2008). Moreover, analyzing all stakeholders of mobile payment networks will add additional complexity to the research process and due to time and resource limitation it is beyond its scope.
2.2.2 Advantages and disadvantages of mobile payment systems
The main advantage of mobile payment systems, compared to offline and online payment methods, is ubiquity, ability to make a payment conveniently at any time at any place. Particularly, a mobile payment frees users from the spatial and temporal constraints which are typical for offline and online e-commerce payments. Other benefits of m-payment identified in the literature are fast transaction speed and convenience (Hew, Tan, & Ooi, 2014). However, a remaining question is whether relative advantage of m-payment systems exceeds benefits derived from the use of other non-cash payment methods such as debit and credit cards. Customer adoption is a prerequisite for success of mobile payment (Dahlbarg, Mallat, Ondrus, & Zmijewska, 2006). Nevertheless, individuals are resistant to this new technology mainly due to perceived risk triggered by the vulnerability of both the devices and networks to hacker attack (Au &Kauffmann, 2008; Dewan & Chen, 2005; Slade, Williams, Dwivedi, & Piercy, 2014; Zhou, 2014).
27 42% of participants of the survey carried out by Ipsos (2015) declared that lack of trust was the main cause why they have not used a mobile payment application. It implies that mobile payment providers ought to improve customers’ perception of these payment instruments by positioning them as reliable and trustworthy tools. It is intriguing to see that nearly the same percentage of respondents stated that they have not used mobile payment applications because they have never had the opportunity to use it (Ipsos, 2015). These findings suggest that some marketing measures need to be undertaken to increase accessibility and visibility of mobile payment solutions among customers.
2.2.3 Mobile Payment and Social Commerce
It is worth pointing out that the majority of mobile payment solutions are usually connected with other value propositions and consequently deliver fusion value which can be defined as “value that can be achieved for the entire network of firms and consumer simultaneously just by being on the mobile network” (Larivière et al., 2015, p. 268). For instance, Twitter is primarily a social media platform which allows its users to share short messages but additionally it enables what is called peer to peer payments (P2P)- transferring small amount of money to people belonging to one’s social network (Quittner, 2014). Twitter’s mobile payments are very convenient as they are sent by adding a Twitter handle to one’s profile. Unfortunately, since this service has been launched recently (October 2014 in the USA and March 2015 in the UK) no data is available on the actual adoption of Twitter’s mobile payment service. Therefore it is difficult to evaluate success of this new feature.
Facebook, one of the biggest social media platforms, entered mobile payment market in March 2015 with an implementation of a mobile payment feature to its messenger which has more than 600 million active users monthly (Protalinski, 2015). Despite the fact that this new functionality is not going to generate additional revenue itself Facebook decided to add it in order to improve users’ experience by making the messenger “more useful, expressive and delightful” (Constine, 2015, para. 6). An assumption can be made that by adding this function other Facebook eco-systems will become much ‘stickier’, people who
28 would normally go to a different website or an application to conduct a financial transaction would remain on Facebook’s site and the likelihood to steer users to paid services will increase. As a consequence revenues could be generated through different streams and data on customers’ location and purchase behavior information could be monetized by collecting it, using for Facebook’s purposes and/ or selling it to other interested parties. As a result, more effective campaigns and promotional offers can be designed (Sasgaar, 2014).
Purchasing of goods and services via social media platforms is a subset of social commerce. Social commerce, sometimes abbreviated as ‘s- commerce’ encompasses “online buying and selling activities initiated via social media, which entails business transactions through either social media or other e-commerce sites” (See-Pui Ng, 2015, p. 609). As social e-commerce belongs to e-e-commerce domain it includes mobile and non-mobile online activities and subsequently is a part of mobile commerce. It should be noted that the idea of using social networks to enable mobile payments has been developed in China, not in the Western economies. Comparing to Facebook’s mobile payment feature Chinese WeChat wallet facilitates not only P2P payments, but also allows paying for goods and services. WeChat has been innovative on the mobile market as it has been the first company which has introduced city services, WeChat City services app. The application enables users to conduct financial transactions such as paying utility bills and fines, but also to book doctor appointments and report incidents to police (Frier, 2014; Horowitz, 2015). According to the report prepared by Adyen (2015), WeChat has nearly 500 million of users from which over 200 million users have registered for its mobile payment services.
2.2.4 Geographic Differences in Mobile Payment
Chinese mobile commerce market has been growing considerably; in 2013 there was a 700% surge in a number of m-commerce users. In addition, nearly 70% of Chinese consumers have purchased a product or service using their smartphone (Adyen, 2015), while this number in the USA accounted for 46%. This data suggests that China is leapfrogging many Western countries considering mobile commerce market
29 and there are still a lot of opportunities in this area. This makes China an attractive mobile payment market (Doland, 2014). The recent implementation of mobile payment functionality by Facebook shows that Western companies could learn from business cases provided by Chinese companies (Stein, 2014).
Mobile commerce stage looks differently in Europe and the USA. As it was previously mentioned mobile payment environment in these regions is highly fragmented and comprises of many different stakeholders. In contrast, 80% of the m-commerce market in China is controlled by three companies (UnionPay, AliPay, TenPay), with AliPay being a market leader with a market share of 50% (Adyen, 2015).
2.2.4.1 Mobile Payment in the Netherlands
Taking into consideration Dutch mobile market, it can be described as advanced since mobile devices encompassing the newest technologies and (quick) mobile Internet services are available. To illustrate, tablets are present in 61% of Dutch households (Oosterveer, 2015), while the penetration of smartphones stands at 75% (Otto, 2014). Although the penetration rates of mobile devices are high and required infrastructure is already present, the market analysis demonstrates that Dutch customers are reluctant to access these mobile services on their phones (López-Nicolása, Molina-Castilloa, & Bouwman, 2008).
Recently Rabobank has rolled out its mobile wallet, Rabo wallet, which enables making touchless payments up to €25 (payments above this amount require a PIN code). The major barrier to adoption is the fact that Rabobank’s mobile payment application is supported only by two smartphone models. Also Vodafone has introduced a mobile payment application, SmartPass. During the first year, customers can use the application for free. After that period the application costs €12.95 per year (Smeets, 2014). Since Vodafone’s and Rabobank’s solutions have been newly launched more time is needed in order to be able to assess their performance.
Latest data demonstrates that the number of mobile transaction in the Netherlands increased by approximately 4% in the period between October 2014 and March 2015. Nearly 29.5% of all online
30 payments are done via mobile devices. Considering the average value of transaction, tablets were the most profitable with the average transaction value of €32.66 (FD, 2015). It is riveting that compared to tablets; the transaction value for PCs and laptops was lower and stood at €31.19. This number implies that tablets become go-to devices for high value purchases (Meyer, 2015).
2.2.5 Mobile Payment Types
Mobile payment providers differ from parties such as banks and financial institutions (e.g. Rabobank), named groups (e.g. Google, Apple, and Samsung), retailers (e.g. Starbucks), mobile network operators (Vodafone, Orange) to social media platforms (e.g. Facebook, Twitter, Snapchat). Multiple payment solutions have been available but a low level of interoperability among them may lead to creating confused customers who will be resistant to adopt mobile payment solutions.
Other possible manner in which mobile payment can be distinguished is based on their functions and settings in which they are employed. Three main groups which were identified in the literature are point of sales mobile contactless payments (POS) (or proximity mobile payments), mobile remote payments and P2P remittance (Gerpott & Kornemeier, 2009; Xin & Tan, 2013). The first type, POS mobile payments, requires simultaneous presence of a buyer and a seller at the same geographical location to complete transactions. This payment method can be employed in brick and mortar stores, restaurants and vending machines. To illustrate, a partnership between Tillster, mobile payment facilitator and a beacon maker, Gimbal allows customers to order and pay for a meal in fast food chain restaurants without a need to interact with a waiter (Reader, 2015). In this case mobile payment delivers convenience to customers who can finalize their transaction without a need to wait in a line, while food service retailers can increase their efficiency by serving more customers using fewer personnel. In this case mobile payment is beneficial as it provides additional value to both customers and retailers.
As the name indicates, in second type of m-payments, remote payment payers and payees are spatially separated. Remote mobile payments are indispensable for fulfilling commercial objectives of mobile
31 shopping applications and websites. This type of payment is particularly convenient as it gives customers flexibility to shop at any time and in any place. As mobile payment facilitates purchasing process and makes it easier for customers to buy goods or services, it could be conjectured that unregulated purchasing behavior (impulsive, compulsive and addictive buying) will be related to mobile shopping. Such a deduction is based on the findings from online shopping studies where a significant and positive relationship was found between unregulated buying tendencies and online buying behavior (LaRose & Easting, 2002).
Since there are differences in the usage context of smartphones and tablets, there is likelihood that these devices will be employed in different manners. One of possible scenarios is that customers will prefer smartphones, which are smaller in size and therefore more portable, for POS mobile payments, while tablets will be more popular for remote payments because they provide better user experience due to their bigger screen size and user-friendliness (RichRelevance Shopping Insights, 2012).
Third category of m-payment, P2P remittance is of non-commercial nature and it entails transfers of electronic cash between private individuals/ peers (Gerpott & Kornemeier, 2009; Xin & Tan, 2013). It is interesting to point out that some of the authors perceive P2P as a form of money transfer which does not belong to mobile payments (Au & Kauffman, 2008; Mugambi, Njunge, & Yang, 2014; Pousttchi, 2003). According to these researchers, mobile payments occur in a person to business and business to business contexts and involve financial exchange for purchasing goods and services, while mobile money transfers are frequently made from person to person. Term “m-money” was coined in order to encompass mobile payments and mobile money transfers.
Mobile money transfers are not the main focus of this research. Nevertheless, it is worth mentioning that this type of payment is already widely diffused in African countries (Hall, 2012; Mugambi et al., 2014). To exemplify, in Kenya, M-pesa which is primarily a money transfer system, has reached about 60% of Kenyan adults (Ongoto, 2013) and about 25% of the country’s national gross domestic product flows
32 through the system (Gilpin, 2014). What distinguishes M-pesa from the majority of mobile payment solutions is that owning a bank account is not a prerequisite to use M-pesa services. One of the potential explanations of widespread usage of M-pesa may be the fact that availability of other money transfer systems and banking services in Africa is rather limited. This situation is comparable with other developing countries and, according to latest figures of GSMA, mobile money covers nearly 2/3 of the developing world where more people own a mobile account than a bank account (Murphy, 2015; Scharwatt, 2015). As the number of alternatives in the developed countries is much wider, customers are more resistant to change their already existing habits and start using new P2P solutions.
Many analysts are skeptical whether solutions similar to M-pesa will become successful in developed Western countries since wide range of mature financial services is already available (Heinrich, 2014). However, a company called Venmo has demonstrated that P2P remittance service has the potential to become widely adopted by smartphone users (Gillette, 2014). Venmo’s transaction volume has risen tremendously by 347% in the second quarter of 2014, comparing to the year before. In addition, the company succeeded in exceeding the mobile transaction volume of Starbucks (Heggestuen, 2014). After downloading Venmo, which is a mobile-payment app for smartphones, users can connect it to bank accounts and link it with members of their social networks’ so that they can send and receive money on the go. Venmo combines functions of mobile payment applications with social networking sites. This is plausibly its main differential points comparing to the majority of existing m-payment solutions. Each time users make payments via the application they need to fill in the field which summarizes transactions Other members of the network are also able to see what the person has written and like his/her expenditures (Figure 3). Furthermore, users can choose to ‘trust’ their friends. This option allows charges between a person and his/her trusted friends to be automatically processed (Lane, 2014).
33
Figure 3. Venmo’s app home screen (Van Grove, 2015)
Venmo by combining social, financial and fun elements appeals particularly to the generation of Millennials who use it to split the bills (Dalletts, 2014). The volume of mobile payments transferred through Venmo is a proof that the apps’ popularity has been increasing (The Economist, 2015).
It could be posited that performance of the app is triggered by its innovativeness. Venmo’s developers are one of the first who have used a social network approach to mobile payment and made a rather tedious and sometimes uncomfortable activity of paying back more enjoyable (Gillette, 2014). It should be mentioned that Venmo is available only in the USA and the question which remains to be answered is whether the application will be launched in different countries and how successful will it be. Despite the fact that Venmo managed to make money transfers via mobile in a convenient and fashionable manner, the company has been facing some security problems (Griswold, 2015). The case of Venmo demonstrates that mobile payment companies frequently experience a tradeoff between a frictionless and safe payment experience. Due to the occurrence of such a tradeoff it is highly relevant for managers to analyze whether and to what extent security or convenience of use is more important to users and accordingly design
34 mobile payment applications. As businesses are confronted with a shortage of resources it is necessary to discern which factors are the most influential in adoption of mobile payment solutions.
Mobile payment has found applications in a variety of industries. According to Ayden’s Global Payment Index (2014), mobile web share of transaction volume was the highest in travel industry (22%), followed by digital goods (16.9%) and retail (16.5%). The share in ticketing industry was also relatively high and accounted for 15.8%, while share of transaction volume was the lowest in the gaming industry (7.3%). Despite the fact that the majority of mobile payment transactions was carried out on smartphones, 57% compared to 43% via tablets, higher value purchases were more likely to be made on tablet devices (Ayden Mobile Payments Index, 2014).
2.2.6 Mobile Payment Business Cases
2.2.6.1 Starbucks
A business case of Starbucks demonstrates that mobile payment instruments can be financially feasible. According to Business Insider, in 2014 15% of all Starbucks transactions in the US were made via its mobile payment application, while in 2015 this number accounted for 19% (Wolfe, 2015). Ease of use of Starbuck’s mobile payment application is comparable with more traditional payment methods such as debit and credit cards. Therefore, this factor cannot clarify the wide popularity of Starbuck’s application. One could argue that the underlying reason of Starbuck’s success in mobile payment market is the added value and linkages with customer relationship management system (CRM). To be more specific, Starbucks’ app is linked with its loyalty program; customers, based on their purchases, receive stars which can be exchanged for free products. Since the end of 2014 Starbucks’ customers in certain areas of the United States are able to use ‘mobile order & pay’ function which gives them an opportunity to order beverages or food via Starbucks’ application and pick their order in a store. Additionally, one of the
35 features of the application is the built in inbox which facilitates communication and enables Starbucks to deliver free digital goods (e.g. free iTunes songs) to its customers (Bertoni, 2014).
Starbucks has not endeavored to position its mobile payment application based on ease of use or convenience since, from the customers’ perspective, time efficiency of mobile transactions is comparable with transactions conducted with credit or debit cards. Instead, the coffee chain has focused on customer experience and aspects in which it can easily differentiate its mobile payment application from traditional payment systems. The volume of mobile purchases made by Starbucks’ customers indicates that this business strategy has proved to be effective, 90% of the mobile- pay share in the US belongs to Starbucks (Wolfe, 2014). As the application has proved to be successful in the United States, Starbucks decided to expand it to Canada and United Kingdom (Anderson, 2015). If the app will become popular in other countries it will denote that the company has comprehended the principles of mobile payment adoption and its business case can be used by other companies as one of the best practices.
The case of Starbucks shows that linking mobile payment with CRM can create a synergy effect and increase the likelihood of success of both solutions. This hypothesis is consistent with a statement made by Ondrus and Pigneur (2004) who reasoned that coupling different technologies (CRM and m-payment) can be beneficial to the retailers. This finding is supported by a report from a section of the Federal Reserve Board’s Division of Consumer and Community Affairs which found that customers are willing to receive deals and discounts via mobile devices and therefore tying loyalty programs with mobile payment solutions would increase the attractiveness of mobile payment systems (Norton, 2015).
On one hand, the coffee chain from Seattle has been an example of a company which has managed to convince its customer to accept and utilize its mobile payment application. On the other hand, large IT enterprises such as Google with its Google Wallet, which was launched in 2011, have not managed to popularize its application among customers. The failure of Google Wallet stems from the fact that to a great extent it was dependent on outside parties such as the phone makers, the credit card companies and
36 the carriers (Carr, 2013). What is more, the Wallet is perceived by many as a solution for a non-existing problem (Carlson, 2013). Consequently, demand for this product has been rather limited. Considering the security of payment, the wallet has had issues with leaking money. Since consumer adoption of mobile payment systems is related to the trust level and the majority of the customers do not trust mobile commerce, mobile payment providers ought to ensure that their solutions are perceived as secure to gain needed trust (Chandra et al., 2010; Seals, 2014). Google does not provide the numbers regarding the exact number of downloads and usage of its app. Nevertheless, the results of the conducted desks research on overall media sentiment indicate that the solution can be categorized as a failure; Google has not managed to make a return on its investment of $300 million (Milian & Levy, 2013).
2.2.6.2 Apple Pay
On the 20th of October 2014 Apple introduced its mobile payment solution called Apple Pay. With the launch of its new product Apple aims to revolutionize digital payment solutions. Likewise Google’s mobile payment instrument, Apple Pay is based on the Near Field Communication technology (NFC). Hence it cannot be stated that one of these MPS is superior due to the implemented technology. Unlike Google, Apple has gained support from card issuers, banks and merchants; it has been successful in changing consumer behavior and is perceived as a more secure solution (Arce, 2014).
Interestingly, the launch of Apple Pay has contributed to the increase in popularity of Google Wallet , its transactions has increased by 50% and the number of new users has nearly doubled comparing to one month prior to launch of Apple Pay (Geuss, 2015). It can be concluded that success of the mobile payment is intertwined with customers’ awareness which is the key to the surge in adoption rate. Without it, there is only a small likelihood that retailers will invest in remote payment points facilitating mobile payment.
It has been expected that mobile payment will have a bright future but the actual situation is different (Arnfield, 2014), the mobile payments have not been deployed massively in most of Western countries
37 (Ondrus et al., 2009). It could be argued whether this is triggered by mobile payment systems’ characteristics and lack of relative advantage comparing to other payment systems or whether alignment between involved parties such as mobile payment system providers, banks, credit card companies and retailers has not been sufficient. The future will show whether mobile payment will prove to be commercially viable and widely accepted by customers. Existing evidence is mixed with the failure of Google Wallet on one side and the triumph of Starbucks mobile app payment on the other.
2.2.7 Mobile Payment Technologies
Functionality of mobile telephones has increased significantly during the past 20 years. Modern smartphones not only enable people to communicate with each other, but also allow them to search for information, check their bank accounts or make financial transactions. Nowadays products and services can be marketed, sold, produced and provided via mobile telephones. Development of mobile technology has opened lucrative opportunities for merchants and retailers who have gained a new commercial platform next to traditional brick and mortars stores and already widely used e-commerce.
The purchase phase will not be possible without mobile payment. Mobile payment is defined by Amoroso and Magnier-Watanabe (2012) as “any payment in which a mobile device, such as a mobile phone or any other device capable of connecting to mobile communication networks, is utilized to initiate, authorize, and confirm a commercial transaction”(p.96). Mobile payment can be seen as an extension and next development phase of electronic payment which can be categorized based on three broad criteria: type of service (mobile ticketing, mobile parking, mobile remittance, mobile POS), types of technology (SMS, WAP, NFCC, USSD) and purpose (M-order, M-banking, M-delivery, M-contract). This research focuses on the adoption of a relatively new type of technology; Near Field Communication (NFC). Taking into consideration technology, in the first stage of mobile payment development a majority of the systems relied on SMS, sending a text message from a mobile telephone to pay for a product. Coca-Cola was one
