By Eduard Calvo
Paying for coffee, getting on the subway or splitting dinner with friends are everyday actions that can now be done with a mobile phone. And these mobile payments, or m-payments, are taking off. In 2015, close to half a trillion dollars were transacted globally using m-payments and analysts predict that figure could double by 2019. Clearly, businesses who can successfully harness the potential of m-payments are on to a winner.
Below I suggest a simple framework to think about how m-payments can boost your business along with the three keys to building a killer m-payment solution.
How mobile payments can boost your business
Many managers see the emergence of paying for goods and services via a mobile phone as a mere technological evolution, without further consequences (first customers used checks, then cards, now it’s m-payments.) Others acknowledge its transformational impact on society and economic activity in general, but believe it will not affect their industry because payment is not a key activity there. Still others think that, by the time it becomes a widespread reality, they will be retired. Unfortunately, such thinking lacks imagination. Accept it or not, m-payment solutions are rapidly growing, and some of them are establishing relevant positions locally. Some, if not most, of the success stories so far have been championed by companies outside of the payment industry.
Let’s consider three main strategic objectives of m-payments that should be of interest to any business.
1. Improve productivity
Improving the way payment is performed can be crucial to boost business productivity. Take Starbucks’ pioneering mobile order-and-pay app, which has become a hit in the U.S., and which unlocks five productivity boosters:
• By processing payments faster, the customer throughput rate goes up, increasing sales per hour.
• As the cashier time per user goes down, so does the average wait, increasing customer satisfaction
• User payment and consumption data collected from the app can be used to customize promotions and discounts, increasing the average size of individual sales
• Thanks to the prepaid nature of the app count, the working capital requirements of the company are alleviated, decreasing financial expenses
• Due to all of the above, customers become more loyal, increasing customer lifetime value.
2. Generate new business
The ability to integrate m-payments into existing operations can create synergies that generate new revenue streams. A case study by my IESE colleagues Sandra Sieber and Alejandro Lago reveals how this can work. In 2007, Kenya’s leading mobile network operator, Safaricom, launched a mobile money transfer system called M-Pesa. Today more than two-thirds of Kenyans regularly use their phones to make or receive payments, according to Pew Global. With over 20 million registered customers, M-Pesa accounts for 86% of Safaricom’s users, 20% of Safaricom’s revenues and more than 40% of Kenya’s population.
3. Increase stickiness of core business
Including m-payment solutions in the service portfolio of a company can make sense – even when offered for free. When the payment system really adds value to the end user and is restricted to the user base of the company, strong network effects are created that can help reduce churn rates and increase customer retention. Because it is costlier for users to switch to the competition, the core service tends to stick longer, increasing customer lifetime value. For example, a company can use apps and payment tools to hook active users, expand its user base and pave the way for building a one-stop platform where ancillary services, such as food ordering or taxi hailing, can be linked.