Making Mobile Money Work

Cash is expensive for businesses to handle – it has to be counted, securely transported and stored. There is also a risk of theft by staff. It is not surprising therefore that many businesses encourage alternative payment methods, even if there are transaction costs associated with them.

Over the years there have been several false starts in the UK when it comes to a truly cashless society. An article in The Independent as early as 1993 stated: “The cashless society came a step closer yesterday as National Westminster Bank unveiled Mondex, a new electronic payment system using a card that acts like an electronic purse.”

Mondex was conceived by NatWest Bank in 1990 and conducted the first trial in 1995. 17 years later, hopes were high that the 2012 London Olympics would give a significant kick start to “wave-and-pay” contactless payment cards, without the inconvenience of having to enter a PIN for small-value transactions. Yet the Guardian Money Blog reported in August of last year that relatively few of those who could have used wave-and-pay at the Olympic venues did, and so we are still wedded to terminal insertion and PIN technology.

Electronic wallet
The ubiquitous nature of the mobile phone has focused attention on using it as an electronic wallet. The uptake of mobile devices is often wider than the uptake of bank accounts in both developed and developing markets. Cellular technology is more inclusive than a fixed-wire network, particularly in developing markets. Even in developed economies, a mobile service for some is the only means of access to the internet, and all that it brings.

One cellular money service is M-Pesa from Safaricom. This offers P2P (person-to-person) payments, and does not rely on visiting a bank, sitting at a computer terminal or using money transfer outlets. Now, five years after its inception, there are 15m M-Pesa users in Kenya (with a population of around 41m), compared to 10m bank accounts. Its success as a money transfer service is a clear demonstration of the success of mobile finance, when other alternatives are absent or restricted in some way.

Turning back to the UK, one success in the cashless environment is the use of the Oyster card for transport in and around Greater London. One of the attractions for TfL (Transport for London) is less cash handling. One of the big attractions for passengers is that it is cheaper to use an Oyster card than it is to use cash for the same journey. With undeniable benefits to both parties, it is not surprising that it has taken off. By early 2012, nine years after it was launched, 40m Oyster cards have been issued. Even though many will have been used by visitors and children, and allowing for multiple cards and use by businesses, a significant proportion of the adult UK resident population would have had some experience of using them. Thus, for many, the concept of NFC/wave-and-pay for low-cost items is not anovel concept.
We recently carried out research to understand consumers’ attitudes to using their smartphone as an electronic purse/wave-and-pay tool. Respondents were presented with different scenarios, ranging from paying for low-cost items such as journeys on public transport, to high-ticket items, such as furniture and appliances.

Based on the results of the research, there are several observations that characterise the market for wave-and-pay using a smartphone:

• Males are much more interested than females in using their device for wave-and-pay, typically a ratio of 3:2 males to females show some interest 
• Interest diminishes considerably by age, with about twice the proportion of 16-24 year olds expressing an interest, compared to those over 45 years old
• There are higher levels of interest for low-cost expenditure, e.g. public transport (49 per cent), compared to large-ticket items such as furniture (31 per cent)

We were able to separate out those respondents with an Oyster card, and it was noticeable that they were more interested in wave-and-pay using their mobile device than those with no experience of using an Oyster card – by a ratio of approximately 3:2 for everyday purchases. Even among Oyster card users, however, there was a core group – about one in eight – who would not consider using their smartphone for paying for transport.

There are many reasons given by those not so enthusiastic about using a smartphone for wave-and-pay. Some are concerned about security. The security issue is around a stolen device, so not only would there be the loss of the device, and the cost that this could involve, but without PIN authentication, somebody could be spending their money.

For mobile wallets and contactless cash cards, there is the balance between convenience, efficiency and the threshold, for reasons of security, over which payments need a PIN. The closed environment for Oyster card use means that its currency is less attractive than, say, a contactless payment card with a far wider constituency of outlets, so perhaps less of a target for theft.

Consumers were also asked about non-monetary NFC applications for their smartphone, for example, marketing applications, such as interacting with posters. Some consumers are concerned that displaying a device in a public place may attract unwelcome attention from a security perspective. This in part may account for lower levels of interest for NFC applications among females. No doubt, until such activity becomes commonplace, there will be an element of the population who will be self-conscious about using it.

Wave-and-pay, however, would tend to be used in more enclosed situations (e.g. in the newsagent) than for marketing applications (e.g. a poster on a bus shelter, in a shop window, etc.), so vulnerability may be less. 

Some consumers feel they already have convenient and easily manageable alternatives, such as credit and debit cards. These alternatives often come with additional benefits, among which the following were mentioned:

• Usage/loyalty points and cash back
• Management of cash flow
• Reconciliation of expenditure
• Money back for faulty items purchased

These rational justifications for lack of interest in using their smartphone as a wallet are more strongly proposed by older consumers.

These findings give pointers to how a smartphone service could be promoted. Females, more so than males, need to be reassured about safety. Consumers may need persuading that smartphones are no bigger a security risk than pulling out of a bag or pocket a wallet or purse containing an Oyster card. The older, more financially savvy consumers need to be offered matching benefits, whether this is collecting reward points, fewer cash withdrawals or that transaction statements are available.

Tom Perrott is research director, Telecoms & Technology, at Harris Interactive