Five Factors Driving Adoption of Mobile Payments

January 31, 2011 § 4 Comments

A couple of weeks ago, Starbucks rolled out a mobile payments app for iPhone, iPod Touch, and Blackberry that gives their customers the ability to pay, reload their Starbucks card, and check rewards all by simply scanning a bar code on the mobile device.  As a tech savvy consumer and someone who would rather skip the line, I’m eagerly awaiting the arrival of this technology in my mid-sized middle Georgia town.  Yet, I am keenly aware that I am not the average consumer and there are more people than not that see no problem for which this innovation solves.  In an insightful post on whether or not NFC (yes, NFC is a whole other exciting and more capable technology) will ignite mobile payments this year, Karen Webster points out that

“there are millions of contactless cards in circulation today that no one uses, because there’s no inherent benefit in tapping versus swiping.  The potential for NFC is having a really smart computer chip interacting with my really smart phone and a really smart merchant point-of-sale device that provides a better experience for me before, during and after my shopping experience.”

She is absolutely right – it is the customer experience that will drive the mainstream adoption of mobile payments.  But how and what does that mean?

Being a regular reader and fan of Scott Berkun’s blog , I recently finished reading in his book “The Myths of Innovation” how innovations gain adoption.  He cites the author Everett M. Rogers in “Diffusion of Innovations” as writing this:

“Many technologists think that advantageous innovations will sell themselves, that the obvious benefits of a new idea will be widely realized by potential adopters, and that the innovations will therefore diffuse rapidly.  Unfortunately, this is very seldom the case.  Most innovations in fact diffuse at a surprisingly slow rate.”

I think the point Scott is trying to drive home and the one in which I strongly agree, is that there is so much more to the mainstream adoption of something new and disruptive like mobile payments than “technical prowess”.  I’d like to point out that “diffuse” in the above quote is equivalent to widespread adoption.  In his book, Scott describes five factors that define how quickly innovations spread as first defined by Everett M. Rogers.  I hope you’ll bear with me (and Scott will forgive me) if I go just a little bit looser with these and try to apply them to mobile payments with an NFC enabled device.

The first one is Relative Advantage.  This is basically what the consumer perceives as the value of the new innovation and not what its makers perceive as the value.  It is “built on factors that include economics, prestige, convenience, fashion, and satisfaction”.  Simply put, how are mobile payments better than payments made with cash or plastic?  Going back to the Starbucks app, the ability to instantly check your Starbucks Rewards Stars and the other self-service capabilities of adding to your account via a linked credit account or a PayPal account makes mobile the clear winner.  We could also add fraud detection via location awareness using the GPS capabilities of a mobile device and mobile coupons to that list.  If the powers at play (Google, Apple, ISIS) can nail some usability, standardization, and security issues surrounding identity then we won’t be comparing plastic to mobile but rather leather to digital as our mobile devices aim to replace our wallets.

The second is Compatibility.  What does it cost the consumer to transition to using the new innovation, and is it compatible with the consumer’s culture (habits, beliefs, values, etc.)?  This seems to be one of the major hurdles facing the mainstream adoption of mobile payments in any form as it may require costly improvements to or replacement of point-of-sale terminals.  In addition to this added cost to the merchant, the consumer is required to have a smart phone.  However, all signs like this study from Nielsen point to smartphones overtaking feature phones (aka dumb phones) by the end of 2011.

The third is Complexity.  How much learning is required for someone to start using a smart phone to make a payment?  It would be very interesting to see research data from the Starbucks pilot launch.  While the Starbucks video advertisement of their new mobile payments app seems very simple to me, we still have to consider that over half of Americans don’t even own a smartphone yet, so there is not just one learning curve here in the quest for widespread adoption – there are at least two.  There is also training for merchants that must be considered.  I wish I could remember the author, but someone made the point of how the first snafu in this regard may be the unfortunate, overly technical naming of NFC / Near Field Communication.

The fourth is Trialability.  How easy is it to try out?  Well, from a consumer perspective and again using the Starbucks app as an example, it’s as easy as downloading the free app and going to a Starbucks with a scanner.  Looking forward to NFC, I think this may get a little more difficult to do.  However, you could look at PayPal’s Bump-To-Pay for P2P payments as a precursor to NFC P2P payments.  I’m curious if research supports consumers being more comfortable with trialing mobile payments applications for P2P payments over making payments in a retail or other scenario.  I would expect so.  It will be interesting to see how other NFC applications such as Google’s NFC enabled Hotpot sign will help usher in the era of mobile payments.

The fifth is Observability.  How visible are the benefits of the innovation, and how likely are these benefits to spread in social groups?  Given the hype and excitement around mobile computing and social networking, a successfully executed mobile payments application would probably be highly visible.  With the rise of social commerce and the sharing of everything using the very device with which we are paying, the opportunities for making a mobile payments app visible could go up exponentially by every user using the application.  Mobile payments and the mobile wallet have been discussed as well on most of the major news networks and magazines in the U.S.

While I am thrilled about the possibilities surrounding innovation in mobile payments – specifically using NFC – I am in agreement with experts like Karen Webster and Scott Loftesness that mainstream adoption will not happen during 2011, and a successful mobile payments application will have to nail the user experience and provide clear advantages over plastic to merchants and consumers.

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