Expert Interviews

5 Empirical Study

diffuse later but then grows faster. Put another way: despite German consumers of start adopting a technical innovation later than their US American peers, the technical innovations then seem to spread more efficiently in Germany.

The standardized growth processes also allow evaluating the time constant ΔT. Table 6 shows that smart phones spread in just 5.5 years whereas mobile phones needed around 15 years, and the internet about 13.5 years to diffuse. The time constant drops over time.

Table 6

Comparison of indicators for Germany and the United States of America.

ΔT (in years)

Indicator Germany USA Average

Mobile Cellular Subscriptions 13 17 15

Internet Users 10 17 13.5

Sales of Smart Phones 5 10 7.5

As aforementioned, the available data is insufficient to construct a forecast for mobile payments as such. However, based on these findings, the following may be argued: the later a technology starts to diffuse, the lower the time constant, i.e. the faster the growth process.

According to this line of argumentation it may be possible to predict that the technical infrastructure required for mobile payments is likely to follow a diffusion pattern that is more similar to the pattern describing the diffusion of smart phones than to that describing mobile cellular subscriptions or internet usage. Under the assumption that mobile payments are going to spread faster than smart phones (which needed five years in Germany and ten years in the USA to reach 90% of their final diffusion level) it may be possible that the infrastructure necessary for mobile payments is going to be a conventional part of daily life within up to five years in Germany and the USA.

insights each present a different perspective on the subject. Table 7 gives an overview of the selected interview participants.

Table 7

Overview of interview participants.

Participant Position Industry Company Size Operating Country

#1 Consultant, GER IT and

Services 431.000 International

#2 Mobile Developer, USA Internet 132.000 International

#3 Investment Banker, GER Banking n/a Germany

The interviewees were assured of their anonymity in order to foster an open conversation.

Due to that reason, the interviews were not recorded. The same interview structure guided all interviews³⁴: One block of questions was directed at each of the identified components of the systems model i.e. Features, Key Players, Social & Cultural Aspects, and Technical Infrastructure, followed by open questions regarding the far future of mobile payments.

Appendix E encompasses the notes taken during the interviews.

5.2.3.1 Expert #1

In academic literature, the following factors were repeatedly claimed to inhibit the dissemination of mobile payments: security, usefulness, ease of use, and costs. The next paragraph describes the first experts’ opinion on the individual aspects. The expert agreed that security was an essential factor. However, despite being a necessary feature, security was not sufficient for mobile payments to be accepted and used: Usefulness and ease of use also played an important role. The expert argued that mobile payments had to be either easy to use or useful. The expert stated, that mobile payments were easier to use than any other (existing) payment methods e.g. cash or card payment when the payment could, for instance, be managed faster. They were useful when no other way was existed in a specific payment scenario, e.g. when food in a restaurant could be pre-ordered via app and had to be paid through the app to complete the order. Usefulness was highlighted as one of the factors that

34 The interview guide is listed under Appendix D.

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added the most value, since it functioned as enabler for customers. A mobile wallet that could in fact replace the physical wallet was given as an example for a high value proposition.

During the interview it was further discussed whether difficulties currently faced with the four factors were seen as long-term problems. The expert argued that problems connected to the ease of use would be solved, with Apple Pay being a good example. On the contrary, security was seen to remain a critical factor in the long run since not only data protection but also corruption mechanisms were evolving constantly. Similarly, usefulness was said to be a necessary factor that would eventually influence the success of mobile payments.

The interview also touched upon aspects related to the key players including network externalities, standards, as well as the interdependence between consumers and merchants. In line with the arguments presented in academic literature, the expert expects only a small number of mobile payments solutions to exist simultaneously in the long run. The interviewee further agreed with academic literature and found the strong interdependence between the involved actors to be one of the major reasons for the lagging development of mobile payments. The expert named customers and merchants as the two most important key players, since acceptance on both sides was critical. Therefore, a specific mobile payments solution could only take off if it created added value for both sides.

The expert did not see Apple’s move to introduce Apple Pay as a revolution but an important step towards the realization of mobile payments. The caused media interest might shake up players who had so far remained passive, as for instance banks³⁵. The expert further stated that so far it was not clear whether Apple Pay would prevail. Furthermore, he anticipated that banks, even though they had so far missed the transformation of the payments industry, would continue to exist even if only in the role of payment processor.

The third point of discussion touched upon country-specific preferences including security and technology aspects. Germans are said to be generally very protective when it comes to their sensitive data. The expert stated that US Americans – compared to Germans – were less sensitive in respect to data security. The case of magnetic stripe cards had shown that security was often the essential motivation for change in Germany, whereas in the United States of

35 The interviewee mentioned the case of the Google Wallet, which had stirred up the MNOs in a similar way.

America costs strongly influenced the final decision³⁶. A similar preference could also be expected regarding mobile payments and NFC.

According to the expert, Germany would need more time to adapt to a new payment and purchase pattern; this could also be underscored by the fact that the relative importance of cash payments in Germany was still very high. Since German customers would not adapt as fast as their US American peers, mobile payments providers needed to be more ‘patient’ with their solutions.

The interview also considered the fourth component Technical Infrastructure. When asked what time horizon was realistic for mobile payments to gain acceptance, the expert stated that the relevant technical enablers, e.g. NFC-enabled terminals and phones, were already in place.

Consequentially, bringing the stakeholders together was now critical. The expert claimed that – irrespective of the prevailing technology – it was certain that mobile payments would gain acceptance eventually. While processes where cash or card payments could not be used were especially attractive, it was uncertain whether mobile payments were to replace the regular payment process at the point-of-sale altogether. According to the expert, it might be ambitious but realistic for mobile payments to capture 20% of the complete payments market within the next five years. It should be highlighted that the expert pointed out that assumptions about the diffusion of mobile payments had to treat mobile payments as a habit not a technology. Thus the growth of mobile payments was likely to behave similar to that of non-cash payments.

When looking far ahead into the future, customers might eventually even replace the POS terminal by checking out the goods themselves. According to the expert, through mobile payments the payment industry could face developments similar to those that had previously transformed the music industry.

5.2.3.2 Expert #2

When asked about the relevance of security, usefulness, ease of use, and costs, the second expert rated all of them as equally important; all aspects were well addressed through Apple Pay. Having a technical background, the expert argued that aspects related to security and

36 Magnetic stripe cards are regarded as rather insecure. As a consequence, payment cards relying on PIN protected payments were introduced in Germany. Since the new mechanism required updating specific equipment, as for instance payment terminals, high costs were associated with the switch.

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ease of use had been implemented especially well through dynamically generated security codes and the fingerprint authentication. Furthermore, the expert highlighted that – as opposed to other mobile payments services which might charge up to 3% on top of the regular transaction fee – Apple Pay was reported to receive a mere 0.15% cut of purchases made.

According to the expert, merchant, card issuer, merchant acquirer, and payment processor were four important players. The expert further saw Apple as an important player since the company seemed to be the first to overcome problems in respect to business model, technology, and trust by building on their strong brand and large audience. In Germany, individual players as for instance supermarkets³⁷ have come up with their own method to offer mobile payments services to their customers. According to the expert, however, no similar solutions existed in the USA.

The interview emphasized another difference between the US and Germany: the expert did not see the banking industry to be missing out on mobile payments. On the contrary, he expected banks would continue to profit from people’s existing bank accounts and loans while not being directly affected by mobile payments. Credit card services, such as VISA and MasterCard, might be affected though. According to the US American expert, businesses and restaurants that only accepted cash were missing out on revenues. Simultaneously, businesses that did not accept mobile payments would face the same risk.

The expert stated that mobile payments already had taken off in the US. He underscored this by referring to Apple Pay and the fact that 1 million credit cards had been registered within the first three days of its release. Furthermore, the expert named several points where the payment method was already accepted, including vending machines, the majority of shopping apps, and several brick-and-mortar stores. While the expert acknowledged his potential bias due to him being a frequent user of products and services related to digital technology, he expected other people to adopt Apple Pay and Google Wallet soon.

When asked what technology he expected to prevail, the expert named NFC to be the most important and prevalent when making physical (in store) transactions³⁸. The technology’s only weakness was its limited availability that currently only included selected Android devices and the newest Apple generation.

37 This refers to the previously mentioned mobile payments app offered by the discount supermarket Netto.

38 BLE and QR, on the other hand, were seen to be “outdated, inefficient, and unnecessary”.

In the long run, the expert said, cryptocurrencies³⁹, such as Bitcoin, were going to challenge the existing payment concepts. Thus credit card services might be left out of future business models with mobile payments solutions directly relying on cryptocurrency schemes.

Furthermore, the transition from ‘pocket device’ to ‘wearables’⁴⁰ would result in a transformation of mobile payments in itself.

5.2.3.3 Expert #3

The third expert called security and costs the necessary factors. If they were not adequately implemented, a mobile payments solution was not going to be accepted. Usefulness and ease of use were found to be differentiating factors.

When asked about the relevant actors, the expert highlighted that the problem was very complex, due to various parties and intermediaries being involved. From a market perspective, many companies such as Google or Amazon would be trying to keep others out of the segment in order to cover the whole value chain themselves. Credit card services were expected to try to exploit similar opportunities. The expert further said the industry was still at the start of the race. Since the third expert has a background in banking, the interview also touched upon the issue of banks potentially missing out on the mobile payments business. The expert argued that even though banks were qualified for providing mobile payments solutions, they remained inactive since payments were not at the core of their business. Furthermore, an involvement in payments required extensive investments in technology but could only yield limited profits. Quite the opposite was true for credit card services, which could benefit from comparably high interest rates connected to credit cards. American Express, VISA, and MasterCard were the payments race’s natural winners. Together with Apple their market power was hard to beat.

When presented with potential security concerns in regard to mobile payments, the third expert noted that the issue existed in the United States as well as in Germany; while Germans were more sensitive, US Americans were more relaxed in dealing with private data regarding, for example, their shopping behavior.

39 Cryptocurrencies are a special form of digital currency that use cryptography to secure transactions and – in the case of Bitcoin – may be decentralized.

40 Wearables are small computers, which may be worn such as smart watches and glasses, or activity trackers.

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When asked about the future of mobile payments, the expert said he expected many different types of mobile payments solutions to exist. While it was certain that mobile payments would take off, credit cards were also going to prevail and even gain importance. Cash was not going to be replaced completely, but its use might – according to prognoses – decrease to 25-30% of payments until the mid of this century. Nevertheless, the expert claimed that it was impossible to replace banks since they provided the credit assessment necessary for credit card payments.

The expert anticipated mobile payments to take off in the near future and called double-digit mobile payments user growth to be realistic in the next year. To that end, issues linked to security and costs had to be solved. The expert added that a more or less homogeneous solution would be helpful. A standard, such as Apple Pay or Google Wallet was necessary and would clearly increase the dissemination. As opposed to start-ups, large companies were seen to be able to successfully influence a large audience.