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The future of mobile payments in Denmark Can Swipp consolidate a strong position in the industry?


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The future of mobile payments in Denmark

Can Swipp consolidate a strong position in the industry?

Uddannelsens navn: Cand.merc EMF & Cand.merc FSM Kandidatafhandling Vejleder: Lars Ive Dato for aflevering af opgaven: 03/12-2015 antal anslag/sider: 270.659/117

Martin Stenderup og Hans Mathiesen


Page 1 of 262

Table of content

Chapter 1. Executive summary ... 5

Introduction and motivation ... 7

Chapter 2. Problem statement ... 9

Chapter 3. Overview of mobile payments ... 10

3a. Overview of current mobile payment solutions ... 13

3b. Payments in the Danish market ... 14

3c. History of mobile banking in Denmark ... 16

Chapter 4. Swipp ... 16

4a. The solution Swipp ... 17

Chapter 5. Commerce and retailers ... 18

Chapter 6. Delimitation ... 19

Chapter 7. Structure ... 20

7a. Current industry situation ... 23

7b. Life cycle of mobile payments solutions ... 23

7c. Consumer preferences in a theoretical perspective ... 23

Chapter 8. Method ... 23

8a. Methodology ... 24

i. The hermeneutic theory framework ... 24

8b. The social constructive theory framework ... 24

8c. Empirical research... 26

i. Primary empirical data ... 26

1. Interviews ... 26

2. Focus groups ... 27

3. Quantitative questionnaire ... 28

ii. Secondary empirical data ... 29

8d. Swipp as a case ... 29

8e. Reliability and validity ... 30

Chapter 9. Theory ... 30

9a. Porter five Forces ... 30

i. Threat of entrants ... 31

ii. Supplier power ... 32


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iii. Buyer power ... 32

iv. Threat of substitutes ... 32

v. Rivalry between established competitors ... 33

9b. Industry Life Cycle ... 33

9c. Generic strategies ... 33

i. Cost leadership ... 35

ii. Differentiation ... 36

Chapter 10. Criticism of the theory ... 36

10a. Five Forces Framework ... 36

10b. Generic Strategies ... 37

10c. Industry Life Cycle ... 38

Chapter 11. Literature review ... 38

11a. Consumers’ perspective in the mobile payment market ... 38

11b. A consumer perspective on Swipp ... 41

11c. Consumer behavior ... 42

Chapter 12. Hypothesis ... 42

12a. Porter’s five forces ... 42

i. Threats of substitutes ... 43

ii. Threat of entry ... 43

iii. Industry rivalry ... 43

iv. Bargaining powers of buyers ... 44

v. Bargaining power of suppliers ... 44

12b. Quantitative analysis ... 45

i. Fear of mobile payment ... 45

ii. Future use of mobile payment ... 45

iii. The usages of mobile payment ... 45

Chapter 13. Analysis ... 46

13a. Industry Life Cycle ... 46

13b. Industry analysis ... 47

i. Porters five forces ... 47

13c. Qualitative analysis ... 72

1. Qualitative – Themes ... 72

2. Adopting mobile payment system ... 73


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3. Perceived risk ... 73

4. Personal data ... 73

5. Future expectations ... 73

6. Switching from MobilePay to Swipp ... 73

ii. Result of the qualitative analysis ... 74

1. Focus group interview ... 74

iii. Results of focus groups ... 75

1. Adopting mobile payment system ... 75

2. Perceived risk ... 76

3. Personal data ... 78

4. Future expectations ... 79

5. Switching from MobilePay to Swipp ... 81

13d. Quantitative analysis ... 85

1. Data collection ... 85

2. Preparation of data... 85

3. Data validation ... 86

ii. Frequency analysis ... 87

iii. Cross tabulations ... 88

iv. Factor analysis ... 89

1. Methodology ... 90

2. Conditions ... 90

v. Generating factors ... 91

vi. Reliabilities analysis ... 93

1. Methodology ... 93

vii. Regression analysis ... 95

1. Conditions ... 95

2. Methodology ... 95

13e. Cluster analysis ... 97

1. Assumptions ... 97

2. Methodology ... 98

3. Cluster ... 99

ii. Selected factors for cluster construction ... 99

1. Profiling ... 100


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2. Clusters ... 101

13f. Generic strategies: ... 105

i. Cost leadership ... 105

ii. Differentiation ... 107

1. Exploring industries without collaborations ... 109

Chapter 14. Recommendations ... 109

Chapter 15. Conclusion... 111

Chapter 16. Discussion ... 114

i. Apple, Google, Samsung… and NETS ... 115

ii. Second-mover disadvantage ... 116

iii. Legal aspect... 116

iv. The government’s role in mobile payment industry ... 116

v. Technology ... 117

Chapter 17. Bibliography ... 118

17a. Appendix ... 128

Appendix 1 – History of NETS holding A/S ... 128

Appendix 2 – Swipp Mobile app guide ... 130

Appendix 3 – Interview 1 John G Pedersen ... 131

Appendix 4 – Interview 2 Troels Asmussen... 142

Appendix 5 – Interview 3 Kim Vinding Larsen ... 155

Appendix 6 – Detailed introductions of the experts ... 175

Appendix 7 – Interview guide ... 176

Appendix 8 – Interview guide focus group ... 179

Appendix 9 – Products and prices of MobilePay ... 181

Appendix 10 – Products and prices of Swipp ... 181

Appendix 11 – Price examples ... 182

Appendix 12 – Spss Data... 186

Appendix 13 – interview 4 Focus group I ... 233

Appendix 14 – Interview 5 Focus group II ... 247

Appendix 15 – Questionnaire ... 257

Appendix 16 – Lo Plus newsletter ... 259

Appendix 17 – Focus group profiles ... 260


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Chapter 1. Executive summary

The aim of the thesis was to investigate and understand the drivers of a fast evolving industry with an important focus on consumer behavior and attitudes towards mobile payments.

In 2013, Danske Bank launched MobilePay, which instantly became a major success. Unlike MobilePay, Swipp as a second mover has struggled to gain the same levels of success in the mobile payment industry. Even though Swipp share many similarities with MobilePay, the products is still to experience a significant amount of success.

Our research is theoretically based on the industry life cycle to provide a snapshot of the industry’s level of maturity, Porters Five Forces analysis to investigate significant factors within the mobile payment industry, and generic strategies analysis with the intent to provide a competitor with factual and explicit recommendations, in our case; Swipp.

Mobile payments belongs in a new industry with ties to the payment market. However, mobile payments involves many different industries, making the new industry very cross industrial. Enabled by the technology, mobile payments is argued to play, a so far, undefined part of future markets. Not necessarily limited to the retail industry where MobilePay has shown great interest but any industries characterized by a large amount of monetary transactions as the most important factor.

The new and rapid development of the industry was experienced to be a factor of public available academic research. The limited theory on the topic combined with our findings also indicates that mobile payments needs to include better buying experience, lower perceived risk and simplicity for consumers, if the new payment alternative should be acknowledge at the same level as other payment methods.

Three expert interviews provided the basics for two focus groups, which then led to a questionnaire distributed through Facebook, LinkedIn and the newsletter of LO Plus providing the thesis with a satisfying and comprehensive amount of primary data, only optimizing reliability of the thesis.

The intention of the analysis was to provide Swipp with strategy identifying the most important factors, when trying to be a competitive competitor in the market.

The most important findings were: 1) Develop a separate Swipp application, which is not located in the mobile bank application 2) Enablement of all potential consumers, by integrating credit and debit card into the application, 3) Provide an integration opportunity with loyalty programs and company


Page 6 of 262 specific discount schemes, 4) Providing tangible benefits, such as discounts, time savings or personalized offers in purchase situations through integration of loyalty programs, 5) Make sure to target a The First Mover segment, 6) Explore industries that has not been targeted yet, such as the clothing or the transportation industry, 7) Be a first mover in product development or be a more cost efficient follower, 8) Create a platform ensuring fast and rapid product feedback since consumer experience and satisfaction is essential in the mobile payment industry.


Page 7 of 262

Introduction and motivation

2014 was the year when mobile payment applications seriously entered the Danish consumer market.

Previous attempts like payments with short message service (SMS) never accomplished a broad scale of usage and therefore never had significant impact on consumer trends. Great visions and excitement regarding smartphones and their possibilities has existed for almost a decade now (Scmp.com;

Phonearena.com). Going from euphoria only among hi-tech first-movers, to a broad interest and need, is a suitable description of the exponential development in the market. Dwarf A/S’s mobile shopping report (2011) estimated that 80 percent of population over the age 18 would own a smartphone within three years. Numbers from Danmarks Statistik (figure 1) confirms the estimate. The simultaneously exponential increase of mobile applications can therefore be seen as a complementary derivative.

Figure 1 – Development of electronic devices in homes

Source: (DST.dk; a) One of the main consumer features of a smartphone is the opportunity of personalization and multiple functionality, and the former need for only call-text functions is greatly diminishing. The entry of smartphones has created a new set of needs, trends and norms. The development in internet availably


Page 8 of 262 and speed, have enabled the possibility of carrying a computer at all time. Hence, the former need of carrying a watch or map etc. is not any longer a necessity, and through the growth and evolving appreciation of the smartphone, everything is assembled and gathered in one place. Some would argue that smartphones has become a truism of the way to understand the world around them, an everyday discourse. The trend of consumers’ high and increasing dependence and usage of smartphones, and therefore also applications services, leads to an interest for replacing another former necessity, the wallet.

Mobile phone manufactures, telecom operators, payment service providers, software companies, and technology start-ups all are entering the payment industry (McKinsey, 2014). It is not only the well- known Internet giants, such as Google, Facebook, and Apple, and the early payment entrepreneurs such as Square and PayPal anymore. According to the McKinsey report (2014), more than 12.000 start-ups are moving into the payment services industry. This fact and the development and adaptation of technology in general, are reshaping the industry and as a result, banks have been trying to fight off competitors by using their existing position in the market along with existing IT infrastructure.

Danske Bank, for example, responded to changes in the market by launching a mobile peer-to-peer payment app called “MobilePay.” After only eighteen months, the payment application was adopted by around 40% of the Danish population (Danskebank.dk; a), making any competitive product insignificant despite a serious effort from a collaboration between no less than 81 Danish banks, in the form of Swipp.

In the Danish payment industry, debit and credit cards already supports a standardized payment process and the challenge of making consumers change their payment method is to make mobile payments even more appealing. Services surrounding mobile payment experience is therefore argued to be an important topic of the thesis, as consumers’ payment behaviors directly relates to the smartphone. The three dimensional link of a purchase of consumers, merchants and product, must also create additional value for merchants, whom need incentives in order to adopt a potentially costly payment terminal to enable such payments. The last part of the spectrum of stakeholders are the providers of the products and services needed to enable contactless mobile payments. On a global scale, these stakeholders include banks, mobile network operators, mobile device manufacturers, it companies and numerous technical- and service providers. The complex and challenging nature of cross industrial collaborations, business models and rivalries are therefore seen as highly relevant factors to understand the emerging industry of mobile payments


Page 9 of 262 The above mentioned could indicate that the mobile payment industry is going to play a dominant role in the shaping of all commerce where payments are involved in the years to come, and every person needs to address the future of payments at least in some degree. Due to this incredible interest and focus from the biggest IT hardware and software producers, banks, entrepreneurial businesses and service providers. In addition, the possible emerge of a reshaped industry with new and different ecosystem and players; we find it interesting to look at the current situation of the Danish market and intend to provide a set of recommendations to an active and present player.

Chapter 2. Problem statement

Our belief that the mobile payment industry is going to play an important part of a consumers life has been the motivational factor and our experience of MobilePays dominant position provided us with interest and motivation regarding Swipp, which will form the basis of the following problem statement.

What future initiatives can Swipp apply to play a significant role of the Danish market for mobile payments?

 To what extend does the industry situation influence the future of Swipp?

 What are the primary consumer preferences in the choice of mobile payment solutions and how can Swipp exploit this?

As the problem statement indicates, the purpose of the thesis is not only to include an industry analysis dimension but also to include a value dimension, described as a market perspective by (Ondrus et al., 2005), which relates to both customer benefits and needs respectively. Ondrus et al. (2005) argues that it is a failure to address the demand issues that undermine many payment service offerings. This dimension will calibrate customer value across a “consumer to merchant axis” (Ondrus et al., 2005) and includes the context of a purchase and a payment transaction. This covers the nature of the goods or service being purchased, where the payment is being made, and who is involved.


Page 10 of 262 The thesis therefore takes the position that the customer demand (value) dimension, industry characteristics and variables involved in the nature of a purchase are absolute necessities when analyzing the possible and most attractive initiatives for Swipp.

Chapter 3. Overview of mobile payments

The following chapter provides an understanding of mobile payments and the functionality applied.

The general understanding of mobile payments only involves the transfer of money, but mobile payments are much more (Interview 4, Interview 5). The confusion could originate from the fact that many companies want to have the mobile payments tag associated with them and the lack of consumer knowledge, but that is not the complete truth. There also tend to be confusion and overlap between what generally is referred to as mobile payments and mobile banking. This could be because financial transactions can be performed through the mobile phone (Mobey, 2011). Mobile banking can be defined as access to banking functionalities through the mobile phone, identical or at least similar to activities that are already being provided by banks on the internet. This is not to be confused with mobile payments, generally meaning that the mobile or smartphone is used to transfer funds in return for goods or services.

The landscape of mobile payments also referred to as m-commerce is complex and we will try to explain how we see it and how we interpreter the definition of mobile payments.


Page 11 of 262 Figure 2 – Overview of Mobile Payments

Point of Sale (POS- systems with integrated

card terminals, or card terminals)

Mobile Banking Technology Linkage (NFC, Bluetooth, Wi-Fi)

Buying Goods or Service

Mobile Commerce

Card Payment (Visa, Mastercard, Dankort,


Bank Transfer (Account-to-account) Carrier Billing (TDC,

3, Telia, Telenor, etc.)

Virtual Currency (Bitcoin, etc.) Alternative Payments

(Paypal, etc.)

Mobile Payments


Electronic Commerce

Yes No

Source: Own Creation


Page 12 of 262 Card payments include debit cards and credit cards such as Visa card, Master card, American express etc. and an example of a solution based on this type of processing is MobilePay. This is also the most common solution seen in the market. Carrier billing means commerce paid through tele companies, e.g. SMS-tickets used in traffic or SMS-voting for X-factor. Bank transfers are best described as account-to-account transactions. Swipp is a solution based on that type of architecture. Alternative payments involve mostly companies who have specialized in handling e-commerce but also involve transfer of money. Virtual currency could be a currency used for gaming or token purchase. The most known digital money is bitcoin having the largest market cap of around $4,754,296,898 (Investopia.dk).

All the above-mentioned types of mobile commerce have in common, that in some process or way, they all get founding from a bank deposit account.

Mobile Point of Sale (PoS) normally refers to systems such as cash registers which in recent times comprises a computer, monitor, cash drawer, receipt printer, customer display and a barcode scanner but PoS is everywhere; flea markets, transportation, parking and even e-commerce where it is possible to use barcode payments. The commonalities of these areas are that every money transaction needs a link, if not paying in cash. And since no technology has arisen as a global standard, the market is over floated with multiple and different technologies, e.g. NFC1 in new cards and card terminals, RFID2 used in Danish transportation, MST3 which is basically a touchless magnetic enhancement of existing functionality or DSRC4 which is mostly known in “BroBizz” and are based on microwave technology.

The linkage between the mobile device and the PoS (recipient end) needs a communicative compatibility. NFC technology is the newest and most hyped technology at the moment, definitely due to the enormous focus and awareness created by the two largest smartphone producers in world, Apple and Samsung (Reuters.com, a). Other technologies is Bluetooth, RFID, RuBee and most widespread and commonly known; Wi-Fi5.

The red box in figure 2 regarding e-commerce will not be the focus of this thesis but needs to mentioned in the overview of possibilities of mobile payments. This is an addition to the mobile

1 Near field communication

2 Radio Frequency Identification

3 Magnetic Secure Transmission

4 Dedicated Short-Range Communication

5 Wi-Fi (or WiFi) is a local area wireless computer networking technology that allows electronic devices to network


Page 13 of 262 payments market that overlaps both the m-commerce and e-commerce market, which requires a broader perspective and deeper knowledge of e-business and its related consumer preferences.

Furthermore, the existing solutions does not have a focus on how to handle online purchases. Swipp has not published or communicated anything that indicates the focus of that type of commerce.

However, it would not be a big surprise if the future of mobile payments involve an e-commerce integration, especially if the existing technology and architecture enables a smooth and cost effective integration.

3a. Overview of current mobile payment solutions

The confusion of what is considered as a mobile payment is also reflected on the various types of solutions in the market. Each of these mobile payment approaches takes a different approach and uses different enabling technologies mentioned above and shown in table 1.

Table 1 – Overview of current mobile payment solutions

Source: (BBVA, 2012) Technology used Purchase relationship Charged to Examples

NFC C2B Credit card Swipp

QR Codes P2P Debit card MobilePay

Bluetooth (B2B) Bank account Apple Pay

C2B Credit card Square

C2B/B2B Debit card Verifone PayWare

P2P GoPayment

SMS C2B Credit card M-Pesa

USSD P2P Debit card Swipp

Web (B2B) Bank account MobilePay

Pre-paid account (PayPal)

Mobile money transfers P2P Bank account PayPal

Virtual currencies C2B Pre-paid virtual account Starbucks Facebook credit

̶Mobile devices becomes a card reader via hardware extensions

Contactless payments

Message or browser payments

Application based payments (out of scope)


Hybrid payment devices (out of scope)



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3b. Payments in the Danish market

Most Western countries including Denmark are dependent on a payment ecosystem. In general, economic agents carry out transactions of money. Besides the payers and payees, the major ecosystem stakeholders in Denmark are the two leading banks Dansk Bank and Nordea, the largest clearinghouse for card payments NETS (Appendix 1 – History of NETS holding A/S), the bankers association Finansrådet, and the central bank of Denmark. A normal chain of activities involve the banks issuing payment cards on behalf and with acceptance of a card company (licensing), setting up accounts, settling payments, and provide technical interfaces to the payment system. NETS, formerly owned by the banks and the central bank, manage the national debit card Dankort, the payment card clearinghouse for the Dankort and most of the card terminals.

The link between bank accounts and M-Point of Sale is not only important for mobile payments, at present time, it is crucial. According to the report from Konkurrence- og Forbrugerstyrelsen (2014) NETS accounts for approximately 95 percent of the payment intermediation market in Denmark which is also described as monopolistic and worrying according to the Law of Competition § 11 and this is derived from widespread use of Dankort (Dankort and Visa/Dankort). NETS are exclusively to redeem payments by the Dankort, but merchants that accept international cards have the opportunity to choose between different redeemers. This includes in addition to the NETS' subsidiary Teller, Swedbank, Handelsbanken and Valitor. The monopolistic situation is only supported by the lack of widespread availability for international payment cards. It only accounts for less than 44 percent availability (Konkurrence- og Forbrugerstyrelsen, 2014, p. 21). Furthermore a significant increase is seen in the use of the Dankort (Konkurrence- og Forbrugerstyrelsen, 2014, p. 23). This means that the majority of companies who wants to provide a payment service in the Danish market without restricting to only cash payments will have to come to terms with NETS. Aligned with the facts stated above NETS is not surprisingly part of a relatively duopolistic market for terminals for payments. Verifone Denmark A/S is the other part. PayEx can be mentioned but financial key figures such as revenue is non comparable to Verifone Denmark, DKK 168 million (Verifone Danmark A/S, p. 6) and NETS, DKK 3,406 million (NETS, 2014, p. 18). The thesis sees the transaction relationship with a front-end provider (the customer, how to pay) and a back end receiver (the business, how to receive) as an absolute necessity of all purchases. As described above and shown in figure 3, this transaction relationship is a bit more complex due to the electronically handling process.

Nevertheless, at the same time it provides an overview of the potential stakeholders of many different industries, precisely because of the nature of a purchase.


Page 15 of 262 Figure 3 – Landscape of card payments

(Source: Konkurrence- og Forbrugerstyrelsen – Punkt 2 NETS’ adfærd 2014) The majority of retail payments in Denmark are cleared and settled via two automated interbank systems – the Sumclearing and the Intradayclearing systems. The final cash settlement takes places via the participants’ settlement accounts at the central bank of Denmark. The Danish bankers association Finansrådet owns both clearing systems, with NETS as the operator and the central bank as the settlement bank. As such, the Danish Bankers Association makes all strategic decisions regarding the clearing systems, as well as manages and maintains the scheme frameworks, admits new members and handles situations in which scheme participants neglect scheme obligations.

Today, mobile payments is a fraction of the traditional spectrum of available payment methods but never the less, it is a market large conglomerates are highly dedicated to. Corporations like Samsung, Google, Apple, Visa and MasterCard, just to name a few. Looking at the Danish market, most consumers only know the product Mobile Pay provided by Danske Bank and the product Swipp provided by a collaboration of 81 banks with Nordea as the main driver (Interview 2, p.1-2).


Page 16 of 262 Moreover, by mentioning the two largest banks, we need to lightly address the mobile banking area to get a better understanding of the current market situation for m-commerce.

3c. History of mobile banking in Denmark

Danske Bank launched their mobile bank application in September 2010 and only Lån & Spar Bank had a similar product on the market (Dilling and Svarrer, 2010). Among the large banks, Nordea offered the same type of product five month later but Danske Bank had already set the standards of mobile banking and as the interface in Nordea’s bank application lacked functions, Nordea received a lot of critique for their application (Børsen, 2011). It simply did not live up to the customers’

expectations due to the technical, practical and visual design (Pedersen, 2012). The launch was followed by a massive awareness campaign. Danske Bank’s mobile bank quickly became a huge success and already within the first week 30,000 customers had downloaded the application and the year ended with multiple awards wins (Dilling and Svarrer, 2010). The value gained on being first- mover did however perish in 2013 due to other strategic consumer activities such as differences in fees based on accumulated balance. That led to a negative media storm and loss of approximately 95.000 customers (Politiken, 2013).

Danske Banks new m-commerce application MobilePay might not create any profit yet (Berlingske, 2014) and lost customers are not regained yet, but the year 2014 was all about MobilePay, and Danske banks position certainly have been restored as first-mover.

Chapter 4. Swipp

Swipp is currently an integrated part of Nordea, Nykredit, Arbejdernes Landsbank, Spar Nord, Sydbank, Jyske Bank and 75 other local banks mobile banking solutions, where consumers can make money transfers between accounts and buy products in retail stores or web shops using a mobile number. Swipp is owned by Nordea (30%), Regionale Bankers Forening (30%), Lokale Pengeinstitutter (30%) and Nykredit (10%) (Ue.dk). The joint venture between the large number of bank provides a potential consumer base of approximately 3 million users (Danmark og Konkurrence- og Forbrugerstyrelsen, 2012).


Page 17 of 262 The integrated application is developed by the Danish company Bankdata. Bankdata is owned by 12 Danish banks6, which mean that owners are therefore also customers (Alm.Bankdata.dk). Danske Bank was originally part of the collaboration, but decided in 2012 to go solo and launch its own solution – MobilePay. Swipp is not a mobile application7 in itself; it is an optional addition in the mobile bank app in the respectively banks.

Swipp was officially released June 13, 2013 and is administered and operated by an independent legal entity (Interview 2) and has since been downloaded roughly 1.000.000 times (Bureaubiz.dk, a). Swipp bought the competitor Paii November 2014 as part of a strategic initiative. Paii was the telecommunication industry’s (TDC, Telenor, Telia and 3) mobile payment offering and was not fully developed or launch at the time (Paii.dk). So far, the Danish market only consists of three productive solutions: MobilePay, Swipp and MeeWallet (Interview 1, Interview 2, and Interview 3).

4a. The solution Swipp

A short description of Swipp as a product and solution is provided for a better understanding of the current market situation, hence product characteristics, consumer preferences and opportunities.

Swipp was originally created as a mobile money transfer solution that should provide the consumer with a better and simplified user experience. However, due to the launch of MobilePay and its immediate success Swipp needed to react as soon as possible. That is one of the reasons why Swipp is integrated in the mobile bank application (Interview 2, p. 3-4), opposed to MobilePay. Swipp needed to launch a competitive solution but the design and development was not as far as it should have been (Interview 2, p. 3-4) and instead of developing a new application and therefore delaying a launch with the needed technical capabilities and security, Swipp created an add-on capability in the already comprehensive, developed, tested and productive mobile banking application. The main reason was: ‘Sikkerhed og “speed” fungerer ikke så godt sammen’ (Interview 2, p. 2).

The practical approach of how Swipp is working when transferring money is shown in Appendix 2 – Swipp Mobile app guide. A quick description of a money transfer (after downloading the mobile app): 1) Open app, 2) login to your mobile bank app using username/Cpr and password, 3) press

6 Alm. Brand Bank, Djurslands Bank, Jyske Bank, Kreditbanken, Nordfyns Bank, Nordjyske Bank, Nørresundby Bank, Ringkøbing Landbobank, Skjern Bank, Sparekassen Sjælland, Sydbank, Østjydsk Bank

7 Mobile application - a computer program designed to run on smartphones, tablet computers and other mobile devices


Page 18 of 262 menu, 4) press Swipp, 5) insert amount, 6) press next, 7) find recipient (no search help), select, 8) press transfer8. The current benchmark product MobilePay is also shown in appendix 2 and consists of these steps: 1) Open app, 2) login using four digit code, insert amount and mobile number (search help), 3) press next, 4) swipe to the right. The last solution MeeWallet is also shown in appendix 2 but does not have the functionality of transferring money.

Using Swipp in retail stores involves a technical and practical description. The basic technology used when a mobile device and terminal needs to communicate, Swipp uses a phone number to identify a store account. Both types of functionally uses same technology and architectural approach and that is due to the mobile bank app integration; account-to-account. By using this type of solution, Swipp has differentiated its basic solution architecture. Broadly speaking, this solution removes the card transaction dependencies reflected in the clearing and settling process shown in figure 3. This enables Swipp to be more cost effective than solutions based on the traditional payment architecture. A more in-depth and detailed analysis of the advantages, threats and challenges will be addressed in the following analysis, and the practical and technical descriptions of competitive solutions will also be addressed and analyzed.

Swipp’s current position as already existing in the market or at least associated in the industry should enable more opportunities in the future, due to the gained experience rather than a company with no experience. It is important to know the landscape and core processes of payments in order to succeed.

Chapter 5. Commerce and retailers

As described earlier in the thesis, most consumers use a mobile payment application for transferring money from a bank account to another bank account. The future of mobile payments, not just in Denmark but also globally, resides in the possibility of using a mobile application for all kinds of transaction related to payments. The retail industry is a key industry, where newly founded collaboration or acquisitions between local and global corporations have been experienced.

Collaborations among significant players includes for example, Facebooks partnering with Paypal, Google and Apple partnering with Visa, Mastercard, American Express and Square, Samsung partnering with Loop Pay and First Data, and NETS partnering with Oberthur Technologies and

8 When using the mobile app for the first time, NEM-ID is needed for security and identity reasons.


Page 19 of 262 Pertura (Visaeurope.com, Androidcentral.com, Forbes.com, a). These partnerships and acquisitions substantiate the focus and the level of importance and volume.

Table 1 in chapter 3a – Overview of current mobile payment solutions, provides an overview of the possible usage of payments by mobile phone. Despite the increase in e-commerce, most commerce will still be effectuated in retail stores, which accounts for approximately 20 percent of all commerce in Denmark (Danmark and Konkurrence- og Forbrugerstyrelsen, 2014, p. 14). A purchase in a retail store typical involves two parties, a buyer who has the choices of payment types, cash or cards, in other words an extended channel from a bank account. In general, a retail store can handle these two types of payments. That is, in most cases, seen in a cash register and a card terminal. The description of a typical purchase indicates and leads to the focus of the type of business that will be addressed.

Swipp needs to address the Business to Consumer market (B2C) and Business to Business market (B2B) in order to include every aspect of a sale and purchase.

The logical and critical condition for mobile payments is a recipient end (e.g. a terminal) as well.

However, since mobile payments are a digitalized transaction, it requires add-ons or modifications to existing technology or use of new technology. Retailers will always have great influence on how payments are handled due to their position as physical point of sale.

Chapter 6. Delimitation

The scope of our master thesis are primarily focused on SWIPP and their challenges and opportunities, hence our theoretical and practical focus is mainly consumer behavior and corporate strategy. Consequently, a technical and solution-based approach is therefore not considered. Since all products in the mobile payment market in Denmark are based on a bank account transaction, the thesis will assume that opportunities and technical capabilities are equal for everybody. The technical cost related to development and production of the application is furthermore neither a point of interest due to the maturity stage of the market, where research and development costs are high in respect to an increase in market shares (Klepper, 1996). The security of applications in general will not be addressed due to the technicality and lack of technical expertise. Additional, product technicalities such as compatibility with operating systems is not taken in consideration.

The vision of the future where the mobile phone becomes a tool of money transaction is currently a rapidly advancing phenomenon all over the world. In the developing world such as Africa, Latin


Page 20 of 262 America and the areas of the Asian continent, mobile payments have already been well adapted with high penetration of mobile phones (not smartphones) due to a limited banking infrastructure and lack of alternative solutions. The lack of infrastructure and payment opportunities combined with the distinct differences of mobile phones and smartphones, it is therefore argued that it is not possible to transfer the learning from these services into the Scandinavian industry.

Governmental legislation and legal issues is not addressed in depth due to the limited scope and a dynamic information technology legislation. Framing and guiding stakeholders, governments, regulatory agencies, legislation and policymakers can be seen as the fourth group of stakeholders in the industry. However, the scope of the thesis is again limited and in order to identify and analyze the impact of this group of stakeholders would need different proportion guidelines.

The collaboration between the 81 banks and its associated challenges being a collaboration will not be addressed, though it could be an interesting topic and potential significant factor for Swipp in the time to come. The thesis will treat Swipp as one product and one company.

As noted above, our research question narrows the scope of research by investigating only Swipp and their challenges in relation to the industry situation. Hence, the thesis will only include actual functional solutions and products. The multiple announcements experienced, will only provide the thesis with a theoretical perspective, which is not wanted.

Moreover, because of the continuously new product initiatives experienced in the process of writing, we needed a cutover date regarding data collection. The collected primary data ended the in late July 2015 and therefore it was decided to function as the thesis’ cutover date.

Chapter 7. Structure

The structure of the thesis is based on Ib Andersens (2006) proposed relationship between knowledge production and the main elements of the associated workflow. The problem statement (chapter 2) is the controlling factor for the subsequent part of the writing process, because it is the part and choice that implicit determine the shape of the theoretical framework and delimitation (chapter 6). During the process of writing, minor adjustments to the original question can be needed, as new knowledge is produced. The blue-dotted lines in figure 4, represents the feedback that occurs between the problem statement and results. The following diagonal line reflects the theoretical framework of understanding (chapter 9), which precedes the later conducted empirical studies. The empirical data


Page 21 of 262 is shown to follow the theoretical analysis, however, the two points is shown as being aligned with each other, because the reader conceptually should perceive the two elements as interdependent.

After accounting for the empirical method, the selected case presented (chapter 9b), which will serve as exemplification of area for consumer behavior and market situation before the discussion of the empirical findings in relation to the theory. The discussion of theory and practice will include the results of the thesis in which the knowledge obtained for the purpose of illustrating Swipps most important areas. This implies that the knowledge obtained will be focused on important factors of consumer behavior and industry variables (chapter 13). The findings of the industry and consumer analysis combined with a strategy analysis will trigger a series of recommendations for Swipp (chapter 14).


Page 22 of 262 Figure 4 – Structure of the thesis

Problem statement


Theoretical analysis

Emperical data

Swipp as a case


Market implications for future initiatives

Consumer implications for future initiatives


(Source: Own creation)

The thesis’ analysis section (chapter 13a and 13b, and 13c) is divided into three chapters, which collectively form the argument for the recommendations of Swipp.


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7a. Current industry situation

Michael Porters five forces framework forms the foundation of the industry situation. This chapter will use the five forces and their partial conclusions to determine the market implications and challenges. The last partial analysis includes a theoretical discussion, with the aim to derive a number of important issues that will make the thesis in a position to answer the problem statement.

7b. Life cycle of mobile payments solutions

For further industry analysis, the chapter includes the framework of product and industry life cycles, which have been and still is an acknowledged discipline of general lifecycles development, and thus is applicable. The theory divides a lifecycle in four distinct timespans, each with specific characteristics, and the analysis combines these with the strategic principles of market approach. The analysis helps with the necessary understanding of how the industry has evolved and developed and in particular, what stages of maturity the market is currently in. The clarification of the industry and product situation enables us to conclude characteristic of certain stages and factors needed to be competitive.

7c. Consumer preferences in a theoretical perspective

Where the industry analysis have aimed to describe the industry, the quantitative analysis and its conclusions rely and is based on the preferences of consumers.

The structure of the qualitative focus group interviews and the quantitative questionnaire provided the basis for the perception of the common consumer.

Applying this structure supports the reliability of the consumer analysis.

Chapter 8. Method

The method aims to explain the thesis’ methodical, methodological, theoretical and empirical selection and deselection. The object of the section is thus to provide a clear and deliberate picture of how the thesis will answer the problem and the related work issues.


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8a. Methodology

The thesis uses a relatively homogeneous theoretical framework which means that the individual partial conclusions can be combined to form a unique and comprehensive picture of the thesis overall analysis. The multiple part conclusions of the thesis, ensures the project a high degree of reliability (Thurén, 2012).

i. The hermeneutic theory framework

The basic premise of hermeneutics is that understanding comes before explanation (Fuglsang and Bitsch Olsen, 2004). Understanding depends on the subject that is looking, and it is therefore important to have knowledge of the subject's cultural and sociological background, as it is through the understanding and interpretation of this background, one can explain the subject's actions, attitudes and expressions. We must therefore learn to understand and interpret the problems and challenges in order to explain them, as hermeneutics rejects the objective approach to ideals of knowledge.

The thesis, therefore, involves the hermeneutic circle (Rasborg, 2004 p. 312). The hermeneutic circle denotes the interaction that takes place between individual part and whole. The individual parts can only be understood if the whole is involved and, conversely, the whole can only be understood by virtue of the parts. Hence, it is the relationship between the parts and the whole, which is creating meaning; it is the relationships between the parts and the whole that enables understanding and interpretation. In the hermeneutic circle, one does not remain in the same place but constantly acquires new knowledge. As such, the circle is a positive opportunity for gaining new knowledge. The design and our approach, starting with interviewing a market expert with no or at least no theoretical affiliation to any company was used as the basis of creating focus groups, followed by two in-depth interviews which is presumably perceived as an ideal way of gathering knowledge and empirical data aligned with the hermeneutic approach.

8b. The social constructive theory framework

Social constructivism arises from hermeneutic, and thus encourages a natural interaction between the two paradigms (Rasborg, 2004). In the approach of social constructivism the reality are created of our perception of it. This means that the epistemological approach to knowledge is through social actions and processes. Human knowledge is characterized by the social and cultural context, as is the


Page 25 of 262 case with the language and its concepts whose existence determines what we are able to think. The language is seen as a form of social action and social constructivism argues that social processes are constituted through social practice and human interaction. This means that social processes must be explained as human social interactions. When cultural phenomena are to be analyzed, there is no focus on static structures, but rather the dynamic of social processes (Berger, 1990).

Berger & Luckmann's (1966) theory stems from the social constructivist paradigm, but still rooted in hermeneutic. The authors see the genesis of institutions as a social action and interaction between individuals and communities, and the same applies to their theory (Rasborg, 2004 p. 367-370).

Berger & Luckmanns (1966) assumption that the social construction consists of both deliberate acts of conscious actors and an unconscious, evolutionary and causal development processes, emphasizes their belief that knowledge is created socially and knowledge in our society is primarily created through everyday life experiences. Berger & Luckmann were dedicated to explain how social reality is constructed, functioning, constructed and deconstructed (Rasborg 2007: 367-370).

The thesis’ rejection of realism is derived from an assessment of the thesis’ focus on consumer behavior and interest, which in its modern nature do not use realism.

The thesis takes the ontological position that reality is transitory, temporary, complex and constantly changing. Hence, the reality all things being equal will change in time because new knowledge has been added, and therefore the understanding of reality must be re-examined (Collin, 2003, p. 43).

Along with the choice of theories and our ontological approach, the thesis will acknowledge the findings. The knowledge presented will appear as a snapshot of the Danish mobile payments market, but at the same time will substantiate and justify the choice of theories and our epistemological approach for data collection.

Due to our basic and fundamental understanding of reality and how it is subjectively interpreted, our approach of gathering primary data through interview and focus groups aligns with Nygaards (2004) definition that epistemology is the study of learning, an account of how the process of cognition appears to the researcher.


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8c. Empirical research

The empirical framework consists of different types of data collected, with the aim of obtaining a broad span of opinions, facts, statements and approaches regarding the subject.

i. Primary empirical data

The empirical foundation for the thesis consist of two focus groups interview and two open/semi structured interviews with experts on mobile payment due to their daily connection with the subject through their professional work. There is conducted an additional open/semi structured interview with a person with great and in-depth insights within Swipp and questionnaire.

Using a qualitative method enables a possibility to reach answers that are not measurable and potentially provide answers that was not thought off by the researcher, whilst the quantitative method is based on the belief that only these are objectives sufficient to reach a certain truth (Andersen et al., 1994). In this thesis, primarily qualitative data has been collected. Limiting to mostly qualitative data is due to that mobile payment is a new phenomenon. It is important to get a wide range of respondents and get deeper into the respondents motivation, attitude and how and when they are using mobile payment (Birks and Malhotra, 2007, p. 233).

1. Interviews

The qualitative interviews were designed as a combination of the open interview and the two semi- structured interview. This design opened the opportunity to ask clarifying questions to the respondents, and made the interview more dialogue oriented. Furthermore, it was important to let the experts talk as much and as freely as possible so that their enthusiasm and expertise would find expression and be transferred to the recording and our knowledge. However, the respondents' possible lack of objectivity is acknowledge nevertheless the interviews are considered to be very useful and valid.

The thesis uses the in-depth interviews as the strongest empirical foundation in order to analyze and prepare an adequate answer to the problem statement. Interviews were conducted between February and March 2015 (see Appendix 3,4,5 for transcription of interviews).

There are conducted in-depth interviews with central figures in the Danish market; founder and owner of MeeWallet, Kim Vindberg-Larsen, owner and mobile expert of MereMobil.dk John G. Pedersen


Page 27 of 262 and business development responsible at Nordea, Troels Asmussen (More detailed profiles, see appendix 6). The interviews create a strong empirical foundation for the thesis’ analysis of market predictions, market-inside assessments and positions and market situation.

The interviews were structured as a combination of open interview and semi-structured interview (See Appendix 7 – Interview guide). The interview guide was prepared based on prior research aligned with problem statement, which formed the basis of the general themes of the interviews (Kvale, 2007). The interviews are considered to be very useful and adding reliability to the thesis.

The three interviews were based on the same methodology and were conducted with the aim to get three independent responses with the opportunity of some degree of improvisation. The choice of semi-structured interviews came from a desire to leave pre-determined questions open for new discourses to emerge. The pre-determined questions, hence forms a direction that allows the interviewer to investigate deeper into the respondents responses, as well as to follow up on new emerging issues (Kvale, 2007, p. 65). The thesis’ hermeneutical method approach means that it is important to take into account both the thematic and especially the dynamic dimension, which is understood as the interaction between the interviewer and the respondent. The dynamic dimension contributes to the understanding of the context of the interpretation the interviews undergoes (Kvale, 2007, p. 14). This should be seen as a product of the interviewer's interpretation of questions and answers, while another interviewer might have a different understanding.

All interviews have subsequently been transcribed, in order to form an overview of the empirical set of data, and thus facilitate the use of interviews in the analysis. The thesis hermeneutical method approach denotes that it is particularly important to prepare transcripts to form the correct overview of text content, which enables the possibility to be critical and interpretative to empiricism (Kvale, 2007, p. 109).

2. Focus groups

The purpose of using focus group interviews was to get an understanding of the consumer needs, attitudes and motivation to use mobile payment. Focus groups are a direct method of obtaining rich information within a social context, it is arguably a highly efficient technique for qualitative data collection since the amount, and range of data is increased by collection from several people at the same time (Richard A. Krueger and Casey, 2009). This methodology has a positive impact because


Page 28 of 262 the participating individuals can be inspired by each other, which can help to provoke creative and new ideas that we - as interviewers - have not considered. In many cases, this may enable us to acquire new knowledge that would otherwise be overlooked by either us or the interviewed individuals (Malhotra et al., 2012). One of the disadvantages of this method is that it is relatively costly in resources but due to the preventive work, we believe it resulted in a homogeneous focus group. Other disadvantages of conducting focus group interviews such as limited questions covered and potential conflicts between participants (Malhotra et al., 2012) did not have a great impact due to the detailed focus of our interview design and the indifference of ‘incorrect’ and ‘correct’ answers.

The focus groups were made up of five and six people with different educational background, different sex, between 25-53 year of age and all members was independent of each other. All the participants in the focus groups stated that they were users of mobile payment and therefore had a general understanding of the concept. The focus groups were facilitated under the guidance of a facilitator (moderator) and observer (assistant moderator) to ensure unobtrusive control, structure and validity. The interviews was conducted in a small neutral room with circled seating’s to ensure an intimate environment that would optimize the participants comfort, thus their willingness to discuss.

Cake and soft drinks were provided to enhance the comfort level. As seen in appendix 8 focus group interview guide 1 & 2, it was emphasized and recommended to speak freely and no answers were told to be incorrect. It was highly important for us to gather truthfully information regarding the consumers experience and knowledge of mobile payments. The structure of the focus group interviews was divided into five parts: 1) General introduction of us and motivation, 2) Guidelines, 3) Experience and usage of mobile payments, 4) Video, 5) Additional thoughts and new potential views. The video showing multiple ways of integrated mobile payment solutions was intended to create new insight for the last question. Due to the nature and the unfulfilled potential of the current market and solution situation, the introduction of the video was an effort to establish the knowledge level of the current consumer or learning what the impression of possibilities of mobile payments. In compliance to our hermeneutical approach, it make sense trying to expand the knowledge. Thus, acquire a more detailed impression of the consumers’ attitudes and preferences towards different forms of mobile payments.

3. Quantitative questionnaire

The quantitative study was designed to substantiate and add a broader perspective of the public perceptions of mobile payments. The survey had 12 questions with appropriate response options such


Page 29 of 262 as a scale of opinion to a statement and was divided into three parts. The first part contained basic information of the respondent such as sex, age, income etc. The second part referred to the respondents’ use, knowledge and application of mobile payments. The third and last part referred to respondents' rating of personal importance for statements regarding characteristic and potential benefits of mobile payments extracted from opinions in the focus groups.

The quantitative survey was distributed via email, LO Plus newsletter (appendix 16), Facebook and LinkedIn. The data set from the study perceived as being representative of the public. There is of course potential sources of errors, but these are considered insignificant.

ii. Secondary empirical data

The secondary empirical data collected was primarily articles from newspapers and the . The use of scientific articles was limited. The findings in the articles was found to have a rather negative attitude toward mobile payment (Dahlberg and Öörni, 2006) which is not the trend seen in the market today (Appendix 4). Another problem was that the articles were not based on the Danish market and mobile payments have developed very different between countries (Ondrus and Pigneur, 2005). This makes it difficult to make conclusion based on findings from other countries. Along with the rapid development of mobile payments over the last decade and the change of western consumer attitude (Bothun et al., 2013), a lack of comparability was identified between consumers attitude observed in the scientific papers and consumers of today.

The thesis will mainly be based upon our interviews of experts combined with data collected from the focus groups and questionnaire and lastly, newspapers and online articles.

8d. Swipp as a case

The understanding of mobile payments and the influence on consumer preferences, we will use Swipp as a case and as an illustrative reference point. This provides an opportunity to identity tendencies in the Danish payment industry through a single case. Furthermore, it provides a critical view on theory, models, assumptions and practice (Andersen, 2009).

Using Swipp as an illustrative case reference takes its origin in the nature of the current mobile payment industry, where essentially only three players are worth mentioning and additionally where one part is unquestionable dominant. Therefore, this thesis will apply a combination of findings and


Page 30 of 262 conclusions based on Swipp as a case reference, which also enables a basis of comparison in the forthcoming and important industry analysis.

8e. Reliability and validity

The thesis’ collection of empirical data was done through the methods mentioned above. We see no reason to question the data collected and the reliability of the responses received in the interviews.

The respondents were encouraged to answer honestly and no answer was incorrect. As for criticism and use of theories, we recognize the lack of scientific research, especially in the Danish mobile payment industry. Along with this exponential developing industry, it potentially can affect the reliability of the thesis. However, due to the lack of academic research and the exponential industry development, we believe that the most correct way to establish reliability and validity is by taking the approach we have chosen. As mentioned earlier, we find it incorrect and impossible to use examples of mobile payments applied in foreign countries due to our choice of paradigm of how we understand reality as social constructed. Furthermore, we believe that the thesis’ empirical foundation is strong enough to provide the analysis and conclusions with both high reliability and validity.

Chapter 9. Theory

9a. Porter five Forces

Investigating an industry, either with the purpose of evaluating the stretch of their present positioning compared to their competitors or how the industry could shift in a new direction, is it important to define the industry. Porter has a broad definition of an industry. An industry is defined as companies that are producing products, which can be a substitute for other products in the industry. The issues regarding this definition are that it can be difficult delimiting the different product groups that should be in the analysis. The delimitations of an industry is often characterized by several inconsistences, because the decision makers within the company differ in their opinion regarding the industries’

boundaries of products, production method or the impact of geographical circumstances in which the entity is located (Porter, 1998). To establish, what Porter calls Sustainable Competitive Advantage, it is important to understand whom the competitors are in the market in order to create a strong business strategy.


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Threat of


Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, e.g. patents, economies of scale and capital requirements, profitability will decline to a competitive rate. Mobile payment has small entrance barriers, with a relative simple technology that easily can be achieved. This is a problem for businesses in the industry since the danger for new competition is high if it is a lucrative market. Porter introduces factors companies within the market have to uphold to limit the number of new entries into the industry (E. Porter, 1980).

These will be introduced in the following paragraphs.

Economies of scale

Porter describes economies of scale where the focus is on the internal production and how to minimize the expenses to achieve Minimum Efficient Scale. This is the point at which unit costs for production are at a minimum – that is the most cost efficient level of production.

The demand-side of benefits of scale

In general, societies have a positive attitude toward larger companies, which is the tendency in both B2C and B2B. Larger companies provide consumers with more confidence in the product they deliver and deliver safer products, they can trust.

Swipp can have issues with the consumers trust compared to their main competitor, because they are a new company that the consumers do not know beforehand.

Consumer switching costs

Normally, consumers will take on a cost shifting to a new product; however, that is not the case in mobile payment. For mobile payments, the switching cost is time and personal information, which can be considered valuable as well.

Capital requirements

Some industries have larger investment needs than others do. There can be many reasons for the need of investment, e.g. developing a new product that requires new technology or medicine that requires many approvals before launched. Expenses to marketing can also be a problem for new companies entering new markets and wants a larger consumer base, which is relevant in the mobile payment industry.


Page 32 of 262 Incumbency advantages independent of size

The advantages of existing companies can occur for many different reasons. The most common reasons are brand value, patents, geographic placement and long-term experience within the industry.

Experience within the industry can also give the possibility to obtain economies of scale.

Unequal access to distribution channels

New companies may eventually find new ways to distribute products to consumers. Well-established companies in the industry can have long-term relations with the most obvious distributor, which will make it difficult for new products to penetrate the market if using the same distribution channels.

ii. Supplier power

In Porter’s five forces, supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products. In general, few suppliers of a service involving a potential large target group indicates that supplier power is high. However, if many complimentary product alternatives are present supplier power is low. The structure of the industry dictates how much power the supplier has. Strong suppliers can pressure buyers by price increase, lowering of product quality, and reducing product availability. All of these things represent costs to the buyer. A strong supplier can make an industry more competitive and decrease potential profit for buyers. On the other hand, a weak supplier makes an industry less competitive and increases potential buyer profit.

iii. Buyer power

The power of buyers involves many similarities to the factors described above. Opposite to the power of suppliers, a few buyers of a product or service in large industry indicates that buyer power is high.

However, other factors can provide buyers with power. For example, if consumers are price sensitive and well educated regarding the product, the buyer power is high.

iv. Threat of substitutes

The threat of substitutes are defined as the availability of a product that consumers can buy instead of the industry’s product. A substitutional product is a product from another industry that offers similar functionalities and benefits to consumers as the product produced by companies within the