Why are retailers (or for that matter banks and telecoms service providers) not making an absolute killing in the mobile payment space? Most importantly, why are retailers missing out on potential new revenue streams?
Even in an emerging market like South Africa, where mobile penetration is estimated to be around 128%, only nine percent of mobile customers use mobile to send or receive money.
The answer may be explained by applying the theory of constraints.
The Theory of Constraints, as written by Eli Golddratt in his book The Goal, argues that any business has the potential to make infinite money but is hampered by a set of internal or external constraints. Each business, irrespective of size or how complex or simplistic its operations and processes, has at least one constraint. Furthermore, complex processes can be grouped into more simplistic collective constraints which if identified and managed correctly, form the crux on which a business’s profitability and growth depends.
If one were to analyse the constraints in the South African market one could deduce that growth in mobile commerce is hampered by:
- Having a current well functioning alternative banking sector and cash system (unlike other parts of Africa)
- High cost of connection at mediocre speeds
- Low smart phone market penetration
- Historic user behavioural challenges
- Uneducated customers
- Low adoption rate of near field communication compatible devices – a universal wireless communication standard for making pay point payments (this is however a worldwide phenomena)
- Limited user experience on ‘dumb’ phone handsets
- Historic legislative issues
- Integration challenges needed to move money between bank account and service providers
- A uniform acceptable standard for mobile payments across platforms, networks and devices.
Although the constraints within the market may be numerous, the demand side is huge and dictating best in class solutions — currently providing a rich new dynamic playing field for joint ventures between banks, retailers and mobile operators. The demand will continue to grow in the foreseeable future and most current constraints should be eliminated by the drive to satisfy demand in the market.
With the value chain expanding, the centre will heat up as competitors move in, since it will be here that the most value will reside, and demand will be highest and where profits should be largest. Companies specialising in development of mobile systems, middleware, payment gateways and those in the supply chain management should be amongst the big winners.
Although each retail business is unique, one can safely assume the most common constraints for any retailer could be:
- Clear strategic objectives
- The lack of resources
- An inability to drive innovative solutions and renewal of systems integration
- New shopping till infrastructure roll out
- Bad user experience
- Consumer education
- Breaches in security and hacking threats
- Logistics and delivery of goods
- Real time data and data-mining opportunities
- Identifying the most profitable customers
- Systems downtime
- Middleware and convergence issues
- Identifying competitors and joint venture partners.
The result of constraints for retailers
It is clear that a definitive market demand exist for retailers willing and able to take their current retail offering to the next level — as is evident by the entry of several major joint ventures initiatives in 2013 between retailers, banks and mobile operators. Although the current market is clearly still in its infancy, the supply side is taking corrective action in providing solutions to satisfy the demand within the South Africa market and will soon play catch up with other African countries. It is also clear that the majority of market constraints are being eradicated as the expansion in supply side offerings continue to grow.
What is unclear is which system and processes will win the war on “standardisation of payments” which will be key for frictionless mobile device payments across networks and banking systems. What is also unclear is how this will impact early retail adopters in the mobile commerce race to win the first mover advantage.
Furthermore, the new wave of mobile commerce will bring about new systems and processes yet undiscovered which will not only change the playing field for current new entrants but could potentially disrupt traditional retailers business models in the longer term. One can only imagine how mobile retail payment and mobile commerce offerings could empower the consumer in enabling them to do real time comparative shopping, react to just-in-time price offerings, on demand location promotions, do bargain hunting or to instantly research a product offering.
A new channel to sell to
Mobile payments will bring the previously unbanked lower income groups into the formal banking sector and will allow retailers to expand their markets and product ranges, using mobile as a new channel to gain access to them. The need for retailers to expand market share and sales is specifically pertinent in 2014 as margins are getting tighter due to consumer’s financial constraints. This scenario will force retailers to spend more on promotions and or to increase market share to sell more goods in order to reach profit margins.
Retailers, specifically those focusing on lower to middle segment of the market, should invest money and identify & manage new internal and external mobile commerce constraints in order to expand their market share in ever increasingly difficult market conditions.
Increased opportunities and decreased constraints
This new retail market opportunity created by mobile payment solutions and driven by market demand will bring about potentially new revenue streams, market expansion and a decrease in current market and business constraints. It is where the future of smart retail money will be converging.