Observations:A business case ought to be based on evidence, or even demonstrable user propensity, in conjunction with a technology that solves a problem. When those elements are combined a positive business case can be structured because both user behaviour and technology are aligned to fulfil and complete a need. It is true that some technologies come with their own business case. They are catalysts for sudden change. The iPhone is salient here but it is the exception that proves the rule.

The mobile payments sector complicates the matter further in two ways:

  1. The terminology used, and the meaning intended by it is not precise which produces confusion as to what can be done. For example real-time payments where no such action is possible now, nor in the next year.

  2. Inaccurate understanding of how the contemporary money system works, how money is created (in any form), principally cash, and how it functions through the economy.

As such, the lack of precision means that over-promise, exaggerated claims, and other marketing vices, cripple statements about what is offered, what the technologies do and how they might alter user behaviour.

The mobile payments and services and ticketing has three interrelated market segments:

  • Money payments – accounts for all transaction between users and businesses but also peer to peer.

  • Services – including entertainment and loyalty or awards programs that are part of customer relationship marketing.

  • Ticketing – including travel and transit, sports venues or other cultural events.

The business case for each one is discrete but linked. Furthermore each of the markets or activities served potentially influences the use of the other. Ticketing can enhance the adoption of trust-based financial transaction when it is proven that ticketing and billing work as promised.

Convenience is offered to users, while for suppliers more efficient use of assets and better margins are obtainable. In schematic form the business cases for each type of mobile service are:

  1. Payments: Reduce the friction on payments: that is the cost of handling cash, its transport, security and so on. Secondly, for payment providers, MasterCard and PayPal, to erode the use of cash such that they acquire a larger share of financial transactions which directly benefit them in merchant and transaction fees. Thirdly, increase expenditure, as people tend to spend more when prices are not transparent.

  2. Services: Provision of services enables loyalty schemes which include apps, games, and entertainment packages to be delivered by a telco with the aim of increasing marginal revenues and overall ARPU (average revenue per user)

  3. Ticketing: User convenience and better utilisation of transit assets (ticket windows) can be used more efficiently with better ticketing operations.

Most business cases assert a purpose based on the features of a product or technology. Even so a business case ought to explain why and how something that is not native and is new will succeed. In respect of mobile transactions and affiliated services the business tends to expect or hope that it is demonstrably proven because of the adoption of mobile devices. In large part the assumption is dependent on interpretations of iPhone’s (complemented by Android’s) continued success with users. This might be a dangerous assumption because the features of the handset are not coterminous with the services of a third party transactions and services supplier.

Challenges to the business cases are several and underpin assumptions to the strategies:

  • Market acceptance. Many surveys tell the market about consumer usage and therefore likely future behaviour. For example, the Bank of New Zealand survey earlier in 2012 showed that 80% of users were prepared to make purchases with their smartphone. The survey sample was 41 which mean the confidence level at 95% was about +/-15%. In other words this was not credible as a survey on which to base investment. There are dozens of similar surveys which are only of anecdotal value.

  • Market readiness. Handsets and other technologies to facilitate transitions.

  • Durability: whether the appeal of innovation might vanish after early use but fade into second wave.

  • Demography: Completely unacknowledged by purveyors of technology is the deep change that society is undergoing but this must be addressed as it will be an issue.

  • Costs of transition: payment providers’ fees are high and once it is apparent to users they may cut usage which in turn affects volume and total revenue. For example once the RBA published the costs of ATM usage of non-bank ATMs fell 40% against expectations of the RBA. Though irrational in that users had always paid that amount once they were told at point of use they were willing to drive 5km to use their own bank despite the cost of fuel to make that journey.

Despite the articles and the advertising and surveys showing that mobile payments are already a fact, real innovation in mobile payments will have to wait for the future. The RBA is pushing for major reform to make real time payments possible in the next few years but not within twelve months.

With mobile payments of cash or peer-to-peer transactions the cornerstones of a business case are not demonstrably clear. The technology does not solve an existing problem. As real-time electronic payments are not possible, it solves nothing. It may be that this function grows out of its own utility, but its development is uncertain.

Next Steps:Any business case involving mobile transaction and services ought to evaluate the basic assumptions underpinning it.

Secondly, discard most of the current industry ‘group think’ which is self-serving.Assess options using scenarios planning techniques. Other techniques such as applied game theory may serve a purpose in clarifying the validity of business case arguments.