Adoption of contactless mobile payments: Master's thesis

The development of payment technologies has been very modest for the last centuries. Even today cash transactions constitute a major share of the low value payments. The new way of payment called contactless mobile payment is aiming to change these very old payment habits. Contactless payment technologies that are based on smart cards are already gaining wide spread acceptance in several countries. Next step in the development is to build contactless functionality into a mobile phone. This has been enabled by a new short range wireless technology, which is referred as Near Field Communication (NFC). Current problem at the mobile payment markets is that the main stakeholders are competing with each other in order to ensure their position at the emerging markets. However, at the same time stakeholders know that they should co-operate to get the necessary critical mass of customers and merchants behind the new technology. Therefore, the main goal of this thesis is to find out possible competitive strategies of the major stakeholders and to find out which of those strategies are best suited for the current competitive situation at the mobile payment markets. Literature survey is used for having an insight to the emerging mobile payment market structures and to find out traditional competitive strategies for the pre-standardized technology markets. Additional goal of this thesis is to find out which factors play a part in the adoption of the mobile payments and how important these factors are. These critical success factors are analysed using a theoretical framework that is defined on the basis of literature survey. The main results of this thesis indicate that there are several important factors that can substantially affect the adoption of the mobile payments. Both consumer and merchant acceptance is critical for the wide spread diffusion of the technology. Relative ease of use to other payment methods and compatibility with existing payment systems was found to be very important. Additionally, merchants relative costs of accepting mobile payment transactions should be at the competitive level, otherwise merchant acceptance may be decreased. Furthermore, it was found out that consumer’s indirect costs, such as fear of theft or lack of anonymity, have greater effect to the chosen payment method than relative social costs, because many consumers seem to be unaware of the actual costs of making payment. Game theory was used as a tool in analysing competitive strategies of main business stakeholders. Analysis provides support for the previous assumptions that stakeholders’ decisions to co-operate would be socially optimal strategy for the mobile payments. Although the direct cooperation between banks and mobile network operators may be difficult, trusted third party acting as an independent platform manager might provide a resolution to this competitive situation where socially optimal outcome is desired.