There's been a lot of buzz at the Consumer Electronics Show in Las Vegas this week about mobile payment systems. See
here and
here for product announcements. Let's take a step back and look at two different, but related, questions:
- How important is a mobile payments solution to you, the consumer?
- What are the requirements for an effective solution.
First, how important is the problem? Let's look at this question in terms of supply and demand. If you live in a part of the world that has a large base of sophisticated consumers, demand for a solution is high. If you live in a part of the world in which the payment infrastructure is already quite sophisticated, then good quality supply is also likely to be high. When demand is matched with good quality supply, then the bar for a solution will be correspondingly high (factoring in switching costs). In the US, this explains the lack of take-up with mobile payment solutions. The problem that mobile payment providers are trying to solve in the US is really not a major pain point for most consumers. The low hanging fruit is clearly where high demand is not matched with enough high-quality supply. This is precisely the definition of an developing economy that has developed a large mobile subscriber base (which happens quickly) but does not yet have an efficient payment processing infrastructure (which happens slowly).
What does this mean for entrepreneurs? In my view, it means that if you have a mobile payments solution, you need to enter the market where the need is greatest. No matter where you are located, you will need to enter emerging markets like India, Brazil, South Africa and others. Build a product that meets the needs of those consumers and learn how to build a successful mobile payments product that gains wide distribution. Once you can successfully do that, the offering will be of sufficiently high quality to surpass the switching cost hurdle in more mature markets like the US. At that point, you're ready to market your payments solution in these markets. But you have to start with the consumer who does not have alternatives today, otherwise you'll be struggling to jump over the high (and still unknown) switching cost hurdle.
