For a typical customer, low-value purchases account for the vast majority of payments that they are likely to make on a regular basis – buying a cup of coffee, a sandwich, or a bag of crisps/chips, for example. However, per GSMA’s State of the Industry Report, merchant payments still represent a meager share of the mobile money product mix, in both volume and value.
Digitizing these low-value, high-volume expenditures would enable customers to pay for goods and services from their mobile wallet accounts, thereby encouraging them to substitute cash and transact with digital money. This process will, in turn, build the business case for deploying and expanding the merchant network able to accept these transactions. By compounding safety and convenience of mobile wallets with widespread accessibility and acceptability, customers will be compelled to hold funds in their mobile wallets. However, customers will retain money in their mobile wallets only if day-to-day transaction convenience exists, and merchants will accept wallet based payments if there is a sufficient incentive by providers and push by the customers to use this channel.
Although the opportunity for merchant payments is clear, the pricing model that merchants should use is not – how much should the merchant payment cost? Who should bear that cost? In this week’s Must Read Article, GSMA provides an interesting look at how the pricing model should be selected.