Finding The Market for Mobile Payments

Story by Steve Wunker

Citigroup has quietly declared defeat. In 2008, it became the first major American bank to experiment with mobile payments — using cellphones to buy products and transfer money. 
​
But the envisaged uses of this service, called Obopay, did not materialize. The technology is trivial, but consumers saw little need to pay their restaurant bills by cellphone, replacing cards and cash which are familiar, reliable, and easy.
​
What can we learn from this failure?

Citi seems to have embraced mobile payments like a bank, trying to force-fit an intriguing technology into existing applications. Organizations often err this way — look, for instance, at large solar energy projects being subsidized to generate power for the electrical grid, rather than in off-grid, small-scale applications. People initially viewed the telephone as competition for messenger boys. The examples are endless.
​
What the bank found was that people used Obopay to meet other, unmet needs. Up to half of users were parents providing a weekly allowance to their children. Another big source of usage came from small business owners who did not accept electronic payments but wanted to replace cash. These were surprises.

​I lived through a similar experience in commercializing Celpay, the first mobile payments service in Africa. Because our parent firm was a large cellular network, we thought first about subscribers topping up their prepaid airtime with our service. Indeed, this was the number one consumer use of the service, because it was more convenient to push a few buttons than to go out and buy a scratchcard. Yet other uses did not materialize — as in America, people saw little reason to pay their restaurant tabs, or buy groceries, with a cellphone. Fortunately, we had launched at a small scale, and had room to experiment. While we saw that grocery stores were largely uninterested in the service, we found that firms delivering to these stores were intrigued. They transacted with cash, which was typically counted 8 times between the time it was paid and the cash was banked. Reconciliation was a nightmare, as was fraud. Celpay re-directed to focus on this business-to-business market, and now transacts up to 10% of some countries’ GDP through its systems.

Market research is valuable, but it likely would not have told Citi about allowance payments, or Celpay about how to pay for a truckload of beer. These offerings would probably never have been imagined when the research brief was constructed. The only place to make these discoveries was in doing real business.

So the lesson of Obopay is twofold:

• Do not be entranced by technology. Think foremost about what customers need, and how your offering honestly stacks up along the success criteria that they define. As we came to say at Celpay, “A convenience service actually has to be convenient”
• Bring disruptive innovations to market fast, quietly, and at a small scale. Be extremely open-minded about learnings, and unafraid to quickly re-direct your efforts

Politically, this strategy can be challenging for innovation’s champions. Senior management often has to charter big innovations, and may be unused to such an entrepreneurial approach. Yet the alternative can be to persist, like Citi, for two years down the wrong road, only to kill the program entirely rather than reshaping it to meet the real need. It helps to have a formalized system for considering game-changing innovations, so that management’s interactions can be governed by a set of rules appropriate to this context. If that system does not exist, the innovator has to set expectations early on that the firm will learn by doing. When the context is laid out clearly, and a few examples are used to show how this might work in practice, management frequently buys in to this approach.

Serial innovators come to realize that, as elsewhere in life, humility is a useful thing.