In Emerging Markets, What Comes First: The mPOS Or The Consumer?

Enabling mobile payments isn’t easy.

Not only does it require a significant shift in the behavior of consumers but also a complete mindset change for banks, merchants and even regulators.

This can become increasingly difficult in emerging markets, where Kunal Patel, global head of product strategy and mobile payments at GoSwiff, explained that merchants are focused on operating in cash-driven economies.

But Patel said that there is a growing interest in these developing regions around the usage of smartphones for payments, which presents a challenge to merchants to accept other forms of payment aside from cash.

“What we are looking to do is enable these merchants to still be relevant in the market when it comes to payments but also to play up on the fact that a lot of consumers are moving towards digital usage generally and that includes payment methods as well,” Patel noted.

GoSwiff, a global provider of integrated and multichannel mobile payments solutions in emerging and developing markets, works with banks and telcos in these regions to solve mobile payments friction for their merchants.

In this week’s episode of The Matchmaker Is In series, Patel joined host Karen Webster so share how the mobile point-of-sale (mPOS) environment (and the benefits of these services) in emerging markets varies drastically with the landscape in developed markets, like the U.S.

As Patel pointed out, the mPOS is aimed at providing merchants with a low-cost point-of-sale acceptance product, which can allow SMEs and even micromerchants to stay relevant when it comes to digital payments — that can be card, mobile wallet, etc.

“What we want to do here is not only think about enabling these merchants to bring them up to speed with an ever-changing consumer landscape but also to think about the financial inclusion as well,” he said.

As the consumer appetite for mobile devices in emerging markets grows, Patel noted that there will also be a rise in the enablement of payments on these devices, as well as a growing use of payment cards.

In either case, mPOS can be relevant to these markets because it’s low cost, easy to use and, by being willing to use it, merchants may be able to learn and better understand their consumer base and what they’re doing to make mobile payments worthwhile.

“Payment acceptance is one thing through mPOS. With GoSwiff, we can learn what other features and what other capabilities we can provide these merchants, too, in terms of value-added services on top,” Patel added.

“For us, the dynamics are very different, which is why our business model is such that we partner with the banks to understand their needs and their merchants’ needs, but we also focus on these emerging markets where there’s more of an opportunity than in developed markets.”

Here is an excerpt of the conversation…

KW: How do you get the consumers — who, in many of these markets, are very cash-centric — on board? Or how does the bank get the consumer on board? That’s obviously a pretty important piece of the puzzle. 

KP: It’s a chicken-and-egg situation. We can enable the merchant with the capability to accept these different forms of payment aside from cash, but really, it’s up to the banks, regulators and other players in those markets to really start to drive digital forms of payments. The one thing that we are actively involved in is promotion of these different forms of payments, and because we work with the banks, the banks have the opportunity to really push that message out to their consumer base.

We’re seeing that in the regions that we play in. For example, in Indonesia, card penetration is still quite low, but it’s rising. However, mobile money payments are quite high, so if mobile money is being used in-store by consumers, then we need to think about enabling our services to accept a mobile money transaction. We do spend a lot of time with our clients to understand where the landscape is and how they can effectively increase awareness of this capability. In most of the regions we play in, we are seeing this shift change now, so we don’t really have to do much aside from just watch the consumer develop as they gain an understanding of the technology and other forms of the payment capability. They move from this unbanked to banked status, and that’s very important as well from a transition perspective.

KW: It’s interesting to hear you talk about the mobile money dimension of these emerging markets, which are often not led by banks. As a result, there’s an inherent conflict it seems between the merchant that is trying to respond to a consumer preference and the bank channel trying to enable another form of payment that is more bank-centric. How do you navigate that potentially murky area?

KP: In these markets, mobile money is quite prevalent. For the vast majority of people, it’s very difficult for them to obtain any form of traditional banking accounts through the banks in these regions, so the telcos are very important. Both banks and telcos are our clients, so we can leverage that mobile money piece. There are two parts to it. The first is the banks and getting their consumers familiar with mobile payments and digital payments generally. But for those who struggle to obtain any form of banking account, mobile money through their telco is another channel. In Indonesia, a good way for a consumer unable to obtain any form of credit is to speak to their telco, and they’re able to start using mobile money without the need to provide a lot of documentation in terms of KYC and so on. It enables them to start paying for goods and services using their mobile wallet account through the telco predominately.

KW: This is very much like the chicken-and-egg situation in any other payment environment, where you have to get the consumers and merchants on board around a method of payment that consumers prefer and merchants can accept. In this case, you have banks and telcos trying to respond to both the merchant’s desire to enable a digital payment experience but also the consumer’s accessibility to a mobile digital money relationship that suits their needs and is also cost-effective. How are you seeing this play out in some of these markets?

KP: In the markets we operate in, we are seeing good traction. I think the banks and telcos are working very hard to promote their own services. If we talk about the merchants as well, there’s a lot taking place in terms of awareness. Merchants are very tough in these regions as well because, if they see consumers coming in and paying with cash, then they’re unlikely to even look at mPOS. It comes down to the psychological aspects. They will think about mPOS and using it only once they start to see consumers wanting to pay with other means aside from cash. We can make the bank’s merchants and the telco’s merchants aware of mPOS and the benefit that it brings, but really, we’re reliant on merchants seeing it for themselves. Ideally, you want the merchant to recognize the fact: “I’ve had 20 customers into my store today — of which, 15 wanted to pay with another form of payment aside from cash.” For them, it’s lost business potentially. That’s happened a few times, but we need to see a lot more of that happen on the merchant side of things.

On the consumer side, I think that will grow regardless, and in the regions we operate in, we are seeing that happen and that progress made. In the developed markets, there’s too much competition, and consumers have many forms of payment available to them. So, it becomes more of a challenge to make sure your proposition stands out at the forefront. Whereas, in these markets, it’s kind of a blank canvas to a certain degree, so you get to play a bit more with your product and the relationships with merchants and the consumers as well.

KW: One of the things we have observed in the U.S. as we’ve tried in various ways to get consumers to move from plastic to mobile payments in-store is the lack of certainty with respect to where mobile payments are accepted and where they aren’t, which causes the default back to the plastic card. Does the same sort of situation hold true in these emerging markets where cash is accepted everywhere?

KP: Yes, it’s a challenge for sure. First, you need to have the infrastructure in place from the merchant perspective, but also, it has to be the right infrastructure. If we’re talking about POS and mobile payments, then obviously, the terminals need to be able to support that capability of contactless. While contactless terminals generally on mPOS and traditional POS are on the rise globally, there’s still a deficiency in terms of old infrastructure being in place in some of these emerging markets still.

From a consumer perspective, it’s even more of a challenge because you can’t force a consumer to start using mobile payments, just like you can’t force a merchant to accept a POS infrastructure. They have to see the value in it themselves. What I’m seeing in these regions is that there’s more smartphones than there are cards in circulation, so the opportunity to leverage mobile money-type services is huge compared to plastic. But even consumers with plastic still have a preference to pay with cash, because they have their own fears around security and other reasons as well. Really, it’s a mindset thing — what other value can we provide a consumer in the hopes that they use their card more at the POS? We have to think about — from the merchant perspective, what can they do to see that enablement of wanting to use a card instead of cash?

This is where we can help the merchant influence the mindset of its consumers and get them to start using mobile, as opposed to cash and other physical means. It’s a challenge, but we have to do that. Otherwise, we aren’t going to see that drive.

KW: Do you think that there’s a need to have more mobile money use cases beyond retail payments to get consumers in these emerging markets comfortable with transacting — therefore, interacting with merchants in-store in almost the same way they transact online? Is that a way to break the log jam? Where it just becomes a natural part of how consumers are managing the financial dimensions of their life? 

KP: Yes, that’s one way of looking at it. There needs to be more usage of these types of services within the regions that we operate in right now. Mobile money is on the rise for sure, and it’s mainly used in these regions for remittances and topping up mobile phones — so, basic services. I think it comes down to people being more aware of other services that mobile money can support that will determine their usage. At the moment, the thinking or the perception is that in-store payments are something completely new for a lot of consumers. Whether it’s cloud-based or driven through a stored value account, I don’t think that’s really the driver right now. I think it’s more a case of making sure that people are aware of other services mobile money can support aside from just sending people money through remittance or topping up mobiles.

KW: Since the success of GoSwiff is related to the success of the various stakeholders in engaging consumers around digital payments, what are you doing to help educate or incentivize the consumer to do that through your channel? Do you play a role in that, or do you just leave that to the banks, telcos and merchants to sort out?

KP: We don’t play a direct role with their consumers, but what we do is work with our clients to try and drive the message. Messaging is quite key in all of this and even, to a certain extent, bringing consumers in to make them aware as well of what we are trying to do and what would help them. It’s a challenge for sure because these markets are still emerging, and some of the consumers are skeptical about these types of services, while others are more willing to try it out. But for them, it’s about that value. That’s the challenge for the banks and the telcos: If they want to drive awareness and also usage, then they need to think about how they are going to onboard customers and keep them transacting. 

KW: What is the role of the regulator in either facilitating or stymying the explosion of mobile digital money in these markets?

KP: I think the regulators play an important role. If I think about Singapore, which is where I’m based, we don’t market very strongly here because it’s a very developed city-state. MPOS, to a certain degree, isn’t really workable in Singapore, but from a regulation perspective, regulators are very aware of what’s happening in the digital payments and FinTech space and are encouraging the promotion of small organizations in the payments business to offer different forms of services in collaboration with the banks as well. They have a strong influence in terms of what happens in a market when it comes to its enablement, readiness and collaboration among the various institutions.

In the regions that we operate in, the regulators still have a mindset that’s very different compared to Singapore. But I’m starting to see a small shift in that mindset. A number of countries are now beginning to think more about this whole digital piece. In terms of payments, I think the regulators are now opening up to the fact that they need to be a little less rigid, and that influences the banks in these regions as well to be more flexible with the types of offerings that they have and the enablement of unbanked consumers.

There are various levels to what a regulator can do and the influence that they can have, and for us, that’s very important. Before we can do anything, the regulators will make our lives easier or more difficult. We don’t have a play into the regulators. Obviously, we work with the banks and the telcos, so really, it’s up to them to drive the regulators into changing their thinking a little bit as well.

KW: Where have you seen this work effectively? If you could identify an emerging market where you’ve seen traction with an mPOS solution in the markets, where is that, and what made it work?

KP: If we’re talking about what’s worked for GoSwiff in terms of regions, I would say the CIS region — that includes Russia, Kazakhstan and that part of the world. I think mainly because they’re more willing to at least try and drive the value proposition of what mPOS is. So, we’ve seen great traction there. The regulators, banks, consumers and merchants are working together to drive this, and where we’re seeing success is in the usage of the terminals and the service. I would say that Asia-Pacific is probably a very close second. There are a lot more countries in this region for us to influence, and these are up-and-coming right now but gaining prominence and traction, too.

KW: We always like to the get the perspective of those we speak with on the show as to the matchmakers they admire or think have done a really good job of solving for a market friction and doing it at scale. Any come to mind?

KP: If I think about players in this market and the ones that are driving the whole mobile payments awareness, those are Apple, Android and, to a certain degree, Samsung. These guys have really driven mobile payments and its awareness and usage on a global scale. Before these guys came up with their services, I think mobile payments struggled, in both awareness and usage as well. If there have been key players in changing the game, I would say it’s them. They’ve come in and really simplified the process and made it easier for customers to be aware and start using mobile payments in the regions they are operating in right now. I think it’s fair to say that a lot of what they do right now with their mobile payments services is not as prevalent or prominent in the developing markets per se, but that may change. These guys have really come in, influenced and changed the game — more so from an awareness perspective. Consumers are more aware now of mobile payments because of these guys and what they’ve done.