Cite as RETAILER ADOPTION OF MOBILE PAYMENT

Cite as Petrova, K., & Wang, B. (2013). Retailer Adoption of Mobile Payment: A Qualitative Study. Journal of Electronic Commerce in Organizations (JECO), 11(4), 70-89.

RETAILER ADOPTION OF MOBILE PAYMENT: A QUALITATIVE STUDY Krassie Petrova(*), Bo Wang Auckland University of Technology, New Zealand ABSTRACT This qualitative study aimed to identify the motivating factors and the challenges related to the adoption of mobile payment (mPayment) by small business retailers. Data collected from semi-structured personal interviews with a small group of participants were analyzed applying a content analysis approach. The findings indicate that retailer demand for mPayment was motivated mainly by perceived customer expectations for a convenient (faster) way to pay using the ubiquitous mobile technology, as well as by the perceived efficiency of mPayment leading to revenue increase. Challenges to mPayment adoption included, among others, the need to compete with already established point-of-sale payment technologies and the lack of information about mPayment leading to uncertainty about its comparative advantages. The study contributes to the body of knowledge by developing and exploring a merchant oriented mPayment adoption model. The factors identified as adoption drivers and challenges provide an insight into New Zealand retailer perspectives on mPayment, and the grounds for recommendations to mPayment service providers. Keywords: mobile payment, mPayment, adoption, content analysis, merchants, customers, small business, SME, retailers

INTRODUCTION Mobile payment (mPayment) is commonly considered from a technology perspective, with an emphasis on the technology used to conduct a transaction. For example Gódor, Faigl, and Szalay (2009) define mPayment as “… the process of two parties exchanging financial values using a mobile device in return for goods or services.” The definition also highlights the involvement of two major types of transaction participants, or stakeholders - customers and merchants. mPayment is a complex system and a number of other participants may be needed in order to support or manage the exchange – such as financial institutions and mobile network operators (Smith, Markendahl, & Andersson, 2010). Therefore a more inclusive approach would be to view mPayment as a transaction enabling mobile data service resulting from the interactions of the mobile service supply chain stakeholders (Petrova & MacDonell, 2010). In line with its focus on small retailer adoption of mPayment, this study considers mPayment predominantly from a merchant/customer interaction perspective: a mobile phone based technology that enables payment in the purchase process.

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In New Zealand mobile phones already serve as a replacement for many familiar devices such as cameras and satellite navigation systems. With respect to payment for goods and services the currently dominant form of conducting payment transactions is EFTPOS (electronic funds transfer at the point of sale) which is used by 90% of the population (EFTPOSNZ, 2012). However services that can be paid using the customer’s mobile phone are also available, e.g., paying for parking (Petrova & Mehra, 2010). While until recently mPayment in New Zealand was almost exclusively based on short text messaging (SMS) (Dholakia, Rask, & Dholakia, 2008) other mPayment initiatives have been launched as well. For example a contactless payment solution using NFC (near fled communication) supported by MasterCard and the ANZ bank was offered on the market in 2011; it was aimed at popular fast food retail outlets and taxi cab companies (TVNZ, 2011). More recently the three leading mobile telecommunication companies (Telecom, Vodafone and 2 Degrees) and the four major banks (Westpac, ANZ, ASB, BNZ) introduced to the market an NFC based mobile wallet service that is being trialed by several large retailer chains and also by some cafes and small restaurants in Auckland (Dann, 2013). Due in part to the strong interest of mobile network operators (Fletcher, 2012) mPayment systems may be on their way of becoming a prevalent payment technology: newer mobile phones models offered to customers are NFC enabled and ready to be used. With respect to where mPayment is going to be used the two examples above show that mPayment service providers target primarily the retailer industry sector and work with merchants to ensure that the appropriate payment terminals are installed. While customer adoption of mPayment globally and more specifically in New Zealand and Australian context has been explored and reported in the literature (e. g., Petrova & Mehra, 2010; Teo, Fraunholz, & Unnithan, 2005; Viehland & Leong, 2007; Viehland & Leong, 2010; Zmijewska, Lawrence, & Steele, 2004) there is still a lack of work that focuses specifically on the adoption of mPayment by merchant participants in the purchase process. The study presented here partially addresses this gap by investigating the perceptions of a selection of small retail business operators with the objective to find out whether they viewed mPayment as a suitable and an appealing replacement of EFTPOS and/or cash payment. The study adds to literature by extending merchant adoption research and by providing recommendations specific to the study context.

THEORETICAL BACKGROUND A framework of factors that influence the market adoption mPayment is proposed in Dahlberg, Mallat, Ondrus, and Zmijewska’s comprehensive literature review (2008). The framework includes both outer (contingency) factors related to changes in the regulatory, socio-cultural, commercial and technological environments, and inner (competitive) factors related to the roles of customers, merchants and payment service providers as mPayment market users and suppliers, and factor associated with new and existing payment systems. While contingency factors are outside of the control of the market it is important for decision makers to understand their impact when considering mPayment. Examples include the lack of standardization in mPayment technologies that may pose a barrier to the wider adoption of mPayment (Godbole & Pais, 2008) , and the level of operator interoperability that may affect the level of trust in proposed mPayment solutions (Smith et al., 2010). In the case of small business enterprises (SMEs) changes in the technological environment are especially Page | 2

important as SMEs rely on technology to reduce operational costs (Jukic, Jukic, & Velasco, 2009), and to improve efficiency and sales performance (Wang & Qualls, 2007). Competitive factors have a direct impact on the decisions of market users (customers and merchants who may adopt mPayment) and market suppliers (who may provide mPayment services) and therefore influence the development of mPayment services and the market structure. Dahlberg et al. (2008) summarize the results of more than 20 empirical studies on customer adoption of mPayment and provide a comprehensive list of factors. Customer adoption drivers include for example convenience (independence of time and space) (Dahlberg & Oorni, 2007) while a strong customer adoption detractor is the additional cost associated with the transaction (Kreyer, Pousttchi, & Turowski, 2002). While merchant adoption has not been studied widely, some earlier studies have investigated empirically merchant adoption either exclusively (Mallat & Tuunainen, 2005) or in conjunction with customer adoption (Teo et al., 2005; van der Heijden, 2002; Xinyan, Wei, & Tingjie, 2009). Findings indicate that merchant adoption drivers include factors related to specific business benefits (e.g., lower transaction costs compared to existing payment mechanisms), and also factors that reflect merchant expectations about future (beneficial) customer behavior : increase in impulse purchases due to the more convenient and faster way to pay, attracting new customers who prefer mPayment to other ways of paying, attracting more customers due to more efficient customer service and enhanced business image. Barriers to merchant adoption are related to the characteristics of the mPayment system and to its fit with the existing business structure; drawbacks include mPayment system complexity and lack of compatibility with the existing business, and high implementation costs. Another set of barriers are factors related to merchant perceptions about their customers’ attitudes – such as lack of trust and security fears. The conceptual model shown in Figure 1 draws from the reviewed literature and assumes that merchant (retailer) decision about adopting mPayment is influenced both by business considerations and considerations about the attitude towards mPayment of the retailer’s customers. Therefore retailer demand for mPayment is influenced by customer access to the technology, by customer demand for mPayment, and by the cost effectiveness, functionality and efficiency of mPayment with respect to the retailer’s business.

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Competitive Factors 2. mPayment becomes part of the business

New payment services

mPayment solution

Merchant power

Environment

Business benefits / drawbacks 3. Transactions between customers and retailers are enabled by mPayment as customers start using it

Retailer decision to adopt mPayment

Customer attitude / behaviour Consumer power

Changing technology

1. Retailer’s customers have access to the technology needed to use mPayment A ma r ket a scen doption ario

Figure 1. Market adoption of mPayment According to Dahlberg’s framework (2008) the impact of the environment related factors on the mPayment market is indirect. For example customer access to the relevant mPayment technology is an environment related factor as it is the result of the changes in the technological environment; customers who own the technology may develop a positive attitude towards mPayment. As customer attitudes (‘consumer power’), business benefits/drawbacks (‘merchant power’) and mPayment solution characteristics are competitive factors their impact on the mPayment market as direct – these factors underpin the decisions made by customers, retailers and mPayment service providers. A successful market mPayment adoption scenario is shown in Figure 1. It is the result of the interactions of the participants (retailer, customers, mPayment service provider) and is an outcome of their decisions about offering, accepting, implementing and using mPayment. The model in Figure 1 shows as well that retailer demand drivers and challenges can be found across all groups of factors in Dahlberg’s framework. For example a retailer’s customer base level of access to the particular technology used by the mPayment solution may act as a driver, but customer experience with the technology may become a challenge. Similarly a retailer may implement an mPayment solution assuming it will be profitable however its success will depend not only on the technical performance but also on customer acceptance and increased use. As already mentioned this study aims to find out whether or not the study participants (small business retailers) viewed mPayment as a replacement of the currently prevalent EFTPOS/cash payment method. The model developed above was used to inform the design of the study and investigate the following two research questions: RQ1. What factors drive retailer demand for mPayment systems? RQ2. What are the perceived challenges to adopting mPayment?

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STUDY METHOD As the study purpose was to explore participant (retailer) perceptions about mPayment adoption, a qualitative approach was considered appropriate: qualitative research considers participant subjective opinions and experiences and ‘sees’ reality through participant eyes (Collis & Hussey, 2003, p. 42; Schutt, 2011). In addition a qualitative research design is considered particularly appropriate where technology adoption is the subject of the study as it allows to elicit richer information compared to survey research (Sherif & Vinze, 2003). Thus personal interviews with participants were chosen as the data gathering method. Given the significant prior research in related areas a qualitative content analysis was adopted as it allows both to draw on existing theories and extend them (Elo & Kyngäs, 2008; Hsieh & Shannon, 2005). In order to direct the analysis an initial coding schema derived from the extant literature was developed and applied using the specialised qualitative data analysis software (nVivo v9).The study received the appropriate ethical approval by the Auckland University of Technology ethics committee (AUTEC).

Research Instrument The study deployed semi-structured interviews as a way to let participants express openly their opinions and encourage them to elaborate on the subject in depth (Whiting, 2008). The guiding interview questions provided opportunities to involve the participant in a dialogue and elicit detailed responses that would allow to address the study research questions at the final stage of the data analysis. Given the anticipated participant profile and background the questions were brief, straight forward and easy to understand and engage with - as also recommended by Schutt (2011, p. 314). Each interview was structured as a series of ten main questions around the mPayment market factors shown in the model in Figure 1: i) mPayment and the retailer business (Q1,Q2,Q3,Q4,Q7,Q8); ii) mPayment and customers (Q1,Q2,Q9); and iii) mPayment and other payment systems (Q5,Q6,Q10). To test the initial version of the questionnaire a pilot interview with an employee of a food retailer was conducted and the level of participant engagement was assessed. As a result probing and follow up questions were added to the main ones in order to lead the participant away from giving a yes/no responses and to prompt them to expand and elaborate on the topic - for example by explaining their reasoning and motivation. The final version of the questionnaire is shown in the Appendix.

Data Collection Following Vlachos (2011) who points out that SMEs in the food and beverage service industry have a greater need for technology based products the study sample was drawn from amongst the large number of small food and beverage retailers geographically located in the Auckland central business district (CBD). The retailer customers include the employees of the numerous businesses situated in the area , the students of two large universities and around 20 other tertiary education establishments also located in the CBD, and the occupants of the CBD residential dwellings - predominantly working professionals and interactional students (average age 32 according to (Friesen, 2009)).

Face-to-face and mailed invitations were both used to recruit participants who matched two selection criteria: i) their retail shop needed to be very busy during peak hours and busy during the rest of the time, and ii) their customers needed to be active mobile phone users Page | 5

(e.g., professionals working in the CBD, or tertiary students). Only SME owners were recruited as it became evident during the pilot interview that SME employees may have limited knowledge about the subject. The interviews were conducted by one of the authors on the retail premises and recorded digitally. The interview questions were always asked in the same order however adjustments and follow up or illustrative questions were used depending on the level of engagement of the respondent. The audio records were transcribed by the interviewer.

Data Analysis An iterative staged process was followed in the data analysis. First the transcribed text was organized into groups of data statements: each data statement comprised a singular response to a question asked by the interviewer. The data statements were labelled using a unique numeric identifier (sequential number) and an additional alphanumeric identifier that preserved a link to the raw data (e.g., #10, Q1/I1 means that data statement 10 can be found within the response to Question 1 by participant I1). Non-meaningful content (e. g., ‘Hmm’) was removed and text explaining the context of the response was added (in square brackets) to data statements that could not be understood without knowing the respective interview question. The study data were further organized according to their relevance to the two research questions. Applying a descriptive coding method (Saldaña, 2012, pp. 71-72) each data statement was coded as RQ1, RQ2 or NA. The purpose of this step was mostly to ensure that the data gathered contained meanings that could be used to address the objective of the study, and to assist with the interpretation of the findings later. The next stage involved the development of an initial coding schema (Tables 1 and 2). It was based on research findings reported in the reviewed literature that were related to the four components of the model in Figure 1. As merchant power and consumer power are ‘intertwined’ (Xinyan et al., 2009) factors related perspectives of the study participants on how retailer business views and retailer customers’ personal characteristics and attitudes could act simultaneously to create an mPayment market were drawn from adoption studied dealing with customers, merchants or both. Table 1. Initial coding schema (merchant power and consumer power). Sources: 1. Mallat (2007); 3. Xinyan et al. (2009); 5. Thair, Suhuai, & Peter (2010); 6. Dahlberg & Oorni (2007); 7. Pousttchi & Zenker (2003); 8. Mallat &Tuunainen (2005); 9.Viehland & Leong (2010)

Code/Source

Definition/Explanation Merchant power (retailers)

Merchant income3 Low fees1,3 Efficiency6 Increased sales8 Convenience of the payment process3 Cost reductions8

Generated business income as the result of mPayment Merchant mPayment transaction fee as part of the purchase price Related to the output of the business transaction Increase in sales as mPayment fits well with the business overall and enhances it No need to give change / swipe cards, increased speed of payment Reduced operating costs. Complaints processed easier. Staff can concentrate on more important tasks

Consumer power (retailer's customers) Page | 6

Relative advantage1 Compatibility1,6,7 Complexity1 Convenience 6,7,8,9 Functionality7 Customer awareness3 Time saving3 Security1,3,9 Confidence5 Cost5,7 Ease of use3,5,6,8,9 Usefulness5,9 Education6 Age6 Profession6

Ubiquitous alternative to other payment methods Compatibility with purchase habits Device limitations, including battery life Payment method suitable for a quick/urgent purchase Additional payment/financial services available Customers need to know about mPayment to start using it Time saving while at the purchase till Payment information needs to be protected and accurate The mobile phone can be trusted to successfully and reliably execute and complete the payment The transaction cost: ownership cost, direct transaction cost, transaction fee as part of the price The effort needed to use and manage a mobile device The mobile device helps simplify payment Reflect the educational background of the customer Reflects the age of the customer Reflects the profession (occupation) of the customer

The categories new payment service and environment (Dahlberg et al., 2008) were modified in order to reflect better the study objective. The codes in these two categories included service or environment related factors that were identified in prior research as factors influencing customer and merchant attitudes. For example the degree of mobile industry cooperation (Mallat, Rossi, & Tuunainen, 2004) may influence the retailer judgement about the value of the particular mPayment solution and affect their adoption decision: a higher level of industry cooperation may improve the viability of the mPayment infrastructure which Mallat and Tuunainen (2005) consider a prerequisite to adoption. Therefore an industry cooperation code was added to the new payment system category. Table 2. Initial coding schema (new payment system and environment). Sources: 1. Mallat (2007); 2. Dahlberg et al. (2008); 3. Xinyan et al. (2009); 4. Mallat et al. (2004)5. Thair, Suhuai, & Peter (2010); 6. Dahlberg & Oorni (2007); 7. Pousttchi & Zenker (2003); 8. Mallat &Tuunainen (2005); 9.Viehland &Leong (2010) Code/Source

Definition/Explanation New payment system

Joint promotion with merchant3 Industry cooperation4 Availability of payment transaction information6 Trust and security5,6,8,9

Helps merchant to promote their business and build business alliances Mobile operators aggregate the payment data in mobile networks and banks are responsible for the actual financial transactions. Information about the financial transaction between the parties provided Cooperating partners are trustworthy and the process is secure (meets security objectives - confidentiality, integrity, availability, nonrepudiation)

Environment Socio-cultural2 Customer need for service3 Social norm6 Commercial2

Social and cultural influences on habits and behavior Customers feel a need for the service Social influence by other people New commercial channels (e.g., the mobile Internet) and increasing self-service orientation of payment services

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Network1

Legal, regulatory and standardization2

Customer decision affected by the number of merchants supporting and using mPayment Merchant decision affected by the number of similar business offering mPayment Jurisdiction, regulations and other norms with mPayment solutions are required to comply

mPayment provider selfoperated 4 Bank self-operated 4 Control5

Mobile operators based solutions - e.g., own clearinghouse/ credit institution (banks are not directly involved). Bank-based solutions - the mobile network is a data carrier only. Customers have control over imparting personal information

Technological2

Mobile/wireless and other technologies use

Network externalities8

Mobile phone Internet skills Experience6 Use situation1

skills6

Customers are sophisticated mobile phone users Customers have prior experience with using the Internet Customers have prior experience with mobile services Access to/use of technology may vary in different locations and contexts

An example of a socio-cultural change factor that influences customer behaviour is social norm (behaviour influenced by the behaviour of a reference group of people); social norm was identified as a customer adoption factor in earlier work (Dahlberg & Oorni, 2007) and was included as a socio-cultural environment code. Another example is control (the provision made by the system with respect to customer control over imparting personal information during a transaction): Thair, Suhuai, and Peter (2010) found that control was one of the critical success factors related to customer adoption of mPayment. As mPayment systems need to comply with existing legislation such as the New Zealand Electronic Transactions Act control was included as a legal/ regulatory/ standardisation code. The codes in the initial coding schema were named after the factors identified in prior work and were defined or explained to summarise their most essential features. Following the literature factors that may partially overlap such as time saving and convenience, or merchant income and increased sales were retained as separate codes. Once the schema was completed it was applied to interpret and code the study data implementing the directed content analysis approach described in (Hsieh & Shannon, 2005). The process was iterative and amendments were made as coding and analysis progressed. The steps described below summarise it. 1. The codes form the initial coding schema were loaded to the qualitative analysis tool nVivo v9 and nVivo nodes corresponding to the codes were created. The participant responses that were earlier found relevant to the research questions were also loaded to the nVivo project. 2. Next all participant responses that were found related to the research questions were examined iteratively by one of the authors. Meanings that could be coded in accordance with the initial coding schema were identified, extracted and attached to the relevant nVivo nodes. 3. Finally the data that could not be coded using the schema were examined as well. Meanings were extracted and interpreted. New codes capturing the meanings were derived and defined, and added to the nVivo set of nodes.

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The resulting coding was revised by the other author and through a series of conferences between the authors the final coding was arrived at. The findings of the analysis are presented and discussed next.

FINDINGS A total of 23 food and beverage retailers operating in the Auckland CBD were approached nine of whom agreed to be interviewed (including the pilot study participant). The average interview length was 28 minutes. The interview sessions took place over a period of two months, with the last interview concluded in late October 2011. The participant demographics are shown in Table 3. Table 3. Participant background Participant ID

Retail Business Type

Gender Age Position No. of Employees

I5 I2 I7 Pilot I1 I3 I4 I6 I8

Café

Female Male Male Female Male Male Female Male Female

Restaurant Lunch Bar Dairy Shop Liquor Shop Health Shop

31 29 28 23 36 31 42 28 29

Owner Owner Owner Waitress Owner Owner Owner Owner Owner

1 5 4 8 8 5 1 2 1

The sample was balanced by participant gender. The average participant age was 31. All participants were of Asian descent (typical for CBD). All owned and operated the business (except the participant who was interviewed in the pilot interview). All businesses were SMEs according to the classification used by New Zealand Ministry of Business, Innovation and Employment: an SME has a maximum of 20 employees (MBEIO, 2013). The results of the descriptive coding showed that only seven data statements were initially found not meaningful with respect to the research questions. Table 4 contains examples of data statements related to research questions Q1 and Q2 as well as an example of a statement that was found not relevant to the research. Table 4. Descriptive coding examples Research Question RQ1

Data Statement Yes [question related to the business type], my fast food customers do want fast service. A lot of them choose to use phone order. And they come in at the right time, pick up the food and make the payment and leave. Yes, it will lead to better efficiency and happy customers. (#20, Q1/I1)

RQ2

Because EFTPOS connects to the phone line and sometimes the phone is occupied because we have one phone line. They cannot be used at the same time. Phone order comes in, we cannot use EFTPOS anymore. (#12, Q1/I1))

N/A

I have not tried those [mobile business promotion] (#15, Q2/I1)

A summary of the results of the coding applying the initial coding schema is presented in Table 5. It shows the number of data statements related to each code and in relevance to the research questions R1 and R2. It can be seen that all categories in the coding schema were Page | 9

populated with data related to the two research questions. Most of the pre-defined codes (37 out of 40) were found applicable to the data collected, including the data that were found initially not associated with the research questions. The data linked to the first research question (RQ1) were represented by 186 statements (34 codes were applied) while the data linked to the second research question (RQ2) were represented by 97 statements (33 codes were applied). Table 5. Number of meanings per code (initial coding schema) Code

RQ1

RQ2

NA

Merchant power (retailers)

Merchant income Low fees Efficiency Increased sales Convenience of the payment process Cost reductions

1 13 12 7 9 1

1 6 2 1 2 1

0 1 1 0 0 0

Consumer power (retailer's customers)

Relative advantage Compatibility Complexity Functionality Convenience Customer awareness Time saving Security Confidence Cost Ease of use Usefulness Education Age Profession

0 7 3 2 18 11 12 3 2 7 2 11 1 3 3

New payment system

Joint promotion with merchant Industry cooperation Availability of payment transaction information Trust and security Socio-cultural

1 0 2 3 4

0 4 3 1 1 11 1 5 1 7 1 1 1 3 1 0 2 0 15 0

0 2 1 0 0 1 0 0 0 2 0 0 1 1 1 0 0 0 1 0

Customer need for service

6

5

Social norm Commercial

4

2

1 0

9

2

Network

2 0

1 0

1 0

2

0

1 0

0

Environment

Network externalities Legal, regulatory and standardization mPayment provider self-operated Bank self-operated Control Technological Mobile phone skills

1 0

2 0 0

0

0

0

8

4

0

3

3

0

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Code

RQ1

RQ2

NA

Internet skills

0

1

0

Experience

6

3

Use situation

9

1

1 0

Seventeen new codes emerged and were defined with a relevance to the context. A total of 70 statements were labeled with the new codes (Table 6). Table 6. New codes: definitions, classification and number of meanings per code Code Definition “Better service for higher cost”: Merchants are happy to pay more for better payment services. “Business hour phone support”: Merchants require technical support during business hours. "Change mobile device": Customers change/upgrade mobile phones frequently. "Competition with existing payment technology": Merchants are satisfied with the existing payment mechanisms; this decreases the need for innovation. "Customer satisfaction": Merchants believe that the payment system contributes to customer satisfaction. "Free technical support": Merchants believe that technical support is required and needs to be offered for free. "Health Risk": People believe that frequent mobile phone use causes damage. "Influence of mobile commerce": The influence of mobile commerce on merchant’s perception towards mPayment system. "Lack of knowledge": Lack of experience and knowledge of how mPayment works (by retailers). "Limitations of current payment system": Issues that retailers have with their current payment system. "mPayment business mode": Perceived charges if mPayment is implemented. "On-site support": Retailers require on-site support due to the importance of the role of payment system in their business. "Productivity": Retailers believe that payment system contributes towards their business productivity. "Quality support service": Retailers see quality support service for the payment system as important. "Return on investment": Retailers judge the performance of the new payment system by the return on investment. "Support material": Retailers believe that support material is required, e.g., a user manual or a troubleshooting guide. " Willingness to adopt": Retailers shows a willingness to adopt to mPayment.

RQ1

RQ2

NA

4

2

0

6

3

1

1 15

0 6

0 0

7

1

0

1

0

0

0 5

1 1

0 1

1

2

0

8

7

2

0 2

1 3

0 2

6

0

0

0

1

0

2

4

0

2

2

0

10

4

1

DISCUSSION The most salient points arising from the findings are discussed below with respect to the two research questions and following the model which guided the study (Figure 1). The adoption drivers and challenges to implementation are derived from the set of competitive and environmental factors that were supported by the study data. Although existing payment services and mPayment service providers were not explicitly included in the model their presence was implied by the offer of a new payment service (mPayment). The discussion is Page | 11

illustrated with excerpts from the data; the quotes are referenced by the unique sequential identifier. Factor names are shown in bold.

mPayment Demand Drivers Customers (as perceived by retailers) Retailers believed that the convenient way to pay using a device that is always handy to their busy customers was the most important factor driving customer adoption, and that the faster way of paying would increase customer satisfaction (and following from that, retailer revenue). Retailers thought that customer would like the Convenience offered by mPayment as the mobile phone was always available; therefore mPayment could be a better payment tool compared to other types of payment such as cash or EFTPOS: “because everyone likes to use it, customers then adopt to it without the need to carry cash around.” (#33); “From my own experience, mobile phone is with us all the time, using it pay is a better way.” (#36). “There are so many stuff in girl’s bag, there could always be something goes missing. We carry mobile phone at the time, so that can be a plus.”(#39); “The notion of swapping the card takes time, plus it does not read every customers bank card. I wipe them first and sometimes the magnetic strip reader is not very sensitive”(#21). A related factor contributing to customer Convenience and potentially to increasing revenue was Time saving as customers valued spending less time on paying: “From my own experience, mobile phone is with us all the time, using it pay is a better way. Same goes for the hop cards used in the bus. [it helps businesses to operate more efficiently]. If people do like the idea of paying things fast, maybe there is a profit gain for us.”(#389). “My fast food customers do want fast service” (#20); “For myself, I wanted to move faster so the customers do not get keep in the queen for too long.”(#21). Convenience and time saving were seen as having a positive effect on the business:: “It can be more convenient for them, and it may save time for them as well as for you. In turn, it drives more business.” (#24); “[it helps businesses to operate more efficiently]. If people do like the idea of paying things fast, maybe there is a profit gain for us” (#37). “…the most important thing is about the time of the payment. Processing time could be quicker with this technology.”(#287); “It will cost time when I really get busy. … Especially true during lunch time, most of those customers who only get an half an hour break. When there is a sunny day, they just want to grab a lunch, go and find a space to enjoy.”( #286). “This system will help our business because it saves waiting time. I’m sure my customers like it well” (#285). Retailers believed that Customer satisfaction with mPayment would be high because of time saving: “Some of them are busy, if they had it and we were able to provide the payment service. They will just do it. It cuts their wait time short. [delight customers]”( #341); “…Payment period can be cut short. It can be what the mobile payment technology brings to us.”(#343). Customer demographics (Age, Education, Profession) were considered important as far they were related to the ownership and use of mobile phones (Mobile phone skills) and are discussed further below in the Environment subsection. Retailers Page | 12

The most significant factor positively affecting retailer demand for mPayment was the perceived efficiency of the service that would lead to increased overall productivity of the business and thus to increased revenue. mPayment Efficiency was considered as a factor that would have an impact on customer Convenience ; an increase in revenue may occur as quick service (no queues) meant increased turnover: “The entire transaction needs to be faster, same for people work at the back as well as customer service. Front staff needs to be able to take the order faster. Everything has to move fast to be able to perform efficiently. The goal is to turn over the orders quickly. Faster means more revenue.”(#65); “Coz people just come in to get things quickly. I think speed is the main factor for efficiency.”(#76). Improved Productivity added to the value of the service: “In the retail business like this, efficiency and quality is the most important to be concerned. Anything can save you a simple 35 seconds; can make a big difference at the end of the day. Sometimes you just need those 35 seconds. You cannot cook something a few seconds less to expect it to taste the same. A few seconds mean a lot in the retail business like this.”(#385). Most retailers expected to have to pay Low fees and considered reduced business cost as a very significant factor: “But on average, I would say no more than what we current are paying. Yes, reasonable rate” ( #243); “I think it should be at the same cost to an EFTPOS terminal or a less bit cheaper, and then we could have both. Not more expensive than the current system people have like EFTPOS” (#244); “If it is for my business and the cost is under my current system, I will love to take it [mobile payment].” (#250); “For me to run a business, keeping the cost down is an advantage. As more people using it, it can bring the cost down.”( #256). Existing payment services Although retailers were generally satisfied with their current payment system, there identified certain weaknesses that could be addressed by mPayment - such as phone line usage and power cuts: (Limitations of current payment systems): “because EFTPOS connects to the phone line and sometimes the phone is occupied because we have one phone line. They cannot be used at the same time. Phone order comes in, we cannot use EFTPOS anymore.”(#359); “Five or six … power cuts. The system comes back in shortly afterwards, but still I lost customers because of that.”(#365). EFTPOS was also seen as too slow:. “But the issue is that it gets slower processing transactions for some reason. It does hold the customer for a while.”(#360). Another issue was the need to deploy a separate a credit card payment terminal (in addition to EFTPOS and cash): “Some people uses different credit card such as dinner’s club or American express. We just applied for those two cards. Not for the first year in the business, we only begin to take those cards this year.”(#373). The current system was not perceived as adequate in terms of timely access to information: “Current banking system only allows me to see payments after 10pm for the total amount.”(#372). Limitations of current payment systems were recognized as having impact on customers: “ I would like to [have] if it helps coz we do get a lot of student customers from AUT.”( #404); “Customer says their card works elsewhere only not working on your machine. But my Page | 13

machine works for others. We had trouble finding out what the actual fault is. Less of this type of thing would be better.”(#368). New payment service Overall retailers were prepared to accept the new payment service due to its perceived advantages. Willingness to adopt and switch from EFTPOS to mPayment was well pronounced: “…I’m thinking to have something like that installed in my other shop if it’s possible.”(#402); “I’m talking to other companies about it.”( #403): “…If it replaces my other machines would be more welcomed.”(#408). In general retail owners thought that mPayment offered Better service at higher cost but were prepared to accept it : “A little bit more is okay if it can separate the phone line, and two can operate freely from each other. Working better and faster delivers better result, 50% more can be okay.”(#299); “I can accept it to be 30% more [cost]….”(#302). Retailers were knowledgeable about other payment technologies: “I have never seen one yet [mobile payment in competition]…..”( #198); based on past experiences they would consider mPayment if it performed well: “…If that system works well and running smoothly every day, it would definitely be good for your business.”(#221. Environment Retailers were aware of their customer profile (Age, Education, Profession, Mobile phone skills) and recognized its significance as a motivators to adopt Mpayment: “Young and student appear looking people use Iphone and they are very open to new technologies” (#1) ; “Most of them use mobile phones and young to middle aged. Card is also a modern technology; most of them choose to use their cards over cash” (#5) ;“Our customers are lawyers, accountants and office people, pretty high end people working in around the area. They all have smartphones. I think most of them would love it [paying by mobile phone] and found themselves excited about this.” (#160); “A lot of people use mobile which is nearly everyone. If it takes off, there could be a lot of payment made through it.” (#102). The competition within the commercial environment was also found to be a potential driver: “I don’t think people like to pay more to use this flash stuff, unless the big shopping malls start first…”(#157); “… I just follow suit. Say 50% uses mobile to attract customers, we will follow suit.” (#158); “If all retailer shops have this system, we will have to get it too. We want to stop in the front coz there is a competition.”(#161). Retailers who had had positive experience with mobile commerce in the past (Influence of mobile commerce) were also likely to implement mPayment system in their business: “Yes [willingness to investigate mobile promotion], it is a tool that we use every day. Mobile can be a good medium.”(#352) and “The donut shop uses Facebook promotion; they had a lot of customers at the shop opening period…” (#350). mPayment service providers Overall retailers expected that the provider would also ensure ongoing support to the service.

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Respondents indicated that Free technical support and On-site support would be needed at the start:. “…support is important at the start stage. Technical support should be made free for a start.”(#346); “I want support people to come to me immediately.”(#378); “I think in the introductory period, an onsite support would be necessary.”(#377); “Whenever, there are problems I just rang the company. More often they just tell me you need to do this and you need to do this. I feel quite confused and I don’t like that” (#380). Support material or possibly technical training would be also beneficial: “I need a list for simple self-directed troubleshooting. If we can solve it then onsite support will be needed”(#397); “They [current EFTPOS system] have a user guide. Every problem I might have, I would just check against the list. It is easy to follow.”(#398). A preference for immediate support (on the phone) was indicated (Business hour phone support) : “…it will take some time. Yes, I more prefer phone support.”(#311); “Phone is better coz people get to deal with people not people with computer and computer to people.”(#310).

Challenges to mPayment implementation Customers (as perceived by retailers) Cost linked to the additional transaction charges faced by consumers was seen as a barrier to adoption: “For us, we want to sell goods and services, for the payment supplier, they want to charge the transactions that go over it. That is going to be the most difficult part, it is not the shop but it is for the customers.”(#41); “Everything depends on how much you start to charge people when it is being used. When we need to do parking fee, we can TXT to pay for the ticket. But it double charges. That really discourages people from using it.”; “I don’t think people like to pay more to use this flash stuff, unless the big shopping malls start first. It’s like the chip cards, they were not accepted everywhere at the beginning.”(#54). Some retailers were not confident that the service was ready to be adopted and thought that Customer awareness of the service was low: “…it really depends on the wider acceptance from customers before we can begin using it. Better tested and customer education.” (#149); “At the moment, it [mobile payment] is not really developed yet and wide spread. I don’t think a lot of people know about it unless they are very techy about them and on top of technology news.”(#208). Retailers Retailers were particularly concerned about their Return on Investment: “We don’t want to end up spending money on the machine not being used actively. It really depends on the market movement.”(#391); “I talked to the company several times and no solution. I’m thinking of pull the plug on that one. We won’t accept it if it [mobile payment system] goes like Snapper.”(#395). [Snapper is a local contactless pre paid payment system designed to be used for bus/train tickets and other small purchase; it started getting some acceptance but was discontinued by the service provider]. Another challenge was the possibility of having to pay higher ongoing fees compared to the current payment service (Low Fee): But if it is [cost] more I would be hesitated. I would love to give it a go [for personal use]. As for the EFTPOS system, we pay a monthly rental fee which is the acceptable cost to me.”(#251). Page | 15

Implementing the new system may be a challenge due to the Lack of knowledge about how mPayment works: “Not everyone will understand how this technology works. At the moment, I don’t quite understand how this technology works and how good it is. Lack of understanding can be a barrier.”(#354); “Maybe [unsure whether mobile payment helps with efficiency], we need to see what exactly it does.”(#355). There were also perceived health risks associated with overusing the technology: “Plus the risk of radiations from frequent mobile phone use. Those are the problems.”(#347). mPayment service providers The challenge related to providers was the perceived difficulty in getting support. The retailers did not want to be involved in technology maintenance and troubleshooting (On-site support): “It is not part of business operation. Having to deal with technology is not part of my job. It’s the job of the manufacturers to hire the best engineering team. I just want the product in perfect condition to help me to do the business not the other way around which I’m helping them to do their business”(#383). Similarly Quality support service was considered an important decision making factor: “Coz when we have a problem we want to get the problem solved straight away, not like an hour later. Customers could walk away if it is that slow”(#390). One retailer was skeptical about the motives of mPayment service providers: “Big companies such as Apple want to change people mind by using the phone for other purposes. Currently, we use mobile phone to do surfing and online banking.”(#168). Existing payment services Because of EFTPOS popularity, mPayment faced difficulties entering the market. Most interviewees believed that Competition with existing payment technology was a big challenge as it was unclear how mPayment was going to work with existing technology such as EFTPOS: “EFTPOS so far has been the most important method for payment.” (#330), “EFTPOS is a very important part [of the business].” (#335), “…At least 95% of the people choose to use EFTPOS. It is a big part of business.”(#318) and “It is a very busy shop, I have a lot of customers in a day and that leads to big increase on the usage of EFTPOS machine.” (#321). Existing payment systems were considered very reliable and cost efficient, therefore difficult to compete with: “Current system such as visa or EFTPOS works well. I think I’m satisfied.”(#331), “… EFTPOS, most people use it. And we all understand how it works. It becomes a must have”(#333), “No. nothing major [no trouble with current EFTPOS system]. It’s all like malfunctioning and turns out to be user error. There has not been any machine failure.”(#319). Thus mPayment could work not as the only one but just as one of the possible ways to pay for a purchase: “EFTPOS will not fade out immediately. I always carry cash as well as my cards. If one of them fails, I can just go with the others. It is just another means of transaction. It will not be the only one. It should be fine.”(#320). New payment service The high cost involved in implementing the service was an impediment. Reduced merchant income as a result of additional spending was perceived as a financial challenge : “It’s too Page | 16

expensive for me to afford it right now. The ones I was looking at were at $800 mark or above.”(#46). One retail owner suggested that technology distanced retail personnel from engaging with their customer and believed it to have an impact on Customer satisfaction: “I think physical interactions are better way to attract customers” (#342). The added transaction cost that was incurred by customers (mPayment business mode) was seen as a barrier as retailers were unsure of customer attitudes (EFTPOS payments do not incur a additional transaction fee for the customer): “But the question to me is, will the customer accept this cost? Are they willing to pay 20 cent for each transactions, it is how the payment supplier makes money and it will be the business mode. It can be the most difficult part”(#376). Environment Some features of the technology and the way it was used were seen as a challenge to its Efficiency . One of the problems was related to customers changing phones (Change of mobile device ): “It can be a bit of problem for us using it in business. Not efficient. How about the old phone with a new SIM card, can it still be used for payment?”(#72). “Most people change their mobile phones every one or one and half year. Does it mean you are changing the cards as well? You will have to re-register them again.”(#314). With respect to everyday use , battery life was a cause for concern (with an impact on customer Convenience): “What if the battery goes out, if the phone gets lost, would it be safe to my cards? It could be one more thing for people to look after.”(#31). Finally Age was seen as a possible consumer related detractor : “For the older generation, maybe not. [paying by mobile phone]”(#3). In summary retailers were ready to consider implementing mPayment as a payment method initially as an addition to EFTPOS/cash. Retailer views about customers were aligned with the results from empirical research in customer adoption of payment: for retailers two of the most important customer related advantages of mPayment were convenience and time saving. From a business perspective the perceived efficiency of mPayment was the main driver. On the other side the biggest challenge to mPayment implementation lied in its affordability and the need for continuous and easily accessible support. While most of the drivers and challenges discussed above (e.g., efficiency, convenience, cost, return on investment, impact of existing payment services) have been identified in prior research the need for high level support is new factor that emerged from the data gathered in the study.

CONCLUSION The study attempted to answer the question whether mPayment was perceived by retail business operators as a replacement technology for cash/EFTPOS transactions, by identifying mPayment adoption factors (research question RQ1) and mPayment implementation challenges (research question RQ2). In this sample participant intention to adopt was motivated by retailer perceptions about the benefits of mPayment, and by expectations about a positive attitude by their customers (the Page | 17

majority whom were actively engaged with modern mobile technology). This implies that mPayment service providers (e.g., network operators, banks) need to understand and aim to balance the needs of both types of market users (merchants and their customers), and also to look at how beliefs about customers influences merchant decision making. While participants regarded the competition between mPayment and the existing efficient and more mature payment systems as a significant challenge, mPayment was seen as potentially capable of addressing the identified EFTPOS weaknesses. In addition the lack of knowledge about mPayment systems was seen by participants as a barrier to adoption; therefore service providers would need to engage closely with market users in order to promote mPayment credibility and its relative advantages. Overall the analysis of the findings allows to conclude that the study participants perceived mPayment as an efficient and convenient payment system with the potential to replace cash/EFTPOS transactions provided that it was affordable for both customers and retailers, and that it was offered with the expected high reliability and efficient technical support. Service providers may need to develop mPayment solutions tailored specifically for SMEs in the retail sector: they attract a high number of customers and therefore have the potential to create a sustainable mPayment market but often operate on a low budget and may have no in house technological expertise. This study has several limitations. The study scope was limited to one stakeholder group only (merchants - retailers) and did not involve directly other stakeholders (e.g., customers, network operators, banks). It was located in one specific area (urban central) and involved small food and beverage retailers only. Thus data were collected from a small and specific sample and the results may not be readily generalizable to other contexts. Despite its limitations the study contributes to the body of knowledge by developing and exploring a merchant oriented mPayment adoption model. The factors identified as adoption drivers and challenges provide an insight into New Zealand retailer perspectives on mPayment, and the grounds for recommendations to mPayment service providers. In addition a number of factors found in the extant research literature were validated in the study context, and the need for technical support was identified as a new merchant oriented specific factor. Considering all factors identified in the analysis and discussed above it is proposed that merchant decisions about adopting mPayment depend on factors related to the expected business efficiency and productivity of mPayment, as well as on factors based on retailer perceptions about customer requirements and preferences. Further empirical research examining the attitudes of all mPayment stakeholders may contribute to a better understanding of the relationship between mPayment adoption drivers and detractors, and their impact on the mPayment market.

ACKNOWLEDGEMENT This work is based in part on an unpublished Master’s thesis: Wang, B. (2012). Investigating mobile payment technologies as a replacement of cash/EFTPOS transactions. (Master’s thesis). Available at http://aut.researchgateway.ac.nz/bitstream/handle/10292/4775/BoW.pdf?sequence=5

APPENDIX. Interview Questions Page | 18

PART 1 Group 1. What does your business do? Does payment technology matter to you or your business? Expand on: i) Yes, in what way? Improved efficiency may lead to profit gain? Any previous experience to suggest that clients would like to see improvement in this area? ii) No - why not? Is it because of the type of service you do? Or because it won’t impact on the overall client satisfaction? Group 2. Have you ever used a mobile phone as a medium to promote your business, such as TXT advertisement campaign? Do you see offering services utilising a mobile phone as a way to attract potential customers? Expand on: i) What’s your overall experience with mobile phone as a medium to conduct business? ii) In your opinion, could services utilising mobile phone technologies attract customers? Why, or why not? PART 2 [mobile payment is explained first] Group 3. What do you see as significant barriers for you and you business to move to a mobile payment solution? Expand on: i) Are you worried about security, reliability, and/ or setup/running cost? Group 4. How would you describe/define as an acceptable cost to set up and start running a mobile payment enabled payment system? Expand on: i) Would you be willing to pay more than you pay for your current system? ii) Could you indicate how much more in %)? Group 5. What level of technical support do you expect for such a system? Expand on: i) Do you think it is going to require less or more technical support than your current system? ii) Do you think you can manage it yourself? Group 6. Are you satisfied with operating based on cash/EFTPOS for business transactions? Expand on: i) Have you had any problems with it in the past? ii) Could you explain what the actual cause was? Group 7. Do you have competitors who are already utilising mobile payment technology in their business? Expand on: i) Yes: do you think that this impacts on your business, how? Ii) No: do you think they will be soon doing it? Group 8. How do you define ‘efficiency’ in your business? Would a mobile payment system help you operate more efficiently? Expand on: i) Yes: in what way. ii) No: why? PART 3 Group 9. Would a mobile enabled payment system ‘delight’ some of your customers and improve your overall customer satisfaction? Expand on: i) Yes: can you describe your customers (characteristics)? Why would they be delighted? Ii) No: why not, what do you think your customers are looking for in terms of payment experience. Group 10. What is your opinion about mobile devices being the future ‘wallets’? Expand on: i) Good thing? Why is it good? Do you plan to embrace it once it becomes available to the general public? ii) Bad thing? What are you concerns? Page | 19

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