Recently I’ve seen a number of articles saying the same thing we’ve been experiencing at Kopo Kopo in the past couple of years.
Mobile payment acceptance alone is not enough.
By that, I mean that most merchants that we work with in East Africa have adopted digitized payments somewhat reluctantly, and only when they saw a compelling business reason to do so.
For some, demand from their customers led them to accept mobile money at the point of sale. But that number is really a lot fewer than we thought it would be when we started signing up merchants in 2012. It’s less than 10%.
In fact, recent research by Bankable Frontiers Associates recently pointed to a fact that should make proponents of mobile money everywhere take pause.
Even in Kenya, one of the world’s most advanced mobile money markets, 92% of the total merchant population still prefers to be paid with cash. Only 2% list M-PESA as their preferred payment method.
So I was not surprised to read the following passage from an excellent study by CGAP into why more Indonesian merchants have not adopted digital payment devices (in this case mPOS). It’s worth reading the whole piece, but if you can’t here it is in a nutshell:
Most of the merchants interviewed had already been offered traditional POS by Indonesian banks and were less interested in mPOS for its payment acceptance features alone … Instead, we found that merchants are excited by value-added applications on the smartphone … Specifically, they were excited by features that would improve business processes and relationships with customers.
“Transforming Payments through mPOS: Perspectives from Indonesia,” CGAP, October 2014
At Kopo Kopo, we believe in the transformative potential of mobile payments. We see them improving merchant and customer’s lives thousands of time per day. (More than 7,000 per day now and growing!)
So it’s worth considering for a moment, some of the reasons why merchants like cash. Some are practical, some are strategic. All have a bearing on how to go to market to build a merchant network. These are the reasons we spend our time thinking about:
1 – Cash, as Yogi Berra once said, is just as good as money. It’s known. It’s fast. There’s no uncertainty about whether you transferred it to the wrong account. For many business transactions, people like cash. It works, even despite a few problems. And merchants know how to solve those problems.
2 – Digitizing payments is a disruptive technology. As Clayton Christenson pointed out in “The Innovators Dilemma,” disruptive technologies must first change the relevant axes on which markets evaluate their use before they break through to widespread adoption. This has not yet happened for business payments in emerging markets. (More on this in a future post.)
3 – Cash is “free.” Digital payments are a cost center. Someone, whether the business or the customer, is going to have to pay something. Merchant network acquirers need to sell a merchant on accepting payments. And the cost to digital payments is explicit where as the cost of cash is hidden.
4 – Digitized payments also fall prey to the classic adoption challenges of any new technology highlighted in “Crossing the Chasm,” by Geoffry Moore. (More on this in a future post too.)
5 – “How will this new payment type help my business?” Business owners are very busy, and accepting payments is actually a very small part of their business. If they do not see an immediate, understandable need, it’s not worth their time. Mitigating internal leakage, theft, change shortages, are good reasons, but unless the merchant has had a recent problem, they are peripheral to the business (like buying insurance).
None of this means that business won’t adopt mobile money payments.
In fact, our experience with thousands of business customers in East Africa has convinced us that they will.
But it does mean is that acquirers need to bring more than just payment acceptance to the party if they want to build an active merchant network.
Written by Brent Chism, Head of Business Development, Business OS at Kopo Kopo
Originally published on the Kopo Kopo Blog.
