In this study, we performed a multiple and comparative-case study among eight mobile payment platforms (i.e., banks, retailers, mobile network operators, and startups), which either protect or enter the payment market. Market entry is a strategic and costly long-term decision, reflecting management’s attitude towards risk taking, where entries to platform markets are particularly challenging to enter (Eisenmann et al. 2011). Accordingly, market entry is a suitable event to analyze the strategic posture (i.e., Business Design) of digital platforms.
The findings suggest that platform owners exhibit two types of market entry modes; first, an aggressive market entry mode that attempts to challenge the existing business and technology logic in payments (e.g., mobile network operators and startups), thus presenting innovation attempts that aim to replace established innovations. Secondly, a conservative market entry that introduces gradual improvements
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into payments, which leverages on existing technologies in an evolutionary way (i.e., retailers), thus having the properties of causing less friction, as the switching costs are lower compared to new incompatible new payment instruments.
For instance, mobile network operators (i.e., MNO) launched proprietary mobile payment services that were advanced in their technical features (proprietary mobile phones with), which could host selective/permissioned contactless services, after third parties entered into formal contractual agreements. In this setup, MNOs did not publicly disclose access points, which suggest opaque conditions for practicing interfirm modularity with third parties. Startups, on the other hand, offered documented and moderated access points and tools towards third parties. MNOs and startups followed a risky market entry strategy into the mobile payment market, as their mobile payment instruments were largely incompatible with the existing payment card-based infrastructure (e.g., payment terminals). Moreover, it presents an effort to disintermeditate the payment instruments offered by incumbents (e.g., plastic payment card). MNOs, however, faced resistance, as most businesses were not willing to replace existing payment terminals just to offer contactless payments. Secondly, payment incumbents like banks were not keen to have a new additional intermediary between payer and payees, which would weaken payment data collection efforts and the sustainability of customer relationships. To the contrary, mobile payment solutions offered by retailers were causing less friction from a technology viewpoint, especially on the merchant side. Retailers leveraged on existing payment terminals (i.e., payee) and mobile phones (i.e., payers) for conducting payments, which were simply updated with new software to display or read barcodes. In so doing, retailers were more careful and considerate in their service roll-out. Banks, on the other hand, were favoring contactless cards that were meant to continue to sustain the existing business logic and technology standard for doing payments (e.g., plastic payment cards, ATMS).
Business Design Findings
If I synthesize the aforementioned observations from a Business Design viewpoint, I identify the traits of
Defender Prospector, and Analyzer. MNOs and startups exhibit the attributes of the Prospector Business Design profile by pursuing a risky and aggressive market entry strategy that attempted to replace the existing business and technology logic of payment incumbents. Startups and MNOs, both fairly novices in payments, accept high risk by deliberately reconfiguring predominant payment value streams to their advantage. They do this by forcefully creating new user relationships by equipping payers and payees with new payments instruments. The retailers, on the other hand, showcase the attributes of an Analyzer Business Design profile by carefully entering the payment market with fewer frictions for the existing payment infrastructure. Lastly, banks as the incumbents of payments typically portray the Defender Business Design by protecting their market against new entrants. Market protection occurred in the form of sustaining innovation (Christensen et al. 1996) by issuing payment instruments
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that sustains their existing payment logic. In this context, payment cards were gradually improved with contactless payment features that promise a faster checkout times.
Architecture Design Findings
From an Architecture Design viewpoint, mobile payment solution showcased either a Centralized or
Hybrid Architecture Design profile. Looking at the bank’s Architecture Design profile (i.e., Defender),
all layers are proprietary, which allows the Defender to exercise monopolistic power over its digital platform in how payments are processed and delivered. In this sense, a CentralizedArchitecture Design
profile assists the Defender in achieving its Business Design attributes (e.g., exploitation, efficiency, high volume) in doing one task very well: payments. Looking at MNOs, retailers, and startups, they exhibit a
Hybrid Architecture Design profile. The service layers are shared by all three actors, while the device and content layers were largely proprietary. At the time of writing, the device layer among MNOs and startups was especially proprietary as they issued their own new payment instruments that offered a better proposed value proposition (e.g., mobile and contactless), whereas the retailers were more practical by using standard retail payment terminals, hence primarily controlling the service and content layers to offer their mobile payment services.
Technology Design Findings
From a Technology Design viewpoint, the banks (i.e., Defender) and MNOs (i.e., Prospector) present a
Proprietary Technology Design profile, which treats interfirm modularity with third parties closed or opaque fashion, as they are not disclosed to the public. In this sense, increasing barriers and transaction costs for exchange components or open innovation. The retailers and startups, on the other hand, exhibit a Compatibility Technology Design profile, which invites third parties to use their service layers by offering APIs or publicly available documentation to integrate their payment services into third-party systems. As third parties access these services, they are, however, limited in their functionalities and use cases to fulfill legal and technical requirements, as the payment industry is highly regulated.