Exploring merchants’ adoption of mobile payments A qualitative study on Swedish merchants’ perspectives MING THOI Master of Science Thesis in Informatics Report no. 2016:064 University of Gothenburg Department of Applied Information Technology Gothenburg, Sweden, June 2016 Acknowledgments After completing this Master’s thesis, the author would like to thank all the involved people that have realized this study. First and foremost the author would like to give special thanks to all the respondents that appointed time for this study and contributed with their valuable knowledge and perspectives. Secondly, the author would like to thank his supervisor Jan Ljungberg for the guidance throughout the study with concrete feedback. Thirdly, the author would also like to thank his better half, Annika Bach for her Love, support and encouragements throughout this study. Finally, the author would like to state that it has been truly interesting to explore and investigate mobile payments within the Swedish market. Mobile payments from the Swedish merchants’ perspectives are yet an unexplored field that needs more attention, which also makes it a timely topic and enjoyable to investigate. Abstract People have increased their usage of mobile devices in many aspects of their daily lives, especially within mobile payments. Mobile payments are expected to pave the way for an emerging cashless society. Merchants are considered those that create the market for other stakeholders by offering mobile payment instruments and services. Thus, it is of importance to avoid the chicken-and-egg scenario, where merchants are reclusive and cautious to adopt mobile payments unless customers’ demands for it, and vice versa. Although Sweden has shown a decrease of cash payments and is considered as successful regarding mobile usage, there has still been a modest adoption of mobile payments from the merchants. The purpose with this thesis is to get a deeper understanding of Swedish merchants’ perspectives regarding mobile payments in order to identify the key mechanisms for an adoption. The study has approached these issues with a qualitative study and formed a theoretical framework consisting of the topics of installed base, network effects, digital platforms, multi- sided markets, lock-in effects, path dependency, barriers to the adoption of mobile payments and capturing value from mobile payments, to examine 14 Swedish merchants. The findings suggest that knowledge is required to pass the instep threshold, taking advantage of each other’s installed base, acting on their own behalf to increase customer base, expenses rather than profitability, enables implementation of loyalty programs, enables conversion of physical cards into virtual, perceive barriers as low and perceive enough values are the key mechanisms for merchants to adopt mobile payments within the Swedish market. Key words: Mobile payments, Merchants, Installed base, Network effects, Lock-in, Digital platforms, Multi-sided markets, Path dependency, Apps Contents 1. Introduction ..................................................................................................... 1 1.1 Problem discussion ........................................................................................................... 2 1.2 Purpose ............................................................................................................................. 3 1.3 Research question ............................................................................................................. 3 1.4 Disposition ........................................................................................................................ 3 2. Methodological Approach .............................................................................. 4 2.1 Research approach ............................................................................................................ 4 2.2 Research settings .............................................................................................................. 4 2.3 Literature study ................................................................................................................. 5 2.4 Data collection .................................................................................................................. 5 2.4.1 Interviews ................................................................................................................... 5 2.4.2 Selection of respondents ............................................................................................ 6 2.5 Data analysis ..................................................................................................................... 7 2.6 Criticism of the sources .................................................................................................... 8 3. Mobile Payments ........................................................................................... 10 3.1 Characteristics ................................................................................................................ 10 3.2 Technology ..................................................................................................................... 11 3.3 Stakeholders.................................................................................................................... 16 3.4 Mobile payments in Sweden........................................................................................... 20 3.5 Successful mobile payments worldwide......................................................................... 23 4. Theoretical Framework ................................................................................ 28 4.1 Installed base .................................................................................................................. 28 4.2 Network effects ............................................................................................................... 28 4.3 Digital platforms ............................................................................................................. 29 4.4 Multi-sided markets ........................................................................................................ 30 4.5 Lock-in effects ................................................................................................................ 30 4.6 Path dependency ............................................................................................................. 31 4.7 Barriers to the adoption of mobile payments .................................................................. 32 4.8 Capturing value from mobile payments ......................................................................... 32 5. Empirical Results .......................................................................................... 34 5.1 Health Care Industry ....................................................................................................... 34 5.1.1 Hospital (R2) ............................................................................................................ 34 5.1.2 Pharmacy (R8) ......................................................................................................... 35 5.2 Food and Drink Industry................................................................................................. 37 5.2.1 Restaurant (R1) ........................................................................................................ 37 5.2.2 Coffee shop (R6) ...................................................................................................... 39 5.3 Art and Beauty Industry ................................................................................................. 41 5.3.1 Tattoo salon (R12) ................................................................................................... 41 5.3.2 Hairdressing salon (R9) ........................................................................................... 42 5.3.3 SPA (R14) ................................................................................................................ 43 5.4 Transportation Industry .................................................................................................. 44 5.4.1 Railway (R13) .......................................................................................................... 44 5.5 Entertainment Industry ................................................................................................... 46 5.5.1 Nightclub (R11) ....................................................................................................... 46 5.6 Fashion Industry ............................................................................................................. 47 5.6.1 Wrist-watch (R3) ..................................................................................................... 47 5.6.2 Clothing 1 (R4) and 2 (R10) .................................................................................... 48 5.7 Pure Retail Industry ........................................................................................................ 49 5.7.1 Household and gardening (R5) ................................................................................ 49 5.7.2 Beverages (R7) ......................................................................................................... 51 5.8 Summary of the coded materials ...................................................................................