Who signs up for NFC mobile payment services? Mobile network operator subscribers in Germany

Highlights

• Explores use of near field communication (NFC) payment system.

• The system is run by a mobile network operator (MNO).

• Distinguishes basic NFC payment use and timing of this use as dependent criteria.

• Considers socio-demographic, smartphone- and communication behavior-related use antecedents.

• Analyzes system-captured data for 1354 postpaid residential subscribers in Germany.

Abstract

Near field communication (NFC) mobile payment systems (MPS) enable customers to use their smartphones for over-the-counter payments instead of cash or magnetic strip cards. To date, worldwide the use of NFC MPS is still a niche application but, at the same time, it is growing quickly. Research exploring how NFC MPS users differ from non-users is scarce and mostly limited to future behavioral intentions instead of actual use behaviors. Therefore, the present study explores how 677 real NFC MPS users of the German business unit of a large mobile network operator differ from 677 non-users in terms of socio-demographic and mobile-device characteristics, mobile communication behaviors and the availability of merchants with NFC terminals in the neighborhood of their place of residence. NFC MPS users were likely to be male and older subscribers who were equipped with a larger-screen smartphone, generated higher mobile Internet traffic, held a music streaming service subscription, paid lower monthly bills for mobile communication services and lived in a residential area with a higher number of merchant NFC terminals. Furthermore, we shed light on how use predictors are related to the timing of subscribers’ NFC MPS use starts. Early users tended to be equipped with a highly-priced smartphone whose display screen was nevertheless smaller, used a music streaming service and generated lower monthly communication service bills. Implications for practitioners and scholars are drawn from the results.

Introduction

Since the introduction of the first payment systems making use of cellular mobile communication network elements and devices in the early 1990s, a plethora of such offerings has emerged on the market. Most of the early mobile payment system (MPS) variants required a radio connection between the customers’ devices and their mobile network operator (MNO) in order to receive or send a text message, a voice call or other data, respectively. This requirement is unfortunate because establishing a radio link is not always possible (due to network coverage gaps) and may consume considerable time. Therefore, new so-called proximity-based MPS solutions were developed. They enable MNO customers to use their device to pay without a radio connection to a mobile communication network. One variant of this class of MPS are near field communication (NFC) solutions (Ovum, 2016; see Fig. 1 below). They trigger payments by simply placing an NFC-enabled device at a distance of 10 cm or less to a seller’s NFC terminal at a point of sale (POS) as long as the transaction value is below a country-specific threshold.¹ Many MNOs offer NFC MPS in collaboration with a financial institution. Accordingly, MNOs act as an intermediary which provides banks with access to potential NFC payment service users. Typically, MNOs receive a fixed and/or a usage-dependent monthly fee per adopter. Therefore, running a NFC MPS is a potential source of new revenues for MNOs. In addition, the spread of NFC payment services among an MNO’s subscriber base may prevent its customers from churning (Reuver et al., 2015).

Worldwide, by end-2014 about 2 million smartphone owners had used their device at least once a month to make contactless NFC in-store payments at retail outlets. One year later this number already amounted to more than 31 million (Deloitte, 2015). Various market analysts agree that the proliferation of NFC MPS will continue to grow rapidly in the near future (e.g., Juniper Research, 2016, Ovum, 2016, Trendforce, 2016). However, to date, the use of MPS in general and NFC MPS in particular is still a niche application (Ovum, 2016). For Germany, which is the country setting of the present study, several reports also predict a speedy diffusion of NFC payment (e.g., Herrmann, 2016, PWC, 2014, PWC, 2016, Verifone, 2016). But in stark contrast to the “bright” forecasts, by the end of 2015 less than 4% of the 82 million people living in Germany had used their mobile devices at least once for an NFC-based mobile payment (Deloitte, 2016). Three country-specific reasons can be taken to explain prior low adoption rates: Firstly, at the end of 2015 merely 6.5% of the total of 108 million active mobile communication devices in Germany were NFC-enabled (Verifone, 2016). Secondly, in late 2015 only 10% (= 80,000) of all POS terminals in Germany were able to process payments via NFC (Bitkom, 2016). Thirdly, a majority of 53% of retail consumers in Germany still preferred cash to alternative means of payment (Bundesbank, 2015). This environment creates substantial challenges for NFC MPS suppliers in promoting the take-up of such offerings. Therefore, it is pivotal for NFC MPS providers to adequately identify consumers who are most likely inclined to start using NFC payment services as well as their counterparts who require extraordinary measures to lure them into MPS subscriptions.

Against this background, it comes as a surprise that no earlier empirical work has explored how MNO customers who have “really” adopted an NFC MPS offer of their carrier (i.e., are characterized by observable use behaviors instead of stated intentions to use/behave) differ with respect to objectively recordable personal characteristics, which are anyway at hand in an MNO’s data warehouse. Therefore, the present study contributes toward closing this research gap by examining NFC payment adoption in a sample of 1354 postpaid MNO subscribers residing in Germany. Adoption is captured as a two-facet phenomenon. Its first facet entails MNO subscribers’ (yes or no) decision to start using the NFC MPS in a study period from July 2014 to May 2015. The second facet concerns the timing of adopters’ use start during the study period (i.e., whether the first use occurred earlier or later). For both criteria we examine the extent to which socio-demographic, device- and usage-related characteristics as well as supply-side factors are able to predict them.

The remainder of this article is divided into five sections. The next section introduces variants of MPS. Section 3 reviews the relevant literature to develop hypotheses and research questions. Section 4 describes the empirical methods. Section 5 presents the empirical results. The last section highlights implications for both MNO practitioners in charge of improving the acceptance of NFC MPS among their employer’s customers and management scholars in the field of innovative MPS.