Sweden is seen as the Promised Land in the payments industry, and not only in Europe but across the globe. While the rest of us are still grappling for loose change and crumpled banknotes, the Swedish, who have the highest card penetration rate in the world, are reaching for plastic.
Smartphone and mobile Internet penetration in Sweden is on the rise, and many are looking to the Swedish market to help ignite mobile payments. Sweden has great potential, and stood as the only European country that was predicted to see a drastic decline in cash circulation by 2012. However, like any market, barriers still exist.
PYMNTS.com has attempted to unfold the mystery of the Swedish market by delving into a recently published journal, The Future Of Payment Solutions In Sweden, written by Carl Bertilsson and Fredrick Hult. The authors study influencing variables that may push the Nordic country to adopting mobile payments.
Join today’s PYMNTS.com Research Review to find out what key technologies drive the Swedish mobile payments space today, and what we can expect to see in the Swedish market 5-10 years from now.
Understanding The Swedish
Card payments are the most popular form of payments in Sweden, which accounts for about twice as much as cash use within the country. Sweden’s number of card transactions more than tripled from 2002-2011, from 621 million to about 1,956 million.
The research reports that the Eurozone has 80 percent cash transactions, and the U.S. has about 60 percent. Sweden, the world’s leader in card payments, only has 30 percent cash transactions.
Sweden has had a significant drop in cash withdrawals. About 90 percent of Swedish citizens have access to a debit card, and 80 percent use online banking. In the last month, about 10 percent of citizens reported they had used mobile payment services, mostly through SMS.
A few technologies for mobile payments have emerged in Sweden, but NFC remains the most frequently used, installed and known amongst consumers. Researchers predict that NFC will soon become the most common standard for mobile payments.
But not so fast: this theory is contingent on a few factors.
Stakeholders Fighting To Break Threshold
Mobile payments are still an emerging payments alternative, which means stakeholders are still fighting to set the standard. However, the mobile payment stakeholders in Sweden are a complicated bunch.
Swedish banks are unique in the fact that they hold an oligopoly position in the market. Large banks, such as Swedbank, have made it nearly impossible for new entrants to come into the finance market.
Banks have a strong interest in the mobile payments revolution because most of its revenue is earned from card transactions. Swedish banks are fighting to protect their almost 100 percent share of the payments market, and have the advantage of holding a large customer base.
Mobile network operators also want a piece of the action in order to bolster their position in the mobile market, as well as find new sources of revenue.
Payment service providers (PSPs) won’t be left out, and are quickly moving to existing and new payment services via mobile phone. PSPs aim to beat the banks and include strong contenders such as PayPal and iZettle.
Who Decides The Winner?
Merchants are naturally attracted to mobile payment solutions because they are constantly looking for strategies to reduce costs, offer quicker services, and decrease cash management. Business owners may also be looking for ways to increase repeat purchases and customer loyalty, and mobile payments have the ability to integrate such programs.
Regardless, it is ultimately the consumer who will decide the winner of the mobile payments race. It is important for contenders to recognize that mobile payments require a huge change in consumer behavior, meaning mPayments players must be able to increase consumer motivation.
The authors insist that the top three realistic reasons consumers are moved to adopt mobile payments are convenience, simplicity and security.
Since mobile payments are still in the beginning stages, it is smart for stakeholders to invest a lot of money into marketing efforts and brand communication in the beginning. Users will more likely adopt a new technology if trust exists. Similar to merchants, consumers want a low-cost and quick payments service.
The Key To Sweden’s Success
The authors frequently use the words “trust” and “loyalty” throughout research discussion. Swedish banks are at an advantage because they have a strong customer base and brand trust. Instilling trust helps to reassure concerned customers that new products are reliable.
Companies with a large network and loyal customers will be able to control the market by blocking competitors and setting the pricing standards.
The research suggests the best way to build a customer network is through partnerships and integrating services. For example, big name banks could collaborate with MNOs to tap into customer networks and instill trust through a well-known brand name.
A powerful brand name has the ability to attract new customers as well as offer automatic loyalty. It is important to customers to decide on the best service the first time around, especially when switching costs are high. Collaborations also increase customer value, which is integral for locking in loyal customers.
Lastly, the research harps on businesses’ ability to innovate and extend complementary offers through mobile payments services. Swedish customers want more bang for their buck, and with more access to data they are able to easily compare services online. Customers will flock to services that go beyond payments, and look for loyalty programs, rewards and vouchers.
To read more, access the full report here.
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