Talk of mobile is on everyone’s lips these days, the word “mobile” appears in more and more LinkedIn profiles, and articles about new initiatives appear daily. But I’ve seen very few attempts to figure out why mobile efforts succeed. That’s what I’ll try do to in this blog post. To keep things clear, I’ll focus only on payments that start on a mobile device and end at a physical point of sale.

Multiple parties are needed for a mobile payment solution to succeed, but two are critical: the buyer and the seller—the consumer and the merchant. Both of them must see incremental value in the new method that exceeds the effort needed to change from existing methods.

The starting point—the existing method—can differ by location and also by customer group, so incremental value that exceeds effort to change in one market/customer group doesn’t necessarily work for a different one.

For example: in a market where cash is the major way to pay, the incremental value of paying with a phone is much greater than in a market where payment cards are prevalent. And even in a market where plastic payments are well established, there are likely groups in that market that do not use payment cards.

Note that I haven’t mentioned networks, financial institutions, or mobile operators. They are required for success, but without consumers and merchants, their efforts, not matter how powerful, won’t succeed.

Starbucks is the prime example of mobile payment success in the United States. It started not with payments, but with a successful, plastic-card based loyalty program which was transitioned to a mobile app and added the ability to pay, transfer money, and more. As Rick Oglesby commented in Internet Retailer last year, "The actual payment component is nice and valuable, but ultimately, when you look at the capabilities built into the app, the value extends beyond having a quick and easy way to pay."

Consumers benefit: something they already engage with, a loyalty program, becomes simpler, and in the process they get additional benefits. And the merchant clearly finds this beneficial, since Starbucks developed and implemented the solution.

In a wholly different world, where cash is the main form of payment, m-Pesa has been a huge success. The consumer benefit is clear: life is hugely improved since the storage and transfer of money is simplified. And the "merchant," in this case the agent where cash can be deposited and withdrawn, gains a new source of revenue. Both critical groups gain.

Finally take transit systems, where contactless has been present for a while and mobile is making inroads. Consumers—travelers—gain by speeding their passage through turnstiles with something that is near to hand, a phone. And the merchant—the transit system—reduces costs and decreases congestion. Again, benefit for both parties.

If all of this sounds like a marketing exercise, of figuring out the target customer, that customer’s needs, and how to meet those needs, well, it is. But this marketing exercise has not been done well in most mobile payment efforts to date, and that must change for there to be broad success.

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