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The microeconomics of mobile payments

Abstract

In this paper, a Kranzberg [32] - Lancaster [34] approach is employed to investigate the microeconomics of mobile payment methods. The adoption of these technical innovations depends, among others, on the acceptance by consumers that can be analyzed with a Lancaster characteristics demand. With a Kranzberg technology matrix, the technical and institutional details of payments can be transformed into salient characteristics of payment instruments that are relevant for Lancaster demand of payment methods. While cash and card-based payments are mostly Kranzberg-complete technologies, novel forms and means of mobile payments lack certain features, i.e., they are Kranzberg-incomplete innovations. Mobile payments are incomplete concerning technical, institutional and regulatory details. As a consequence, this incompleteness may result in a lack of acceptance on the side of consumers since certain salient characteristics of payment methods are not fully developed. In particular, mobile payments are neither widely accepted by merchants, nor are consumers’ data and privacy protected. Kranzberg-completion of novel mobile payments is required to make them universally successful.

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Notes

  1. Of course, there are exceptions. For instance, in China, Japan, South Korea [41] mobile payments are widely used for certain kinds of payment. In addition, also in Kenya such payments are used, see [25]. However, because of their very different problems, in particular with infrastructure, developing countries are not considered here. – Moreover, Sweden intends to become the first country worldwide that abolishes cash as early as 2023 (Meissl Årebro [40]). A further step in the same direction is the so-called ‘e-Krona’ (electronic central bank money) project of the Swedish Riksbank (Sveriges Riksbank [55]). In contrast, as reported by Bech et al. [6], the demand for cash has been increasing worldwide, but its role is changing.

  2. Of course, there are countries where even cash payment methods and systems are Kranzberg-incomplete. However, the analysis of these methods and systems is not the topic of this paper.

  3. There are at least three comprehensive literature reviews on mobile payments research: [16, 17, 19].

  4. See [7] for the details of data collection. – In addition, note that the characteristics “mobility, reachability, compatibility and convenience” of [30] may be easily incorporated into the characteristics applied here. Moreover, the number of salient characteristics can be enlarged without difficulties, if necessary.

  5. Own translation of the following German notions in [20]: “Sicherheit vor finanziellem Verlust“, “Guter Überblick über Ausgaben“, “Einfache Nutzung“und “Vertrautheit“. For details of the empirical methods of data collection and the respective values of these items see the quoted source.

  6. For a complete table of variables and their meaning see the Appendix.

  7. Note that the relative price of mobile payments and cash payments consists mainly in the non-monetary costs of the (in)convenience of use. While cash, for instance, is ubiquitously accepted, mobile payment is not.

  8. As demonstrated by Dybvig and Spatt [21], in a static environment the government may induce agents to adopt a new technology – payment method –, by supplying a kind of insurance scheme for the case that not enough agents adopt the new technology. However, the government must know at least the preference distribution of agents concerning the technologies.

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Acknowledgements

Extensive and very useful comments on three earlier versions of this paper from four anonymous reviewers are gratefully acknowleged. In addition, I thank Steffen Bollacke for support with text editing. The usual disclaimer applies.

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Correspondence to Aloys Prinz.

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Appendix

Appendix

Table 1 Table of variables

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Prinz, A. The microeconomics of mobile payments. Netnomics 20, 129–151 (2019). https://doi.org/10.1007/s11066-019-09137-0

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Keywords

  • Payment methods and systems
  • Salient characteristics
  • Vector similarity
  • Kranzberg’s laws
  • Kranzberg-complete technology packages
  • Network externalities

JEL classification

  • D02
  • D04
  • D10
  • D62
  • O32
  • O33