Mobile payments & the billion rand feature

THE
BILLION RAND
FEATURE
The Consequence of Mobile Payments
in Bars, Restaurants and Coffee Shops.
PG 1 of 8 Market Research Insights Paper 13 October 2014
Compiled by: &Innovation Consulting [Pty] Ltd
Copyright: &Innovation Consulting [Pty] Ltd, 2014
Market Research Insights Paper 13 October 2014

Changes in technology often have large ramifications that are not anticipated or fully understood. An example of this can be seen
in how changing payment models impact both the business process and user experience, especially of restaurants, fast food outlets
and coffee shops – which are early adopters of this technology.
Consider the impact on tipping as cash is reduced and payment processes change. On the surface, this appears to be an insignificant
issue, but according to Stats SA and the DTI, restaurants and coffee shops were reported to have a turnover of R21 billion for 2012,
and tipping is estimated to be worth just under R2 billion annually. This is R2 billion in remuneration to staff that coffee shops do
not pay for, and a change in this behaviour could significantly impact the margin of the industry or the final price to consumers as
merchants increase their prices.
This paper aims to highlight how small changes have ecosystem-wide effects and how a structured approach to innovation allows
you to analyse technology shifts from a business perspective. It is focused on a very narrow segment of mobile payments, primarily
mobile app payments, as an indicative factor of behaviour shifts.
PG 2 of 8 Market Research Insights Paper 13 October 2014
THE CONSEQUENCE OF MOBILE PAYMENTS
Compiled by: &Innovation Consulting [Pty] Ltd
Copyright: &Innovation Consulting [Pty] Ltd, 2014

Potential impacts of mobile payments could include:
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Mobile Payments in South Africa;
Would You Like Coffee with That?
Mobile payment technologies have been in existence in South Africa for a number of years in the form of MTN mobile money,
Vodacom M-Pesa and other players. However, they have primarily been used for money transfer and not for payment to a vendor.
Recently, however, Cape Town CBD has been inundated with new smartphone-based mobile payment options that seem to be
making a splash. These new platforms are gaining better traction as payment models and may indicate a shift in consumer behaviour
and adoption. You would be hard pressed to find a café, restaurant or bar in the Cape Town CBD that does not accept one of the four
locally developed mobile payment options. This paper reviews these developments and analyses the early behavioural impacts.
Mobile Payment Contenders
Market Awareness
Limited consumer awareness,
stronger merchant awareness
Requirements
Requires POS camera
Market Awareness
Limited consumer
awareness locally
Requirements
Requires QR printing
Market Awareness
High consumer awareness,
Heavily advertised by
Standard Bank
Requirements
No hardware required. Dynamic
code can be used with QR printer
Market Awareness
Limited awareness
Requirements
Requires PayPoint POS app
POS Integration POS Integration POS Integration POS Integration
Full integration with
TabletPOS and Humble, API
can also be used or else added
as alternative payment method
Integrates with existing
POS system
Integrates with existing
POS system
Does not integrate
Four apps are currently competing for the South African market, namely FlickPay, GUST Pay, SnapScan and Zapper. All of these
were developed in South Africa, although Zapper has already achieved some success in Europe, where it was launched prior to
coming to the South African market.
Three of the four apps involve scanning a Quick Response (QR) code with a smartphone in order to initiate the payment process.
SnapScan and Zapper are similar in that they require the consumer to scan the merchant’s QR code when making a payment.
Zapper generates a unique QR code for each purchase on the merchant’s specially enabled POS whilst SnapScan uses static QR
codes which merchants print out and display on their counter. SnapScan can, however, be upgraded to a system that generates
unique QR codes, if required. Once the QR code is scanned, the app prompts the user to enter a payment amount, which will then
be processed using the pre-entered card details stored on the user’s smartphone. The merchant will receive notification of payment
on their cell phone, or their servers’ cell phones, depending on the package.
PG 3 of 8 Compiled by: Innovation Consulting [Pty] Ltd
Market Research Insights Paper 13 October 2014 Copyright: Innovation Consulting [Pty] Ltd, 2014

FlickPay also uses a QR code, but requires the merchant to install a scanner at the POS terminal that is used to scan the QR code
that the consumer generates on their smartphone, using the FlickPay app. Once scanned, the transaction will be processed using the
pre-entered card details stored on the user’s smartphone and the user and the merchant will get notification of payment.
GUST Pay uses a unique system whereby the customer’s smartphone and the point of sale is paired with the merchant’s (POS)
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Counter Service
Before
8BML*O
Order
Pay
Receive
User Journeys
To better understand the effect of the new mobile payments, we used a process from Human-Centered
Design and UX (User Experience) Design, called “user journeys”. This process identifies high points and low
points in the user experience, in order to create empathy between the designer/analyst and the consumers.
Two distinct user journeys emerged from our research, namely the counter order and table service
journeys. The counter order user journey is typical of a coffee shop, or somewhere where a consumer
will order, pay and receive their goods at a counter.
Positive
Neutral
Walk In Order Wait
Queue Pay Receive
Negative
Copyright: Innovation Consulting [Pty] Ltd, 2014
Market Research Insights Paper 13 October 2014
Copyright: Innovation Consulting [PTY] Ltd, 2014
Counter - Before
Smell of
coffee
Seeing the
queue
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the queue
Making
payment
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an order
Use card
machine/fumble
for cash
Order is
wrong
Place
order
Receive
coffee

Counter Service
After
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Skips Queue
Pay
Order
Receive
Mobile payments have a significant impact on these stores. Regular customers who know how
much items cost can use apps like SnapScan – which does not require the merchant to initiate the
transaction – to “jump the queue” by paying first and then ordering.
Keeping track of orders and reconciling them with payments can be challenging at the best of times,
and this places extra pressure on the merchant’s staff members to communicate and coordinate.
Counter - After - SnapScan
Walk In Order Recieve
Receive
coffee
8BJUGPS
coffee Order is
wrong
Positive
Neutral
Pay Wait
Negative
Snap to jump
the queue
Smell of
coffee
Show payment
notification
Internet
is down
Place
order
Counter - After - Generic
Walk In Order Wait
Queue Pay Receive
Receive
coffee
Order is
wrong
Positive
Neutral
Negative
Smell of
coffee
Seeing the
queue
8BJUJOHJO
the queue
Pay with
app
Making
payment
8BJUJOHGPS
an order
Internet is
down
Place
order
The table service user journey occurs when consumers sit down at a table in a bar or restaurant and order their food and/or drinks,
receive them and then pay. Mobile payments are not as frequently used in this case, but our research indicated that consumers prefer
mobile payments in these instances where there is either a time factor involved (the consumer would like to pay and leave quickly),
or the establishment is busy and any other payment methods may be long and tedious. Hygiene and security have also been cited as
deciding factors for wanting to use mobile payments, as consumers can avoid handling cash or credit card machines that have been
used by countless others, by simply using their own smartphone.

Table - Before
Walk In Order Receive
Sit Down Wait Wait For Bill Pay
8BJUGPS
bill
8BJUUP Payment
be seated
8BJUGPSDBSE
machine
Make
Positive
Neutral
Negative
Place
order
Receive
food and/or
coffee
Smell of
food/coffee
Being
seated
8BJUGPS
order
Order is
wrong
Table - After - Generic
Receive
food and/or
coffee Snap/ Zap/
GUST pair
to pay
8BJUGPS
bill
8BJUGPSDBSE
machine
Make
Payment
8BJUGPSDBSE
machine
Positive
Neutral
Negative
Place
order
Smell of
food/coffee
Being
seated
8BJUGPS
order
Order is
wrong
8BJUUP
be seated
Table - After - Flickpay/Basic SnapScan
8BJUGPS
bill
8BJUGPSDBSE
machine
Make
Payment
Pay at till
Internet is
down
Positive
Neutral
Negative
Place
order
Receive
food and/or
coffee
Smell of
food/coffee
Being
seated
8BJUGPS
order
Order is
wrong
8BJUUP
be seated

Speed - The Driving Factor
Although the benefit of not having to carry cash is often touted as a driving factor for using mobile payments, our research indicates
that the main benefit in using mobile payments is speed. Consumers are able to shorten the amount of time they spend queuing
and paying. This works especially well during peak or busy times in outlets like coffee shops, when customers are on their way to
work, or grabbing a quick lunch during a workday.
It is important to note the distinction between speed and ease. Most mobile app payments are not easier to make than conventional
card or cash payments. For example, FlickPay, Zapper and GUST Pay still require the merchant to initiate the transaction by
generating a QR code or pushing the bill to a customer’s smartphone, and they take almost as long a time as a credit card (save for
having to enter a PIN and waiting for the credit card machine to dial up to the bank’s system), but apps like SnapScan are self-service
therefore allowing users to pay without having to wait.
Tips - Higher or Lower?
The reduction of the time spent queuing and paying appears to come at a cost, not to the consumer, but instead to the service staff.
The actual time that is saved by using these new payment methods are diminishing the personal service moments. The loss of
such moments decreases the perception of quality of service, and accordingly the need for or value of tips from the consumer’s
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For coffee shops especially, the move away from cash reduces the amount of change customers carry, and have at hand to drop
into the tip jar, impacting tips significantly.
Payment Process Payment Process Payment Process Payment Process
Tipping Function Tipping Function Tipping Function Tipping Function
Not available in app Tipping option displayed under total
Tipping slider where consumer
can add a tip based on the
service they received
Not available for
standard merchants
If at a restaurant,
must physically go to till point
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Tipping Frequency Tipping Frequency Tipping Frequency Tipping Frequency
Decreased Increased Increased Decreased
Tipping Amount Tipping Amount Tipping Amount Tipping Amount
Decreased Unchanged Increased Decreased
Tipping as a Feature
Despite the loss of personal service moments when customers self-pay, where apps prompt consumers to tip, frequency and value
of tips have remained unchanged. By including an additional option to tip at higher than 10% for better than satisfactory service (as
with Zapper), our research shows that the size of tips have increased.
This is a great example of decision architecture and the framing bias, where the behaviour of users is manipulated through the
exposure to seemingly binary options. The user is now deciding between how much they will tip versus whether they need to tip
or not. Anchoring the minimum tip at 10% and providing easy reference for better service. The net effect of the decision architecture
(frequency of tipping) and framing (value) means higher remuneration for staff.
The impact of this on the restaurant business may be significant and one may see a clear preference for apps that generate higher
tips for their staff.

Value Threshold
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Currently, mobile payments are generally only being used for smaller transactions, which links back to the speed factor, where
consumers only use such methods in order to save time. Higher value purchases that involve a longer period of time are paid for
by credit card or cash. As consumers become more comfortable with mobile payment models, this behaviour is likely to change.
Advantage SnapScan
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distinct first mover advantage when it comes to widespread adoption. Due to the network effect, many stores and consumers take
cues from each other to see which app is the most popular before implementing it and using it respectively. The more users (both
retailers and consumers) that adopt the app, the greater the benefit to non-users to download the app. At this stage the advantage
belongs to SnapScan, who is being backed by Standard Bank and benefits from extensive advertising.
Internationally, Starbucks, M-Pesa, Square and others have proven the attractiveness of mobile payments to consumers
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there is still a high level of uncertainty whether or not mobile phone linked payments will be the clear winners.
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In conclusion, for mobile payment app developers, and their merchant clients, it is important to consider the impact on consumer
behaviour and what this will mean for their eco-system as a whole. Consumers will migrate to whatever is easiest and most
convenient to use without much thought being given to what the negative implications may be for merchants or their staff. But for
now, happy Flicking, Snapping and Zapping!
Note: Fraud Risk
The apps all use the “card not present” method of payment, and do not utilise the PIN code on the credit card for additional security.
All one needs to do is take a photo of your credit card, which then uses Optical Character Recognition (OCR) in the app to fill in the credit
card number whilst the remaining details (name, date of expiry and CVV) are entered manually. The app can then be used for payments.
Multiple users can utilise the same credit card at the same time (as we have tested on SnapScan) without raising any alerts via the apps.
The risk for fraud is therefore significant, even though the amounts involved are small at this point (because of the nature of the vendors using
these payment platforms). A big risk to the adoption of these mobile payment models is how the banks and card issuers will respond
to the increase in fraud or even perceived risk of fraud.
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Our Methodology
Our researchers held direct interviews with 15 merchants in the Cape Town CBD and observed user behaviour at these locations.
Ten consumer interviews were also held to verify insights. Desk research utilising Stats SA and DTI data on the restaurant industry
was utilised for market sizing.
WHO WE ARE
WHAT WE DO
PG 8 of 8
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applied strategic innovation – based on creative ideas and real world insights gained through
human centred design processes and other methodologies.
For more information, please visit: 72 Loop Street, Cape Town, 8001
Compiled by: Innovation Consulting [Pty] Ltd
Copyright: Market Research Insights Paper 13 October 2014 Innovation Consulting [Pty] Ltd, 2014

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