1. Introduction
By adopting state-of-the-art technologies, developing countries avoid the costs of unnecessary infrastructure or learning curves by moving directly to high effectiveness levels; possibly adapting the technology to a new context, and in some cases, such as frugal innovation, creating better value products. The alternative scenario may be developing countries inwardly, transferring advanced technologies that prove ineffective as social and physical infrastructures prove incapable of supporting their use [
1]. This paper explores mobile payments services (m-payments), in comparing the sectorial system of innovation in the developed country of the UK and contrasting it with the developing country of India.
Our argument is that despite the technological superiority of UK infrastructure, some aspects of the Indian m-payments sectoral system of innovation (SSI) are more innovative than the UK because of leveraging existing social networks and agreeing system-wide standards. This is significant since Gartner [
2] forecasts huge global growth in m-payments for millions of users.
In recent years, the unbanked UK population has halved from 2.7 million to 1.1 million. Now, 97% of adults are enjoying formal institutional banking and near universal mobile ownership; still, 44% of people with contactless Near Field Communication (NFC) payment options fail to use them, and only recently have UK banks begun offering person-to-person (P2P) transfers. The UK m-payments SSI is fragmented with banks, telecommunications (TeleCos) companies and retailers vying to impose standards.
The effectiveness of India’s m-payments SSI is highly significant since banking levels are lower than other developing countries with 35% of adults having an account at a formal financial institution, 55% having deposit accounts and only 8% having a formal loan [
3]; thus, a precursor to economic inclusion. As experiences in Ghana [
4] and China [
5] demonstrate, conducting business via m-payments accelerates small business development, yet India has 70 mobile phone subscriptions per 100 people, however, only 4% of Indians conduct m-payment transactions and 47% of households have no mobile device, despite local smartphone manufactures such as Micromax and Karbonn rapidly reducing device costs [
6]. An effective m-payments SSI promises social inclusion and economic development, while avoiding high transaction costs and the risks of physically sending hard currency.
The challenge facing both m-payments SSIs is to realize the potential advantage to users such as time and place independence, availability, possibilities for remote purchases and queue avoidance [
7,
8]. The m-payments SSI can overcome barriers such as premium pricing of the payments, complexity of payment procedures, a lack of widespread merchant acceptance and perceived risks [
9] including security, confidentiality, data integrity, authentication and non-repudiation and [
10] guaranteed anonymity and privacy.
To compare UK and Indian m-payments SSIs we provide a new multi-level SSI m-payments processual framework that focuses on firms as active agents occupying
ideas space [
11] to emphasize active agency. We focus especially on emergent business models as a measure of innovativeness, which we apply to interpret data from twenty-seven interviews with m-payments agents in the UK and India (see
Appendix A). From this comparison, one can conclude that in many ways the Indian SSI is more innovative, and parts of it more likely to internationalize. We address two research questions: how does the m-payments SSI shape business models; and secondly, what are the drivers of innovation in the UK and India m-payments SSI? In addition, we comment upon prospects for the sector in each country in global markets and their possibilities or ability to internationalize. In the following section, we define SSI, business models and mobile payment system. The next section is the methodology while
Section 3 presents the findings.
Section 4 is the discussion followed by
Section 5, which is the conclusion and mentions future research.
3. Methodology
This research is an exploratory inquiry; exploratory because it relates to an emergent sector in which innovation patterns and processes are experimental and provisional. This is essentially qualitative research relying upon semi-structured interviews and masses of secondary data interpreted using basic statistical techniques and presented using qualitative statistics. This research is inductive [
47] and interpretive in order to understand social facts whilst acknowledging they are not out there awaiting discovery. Thus, social facts require social construction as Rabinow and Sullivan [
48] insist. This is a process that Yanow [
49] calls making meaning or having assembled facts. These facts are given a structure in order to draw conclusions; the persuasiveness and generalizability of which are for others to decide and the business impact to be dictated over time.
The research asks forward-looking social and business questions (change drivers, nature of innovation, global leadership), therefore as Hewitt-Taylor [
50] and Ambert et al. [
51] argue, one cannot simply extrapolate from gathered data. Positivist projections from a small evidence base are a recipe for business disaster [
52]. Nonetheless, difficult questions about the future of an emerging technology cannot be answered through interpretation [
53]. Therefore, the research is primarily interpretive, asking as Saunders et al. [
54] suggest, “why” and “how” rather than “what” questions.
We take a case study approach, since as Saunders et al. [
54] note, provided the cases are rich, they reveal the big narratives and details of causal relationships between agents and with different levels of the environment. Multiple cases such as the UK SSIs and Indian, allow for comparison [
55].
One of our co-authors conducted 27 semi-structured interviews in the UK and India, selecting high-level interviewees (policy or strategy makers) influencing m-payments innovation. Interviewees heralded from major network providers, software developers, banks (RBS and Barclays in the UK), systems integrators, senior Government officials and solutions providers. These included Vice Presidents of Banks, the Department Head for banking inclusion in India, the Deputy General Manager of a major Indian Bank, and the CEOs of seven software, solutions and systems integrator companies. Most interviewees choose anonymity, only those respondents giving express permission are cited and then only by position, not name.
Prior to semi-structured interviews, we rigorously desk-researched the firms, their products and any public documentation related to the firms’ products or services. Interviews were recorded and transcribed, then coded and themed, the themes from which structure our case study. Data is presented in the form of two case studies and analyzed using Nvivo in-case, then cross-case and finally triangulating with previous research: a thematic analysis.
As Eisenhardt [
55] argues, it is important to allow the unique patterns of each case to emerge before investigators push to generalize patterns across case; it gives investigators a rich familiarity with each case which, in turn, accelerates cross-case comparison. Our analytical rigor rests on three approaches. Firstly, we carefully coded from the cases, using terms such as innovation, learning, customers, competition, technology; identifying key nodes, meanings and patterns. Secondly, following Eisenhardt [
55] and Hartley [
56] we triangulate carefully with previous theorizations of m-finance innovation and cross-country comparisons As Yin [
57] suggests, we compare data with the related theoretical propositions that led to the case study investigation. Consequently, the data was analyzed using a clear conceptual framework, topic guide and reviewed literature on innovation (
Figure 3). This enables us to contrast the meaning and practice of innovation in m-finance compared to wider conceptualizations of innovation: building new theory from the cases [
58]. Our third protection approach to analysis has been a long period of collective sense-making around the ideas, actions and events that we record, during which each of us has evolved new interpretations.
We share Frederickson’s [
59] aim in cross-case analysis of creating middle-range theory, Llewelyn’s [
60] idea of context-bound conceptualizations by unpicking two complex contexts and then reintegrating them in a contextualized analysis [
61,
62]. Following Pauwels and Matthyssens [
63] our cross-case analysis is characterized by theoretical sampling, triangulation, analytical generalization and pattern-matching logic and a single validation route through concurrence and iteration. We closely align also with Gummesson [
64] who argues that generalization from such research is possible provided the results are re-contextualized echoing Elliott’s [
65] idea that trustworthiness rather than internal/external validity makes research worthy of impact.
Framework Development
In arriving at the themes, the SSI framework for m-finance was used to calculate the actual drivers of the innovation. Additionally, coded patterns started to arise where then it was integrated in succession of where the firms fell in the innovation process.
One of the main drivers of innovation is the supply. Throughout the data collection process, numerous firms were interviewed who either have the final relationship with the end-user or have relationships with other suppliers within the service chain. Another driver is the demand side of the innovation process, which is not necessarily created from the end-users, but by the suppliers themselves. In this case, it is the customers and consumers of the overall mobile payment system which include mobile banking and digital wallet. For each firm profiled in the next section, their customers are different since each firm provides an aspect of the overall service process. Majority of the banks, their consumers are the end user, whereas majority of the technology and software firms, their consumers are other merchants or banks or telcos. It all depends on the business model the firm utilizes as well as what industry the firm is from. Additionally, customers will depend on what aspect of the mobile payment ecosystem a firm utilizes.
Additionally, regulation theme will be discussed since regulation in both India and the UK are different, which causes the innovation process to be different even if demand and supply are very similar. Banks and other financial institutions are, at times, constrained by regulation, whereas other players in the ecosystem like telcos are not necessarily limited to the same regulations as financial institutions. For both India and the UK, approaches to regulation have been dissimilar. India takes a more conservative approach with the conclusions that consumers and merchants need to be protected. Although the population of the two countries are vastly different, India lacks a national system of identity cards, which effects the aspects of regulation as well as the innovation process. For the UK, regulation is more relaxed since there is no specific mobile payment framework. Regulation sits across a variety of bodies and rarely do these government bodies specifically have a focus on mobile payment systems. However, there is general guidance about how to communicate with customers and merchants. Yet, the relationship between regulation and policies with innovation is complex as well as dynamic.
The last theme in the driver of innovation is technology. Specifically, communication technology has been a core aspect of the innovation process and what creates the service as being innovative and new. As the ecosystem has grown in both developed and emerging economies, technologies have advanced and the financial industry is witnessing new entrants of intermediaries. Firms, however, have different aspects of the applications at their disposal for interacting with their customers. Yet, no matter the country, new technology can be limited and there has to be a distinction of mobile payment usage. When being specific in discussion technologies, for mobile banking these are: SMS text, mobile browser, custom applications. For mobile payment technologies: NFC companion devices embedded NFC, SMS text and voice. These technologies are either specific for mobile payment system or are used in both banking and non-banking service. However, payment systems can be bundled together with other processes which can create confusion and slows the development of usage. Each profile case will discuss the technology aspect of their service process.
Table 1 presents the variables in our analytical framework, bringing together the dimensions of m-payments SSI (
Figure 4) with the business model choices facing the m-payments firm. Note the firm is an actor in a m-payments value-system; depending on power and value-flows [
66] in any particular SSI the key actor may be a bank, network, ISP, platform, application and/or device manufacturer; the firm may be indigenous (targeting international and/or local markets), inward investor or some form of joint-venture. Solution service offers may be narrowly focused or cross the spread of 5-M’s: movement; moment; me (communities); money and/or machines (device fusion) suggested by Ahonen [
67]. One should draw attention to fifteen key variables influencing innovation (numbered in small circles) and detailed in
Figure 4. The assumption is that Clemons [
68] is correct in arguing that advertising plays little role in effective m-payments business models since customer neither trust, want or need unwanted referrals, especially when deliberately misdirected to wanted sites.
For the actual payment process, there are specific stages where the business model is affected at every point according to Ondrus and Lyytinen [
69]. The first stage is that strategic, inter-organizational alliances need to be formed. These alliances include the network operators and financial institutions forge partnerships to facilitate the delivery solution. As a unit, this is what Ondrus and Lyytinen [
69] term the newcomer who must proactively forge relationships with merchants and business intermediaries to strengthen its competitive position in the marketplace. They then must act as insurgents to generate awareness, attract customers and gain market share. The last process is where these novices must forge relationships with device and infrastructure manufacturers, which are interoperable and permit scalable payment solutions [
69]. In opposing the view of Whitley [
70] that national markets can be differentiated as liberal or coordinated market economies, it seems therefore meaningful to ask if Indian or UK based firms will be most successful in international m-payments markets.
5. Discussion
5.1. Drivers of Innovation in the UK and Indian M-Payments Sectors
TeleCos in the UK (Vodafone, O2 and EE) and India (Bharat, Tata Indicom, Reliance and AirTel) are being squeezed. Given the ubiquitous availability of banking, point-of-service (PoS) access and the Internet in the UK, it is understandable that the telecommunications network is considered a commodity product, necessary as a background partner but not new value-adding in the m-payments SSI. India’s TeleCos occupy a more leading position in m-payments innovation, however, the strategic priorities are set by the state to extend the 2G network, thus, in India, state policy rather than TeleCos are drivers of innovation; at NPCI’s behest intermediaries occupy the SSI’s ideas space.
Indian Banks are in danger of occupying commodity service space, as holders of deposits and data, whereas the institutional arrangements in the UK enable entrants to become banks, retailers, branded companies in partnership with banks and credit card companies. Low 3G reach in India coupled with strong regulation is inhibiting banks from being innovative e.g., in apps, m-wallets and NFC, whereas the UK Barclays case, demonstrates a bank being radically innovative (P2P transfers). From the viewpoint of unbanked non-customers, the SSI in India is innovative; however, intermediaries with NPCI’s support drive innovations rather than TeleCos and Banks.
From the perspective of innovation ecosystem, technological innovation should be connected to business model development and target markets as a positive innovation flows and feedback loops [
72]. Therefore, SSI is not just a technological innovation but requiring more cross-disciplinary applications and interactions with the users. Previous studies proposed the concept of open innovations based on the transfers across the boundaries of knowledge & technology and different types of entrepreneurial cyclical dynamics, such as market open innovation by SMEs and start-ups, closed open innovation by big business, and social open innovation [
73,
74]. By comparing the practices of SSI in India and UK, Indian innovation is much more closed and less international than the UK. M-banking is cost effective, but, overall, India is much more customer oriented. At first sight this seems irrational given India’s international success at back-office data manipulation (Infosys, Tata, Reliance) and the direct involvement of these companies in TeleCos. Regulatory constraints (2G expansion, bank restrictions, ownership restrictions) explain absence of international involvement in the Indian m-payments SSI, noting that firms such as TIBCO are also back-office service providers. In the UK, banks and TeleCos are internationalized, making the SSI more open to new ideas, however, because of the lack of system-wide standardization, product innovations thrive though processes inhibit interoperability [
75]. Indian institutions oblige banks and TeleCos to work with intermediaries creating system-wide standards to support innovative services; in this sense, the Indian m-payments SSI is the more innovative, especially from the viewpoint of the unbanked population. The UK SSI meanwhile, with exceptions such as Barclays, is focusing upon cost-down innovations such as NFC and m-wallets, neither of which are radically new products. India’s business models based around high-volume, low-cost services are more radical and far-reaching than the UK, where data transfer contracts accessed by look-alike apps dominates m-payments, perhaps understandably since many people prefer to do internet-banking at home and restrict m-payments to micro-payments.
5.2. Innovation in the UK and Indian M-Payments Sector
In terms of innovations, the potential of these m-payments SSIs to become global leaders, technology shifters, satisfied adopters or laggards relates to their innovation processes. The UK’s regulatory environment enabling m-payments market entry, ICT infrastructure rolling out 4G and availability of m-wallets and NFC for nomadic micro-payments all suggest a highly innovative environment that (given the internationalization of its banks and TeleCos) could aspire to global leadership. However, many countries are protective of the banking system and may be techno-nationalistic [
76] since control is important to economic development and stability. Thus, it is difficult to conceive that Barclays will become the dominant m-payments provider globally. Further, such a scenario presumes that bank(s) and TeleCo(s) joint-venture internationalization, when the evidence is that they cannot cooperate effectively at a national level. Far more likely is the internationalization of back-office m-payments systems, perhaps emulating, and possibly sourced, from the Indian firms successfully manipulating data and providing TeleCo services in India. Given low penetration of 4G and 3G in developing economies, technology-shifter appropriate or intermediate technologies may more successfully internationalize than m-wallets and NFC; at least in the short-term.
The importance of branding in sectors where consumer trust and recognition are important cannot be underestimated. By customer numbers, the Agricultural Bank of China (ABC) is the largest (320 million), followed by the Industrial and Commercial Bank of China (282) and Citigroup (200); RBS has 23 million; Baroda a similar number. ABC’s customer base is equal that of iTunes and Amazon which enjoy, outside of China, much higher brand recognition. There lies the possibility that a disruptive player will enter the m-payments sector with a global standard to alter completely the nature of m-payments innovation.
Each of the Indian cases reveals a unique business model; the UK SSI is innovative, however not in business models, rather in channels (m-wallet, NFC, apps). Each SSI shows itself capable of generating radical and incremental innovations. An advantage of flexibility in business models is that as new coalitions come into being, the distribution of value in the chain can alter. UK business models are bank-centric or mobile network centric with more collaborative models (m-wallets and NFC growing in popularity) and independent operators (retailers etc.) in direct competition with banks and network providers. Again, the governances of the UK SSI have retarded the growth of collaborative models whilst the Indian system encourages them, although Indian business models have yet to achieve national (as opposed to regional) standards. It may be that the emergent collaborate UK business models become the dominant.
In comparing SSIs in their ability to achieve internationalization is possible, but difficult. Financial services embody cultural proclivities and are difficult to internationalize, though currency exchange and micro-payments may prove the exception. Barclays P2P transfer services are clearly capable of internationalization, the Indian systems less so; like M-Pesa it depends on nation communications networks and signals via texting. The EU Directives on m-payments are designed to encourage single-market internationalization but only via call-centers. Other countries’ m-payments systems also struggle to internationalize: in the case of Japan because it is too advanced. Korea’s Danal m-payments system is targeting other Asian Markets. The Chinese Government, like India’s, has targets non-banked people in encouraging Alipay, China M-World (a m-wallet) and Monternet (a network billing micropayments system), SmartPay in China supports P2P transfers and is already rolling out in the Philippines. Third-party payments are the driver in the Chinese m-payments SSI. It seems unlikely, that either the UK products, confined to the EU, or the Indian products, confined to India, will rapidly internationalize, though in India’s case, firms offering back-office support may join international consortia offer m-payments services.
6. Conclusions and Implications
Despite being similar in many aspects, there are significant differences between the UK and India. They embody contrasting characteristics in terms of their socio-economic and cultural background. The UK represents a populated, developed economy with an occidental cultural heritage; whereas India typifies a populous, emerging economy with an Asian cultural heritage. Consequently, although, there are several differences between the UK and Indian service sector. For instance, the UK financial service sector is mature and dominated by large global players. Additionally, like many other developed countries, the UK has gone through a process of deregulating and privatizing the financial service sector. On the other hand, India has only recently emerged as a country of immense industrial power that is actively pursuing policies of economic liberalization and privatization. For banks, though, the question is no longer whether mobile banking and payments will be important and sustainable because they are innovative for all aspects of m-financial services. To reap these opportunities, banks will have to overcome both internal and external challenges, noting, however, that the bigger obstacles such as the development of standards, the roll out of technologies, the adoption of services, how to work with new and emerging value chain partners, how to endorse new revenue sharing models that properly acknowledge each player’s role in delivering mobile services are systemic, are thus largely beyond the control of banks or financial service firms individually. Furthermore, the road to any m-services in the UK is fraught with risk as a combination of nascent technologies, unproven demand, fractured approaches, and the lack of standards and networks more so than in India.
In developed markets, the emphasis must be on speed of transaction, convenience and value, as many people have accounts where basic services like direct debits and standing orders already operate to the satisfaction to the customer. It is a different proposition when considering developing countries. The main distinction comes from how developing countries stack up in terms of existing private banking framework. However, in the future, cost will not be so big of an issue simply because mobile transcends the costs. Mobile remote payment has huge potential in markets where this infrastructure is scarce, as it enables two parties to send and receive payments or exchange funds using the mobile channel, irrespective of where they are located. This allows the transfer of funds or payment of a bill with nothing but a mobile handset and the payee’s payment reference/phone number. The payment received from any such transaction can then be redeemed as airtime, goods or cash at selected merchants. The size and population density of these markets make them a very attractive proposition for m-financial stakeholders.
A fundamental challenge identified in the UK is the lack of strong innovative specific institutions, specifically the regulative institutions for m-payment systems as a whole. While in India, poorly managed implementation of some of the regulative institutions has led to strengthening of cognitive institutions amongst firms as a consequent of regulation that includes a sense of disadvantage, helplessness and exploitation, and lastly, distrust of the government. Results in the UK have shown that certain firms are creating groups of alliances which involve more than two firms such as Weve; whereas in India, firms are forming individual alliances with other firms. Group alliances are more likely to involve communication across multiple partners and joint ventures with shared control, but it might also constrain the firms involved. Such constraints are likely to detract from innovation.
Implications
The implications for m-payments in many countries are far-reaching and evolutionary as such applications can be described as being almost disruptive innovations because their effects are life altering where changes in the way consumers go about their daily routines are increasing. For practitioners, the research is organized based on a set of factors. Practitioners should direct innovation and technological development towards creating better interoperability with users and merchants. Furthermore, findings indicate in which the business models of m-payment systems will need to evolve from limited proprietary solutions towards cooperation and standardized solutions in order for firms to succeed and become global players.
The study emphasizes the importance of integrating firms’ activity (including new product and service design) into integrated service systems since the particular nature of these systems for m-payments varies between contexts. For instance, demand-driven innovation influences the way products are manufactured to fit consumer needs. For innovative products that fulfil consumers demand to be successful, tight user-producer relationships must be established throughout the development process. Failures to form successful user-producer relationships may mean that developed products are not suitable or that end-users are not receptive to using them. Thus, there is reason to believe that India could be successful in creating a new service development at a lower price than the UK; especially within the business correspondent business model. Thus, existing theory needs to take into consideration the possibility that emerging market firms are perhaps more innovative than developed countries, and consequently, future research should address this with caution.
As new technologies, products and business models develop, new markets and market failures may emerge requiring changes to the existing regulatory framework. The research notably finds that the impact of regulation on innovation is influenced by the way in which new proposals are designed, implemented and enforced. Evidence shows that policy makers and regulators are more likely to support innovation or avoid hampering it. Yet, they provide businesses with some flexibility as to how desired policy outcomes are delivered, clearly inform businesses about future changes in the regulatory framework well in advance, specify desired outcomes which cannot be easily achieved using existing technologies and business practices, stipulate clear requirements, reducing the possibility of misinterpretation, impose minimum compliance costs, and complement other government market-based and regulatory-based policies that promote innovation. A consensus view in literature concerning the role of governments is that they need to provide the economic and legal institutional framework for businesses. For example, in the context of emerging economies, emphasis is placed on government responsibility where institutional conditions either enable or hinder entrepreneurship, and the regulatory protection of vulnerable consumers. However, government intervention should not duplicate nor crowd out firms, but offer a balance in both countries.
In regards of the relationship between regulation and innovation, this relationship is ambiguous when it comes to such issues as competition. Pro-competitive regulation that prohibits anti-competitive behavior encourages innovation by reducing barriers to entry for new, more innovative firms, and by allowing firms to choose more freely the strategies and business models which best facilitate innovation. Yet, the same regulation may restrict innovation by preventing businesses from collaborating closely at the R&D stages, preventing certain organizational structures or the formation of some agreements which could facilitate the transfer of knowledge and technologies.
There are several important repercussions for how innovation in developing countries is perceived. It is unknown to the extent to which the innovation processes discussed here apply to other high-tech fields. More research on the process of innovation in other emerging sectors as well as further exploration of innovation in developing countries is needed to expand alternative models to those currently in the literature. Thus, one can conclude instead that innovation in emerging fields that have yet to reach their technological maturity is just as strong in developing countries as compared to developed countries. Furthermore, innovation happens in developing countries through processes that are more complex than originally conceptualized.