By first launching M-PESA as a service for payments between private individuals, the company was able to focus on getting one group of customers to connect to the service. This made it possible to exploit the existing network effects immediately and completely. Once the private customers were connected and were using the service, the time was ripe to also offer it to merchants. In this way the company got around “the chicken and egg” problem. Finally, the company already had access to the required IT platforms and communications equipment as part of its standard business operations. This made it possible to avoid high investment costs and to exploit advantages of scale by producing payment services using the existing infrastructure. Nor was there any competition from any other product. A well-developed business concept thus made it possible to overcome all the barriers I mentioned earlier. Cash usage in the future But what does all this mean to the use of cards and cash in the future? Will cards be outcompeted by new products and will cash gradually disappear entirely? I don’t think so. 4  BIS central bankers’ speeches  Assume that someone wants to launch a new payment service for everyday payments and that this service is not based on any existing payment service. If it is to be anything more than a niche product it will have to compete with cards.
However, high initial costs combined with the strong position of cards in terms of low costs, extensive networks and a reliable circle of customers at the banks who are used to handling cards present strong barriers to such genuinely new payment services. Remember that M-PESA’s success is based on the fact that only a small part of the population had bank accounts and that cards were unusual. The situation in Sweden is entirely different and as far as Sweden is concerned I do not think that the threat to cash (or cards) comes from a genuinely new product. One alternative to building an entirely new payment service is to further develop an existing service. This could relate to a new way of initiating card payments, for example by using mobile phones. In this way the new service would benefit from the advantages of scale and network effects provided by the existing service. The initial investment would also be lower as the infrastructure is already in place. The barriers to such payment services are lower than for genuinely new payment services and it is probable that development of this type would primarily be pursued by the existing players on the payment market, possibly in cooperation with an external party such as a mobile operator. Swedbank and Payair are currently running a pilot project in Uppsala on the initiation of card payments by mobile phone. Such solutions may reduce card usage in the retail sector if they are perceived to safe and easy to use.