Linköpings Universitet | Institutionen för IEI 30 hp | Civ. Ing. Industriell Ekonomi – Strategi & Styrning

Höst-/vårterminen 2017-2018 | LIU-IEI-TEK-A—18/03006---SE

Exploratory study of market entry strategies for digital payment platforms Explorativ studie av marknadsinträdesstrategier för digitala

betalningsplattformar

Anna Marcinkowska Handledare: Daniel Kindström Examinator: Roland Sjöström

Linköpings Universitet

SE-581 83 Linköping, Sweden 013-28 10 00, www.liu.se

Acknowledgments

Without the help and kind support of certain individuals, writing this thesis would not have nearly been the exciting,fun and insightful experience as it ultimately became. I would like to extend my sincere thanks to all of them.

First of all, to my main thesis supervisor Professor Daniel Kindström, who I am particularly grateful to for alwaysmaking time for brainstorming sessions, for giving prompt and kind replies to emails even during weekends, and forkeeping my work on track. Thank you for your help. And to my examiner Dr. Roland Sjöström and my peer reviewerRebecca Svärdgren - thank you both for providing useful insights during seminars and for the continuous feedback inthe process of writing my report.

I have also been very lucky to have two student councillors who really cared about me and my work - Robert Nordman,thank you for your advice to apply to this university when I was undecided about the school I was enrolled in at thetime and for your kind support throughout my university years. And to Lena-Lotta Kjellman who believed in meenough to accept my application, enabling me to learn from the very best - thank you. My gratitude also goes out to allmy former co-workers at PayPal, thank you for the exciting day to day work-tasks, inspiring lunches, and for teachingme the basics of the digital payment market, ultimately setting the direction of this report.

I would like to thank my brother, for strengthening this report from its very core, and for always having patience toreason with me in all that I do - thank you. And above all, my most heartfelt thanks to my mom and dad, for alwaysbeing a source of encouragement and inspiration to me and who, leading by example have taught me to always aimhigher. My interest in science, technology, and everything there is to know, is without a doubt inspired by all thatyou do and I am truly sad for everyone who does not have you as their parents and best friends. Thank you for yourinexhaustible love and support.

Also, big thanks to my dog Kora - I don’t know how many spelling mistakes this report would have had if not for yourproofreading skills and sharp intellect.

Thank you all.

Exploratory study of market entry strategies for digital payment platforms

Anna Marcinkowska

Industrial Economy and Engineering, Linköping Institute of Technology

Abstract

The digital payment industry has become one of the fastest evolving markets in the world, but in the wake of itsrapid advancement, an ever increasing gap between academic theory and the actual reality of this market widens - andespecially so when it comes to entry theory. It is widely acknowledged that the world is moving towards an ever morehomogeneous economy, but despite the fact that payment preferences differ greatly from country to country - researchon this subject continues to revolve mainly around localized efforts. But as historical inequalities between poor andrich societies continue to dissipate - learning from nations at the forefront of technological advancement increasesthe likelihood that the developed strategy becomes applicable to an increased number of countries. By selecting anation most conducive to technological growth, the purpose of this report is to map the present dynamics in its digitalpayment industry using both recent and traditional market entry theory. However, studies geared towards globalizedstrategy formulation cannot be assumed as having guaranteed access to internal company-data at all times. So in orderto facilitate such studies, the level of dependency on primary data required for conducting such research needs to beunderstood first, which is why the work in this report is constrained strictly to data of secondary nature. This, not onlyto further map the characteristics of this market, but also to see how open the market is to public inspection. Ultimately,the academic contribution becomes that of providing a road-map towards adapting currently available market entrytheory to suit the rapidly evolving conditions of the digital payment industry from a global perspective and, whenfailing to do so, the aim is to also explore avenues for further research towards this end goal.

1. Introduction

The explosion of wireless communication in the early21st century has had an unprecedented influence on al-most every industry - and for the retail industry in par-ticular this has added what many consider an entirelynew dimension to online shopping as it has enabled andsimplified both purchases and sales [1]. With the growthof e-commerce, the digital payment market (includingweb-based payment solutions often identified as ’plat-forms’ such as PayPal or Apple Pay) has become one ofthe world’s most rapidly evolving new markets [2, 3].With this, cash payments are also becoming an ever moreobsolete aspect in the daily life of the global population,where mobile transactions increase dramatically year byyear [4]. In fact, between 2014-15, global non-cash trans-actions reached over 430 billion USD [5].

With the rapid yet unpredictable growth of this market,the theoretical landscape of strategies associated with itsentry is not yet fully explored. Although authors such asEvans (2003, 2009), Eisenmann et al. (2009) and Rochet etal. (2003), have contributed with invaluable research interms of creating a general taxonomy for this new mar-ket, as well as mapping the problem-areas and the vari-ous components for platforms in general [6, 7, 8, 9], fewstudies have focused specifically on the topic of marketentry for such platforms.

Staykova et al. (2013, 2015) are among the few attempt-ing to do so, outlining which factors determine the suc-cess of a digital payment platform. As one of the mostessential components of a business venture that is look-ing to expand its operation is its ability to predict theoptimal conditions for when to enter its chosen market[10, 11, 12, 13, 14], their research aims to give an answerto exactly that.

But despite these efforts, there are still many unknowns.For instance, because of digital platforms are built theyare easy to replicate [12]. And so, when entering thismarket, a platform runs the risk of experiencing lowswitching costs, since competitors easily can replicate asolution and steal market shares. The switching costs arealso low because there is still insufficient knowledge onhow to price the platform, and how to increase networkeffects - because, with an appropriate price and high net-work effects, the users would not seek out to switch sup-pliers. And perhaps most importantly, very few stud-ies engage with the issues often raised by banks, consul-tancy firms, and industry researchers — that the broaddiversity in payment preferences among different coun-tries [15, 16] precludes the formation of a practical, uni-versally fit entry-strategy. Presumably, this is what mayhave pushed most research efforts in this field to focusprimarily on localized trends and strategies. But in or-der to form a more globally comprehensive market entrystrategy for digital payment platforms, the question be-comes - which nation’s preferences and customs shouldsuch the strategy be based on?

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1 Introduction Purpose

Identifying a country most beneficent to a company’sgrowth is one of the most critical decisions faced whenmoving operations abroad [17, 18, 19, 20, 21], but itseems that more often than not, many opt to move intoa country with similar language, culture or political sys-tem [22, 23, 24, 25] rather than what is perhaps the lessapparent yet often - in the long term - more beneficialchoice. Recent studies propose that internationalizationinto developed countries may greatly improve perfor-mance while doing so within a less advanced climatemay in fact lead to the exact opposite [26, 20]. And be-cause of how greatly a business endeavor’s competitiveability is tied to the specific environment in which it isdeveloped [11, 27, 18] — by drawing experience fromsuperior markets, learning from both their leaders andtheir competitors, a company can achieve an advantageover competitors at home [28, 26, 29].

To this, many intergovernmental economic organiza-tions such as the UN, OECD and the World Bank up-hold the fact that the world is moving towards a morehomogeneous global economy, where long-standing his-torical inequalities caused by wars, colonizations or nat-ural catastrophes are in rapid decline [30, 31]. Therefore,the question should not be focused on which is better- to standardize or adapt a strategy towards a specificcountry (a question wrestled since the 1960s [32, 33, 34])- rather, the best strategy should be to begin with adap-tation towards the markets that are at the forefront of the

industry aiming to evolve within the most competitivelyfierce environment. This is not to say that globalizationwill come to form a perfectly uniform economy wherecustomer preferences are exactly the same everywhere.But assuming a more idealistic world-view for the pur-pose of this report allows for a more comprehensiveoverview - for example, assuming that all nations aremoving to a very similar political- and economical stan-dard, then - the standardization of any strategy simplybecomes a function of when the competing nations riseto the same economic and technological standards as thenation where the strategy is originally formed [35]. Un-der a simplified scenario, the wealthier and more tech-nologically advanced the nation, the better the chance tofind a globally generalized strategy.

1.1. PurposeThe purpose of this report is to formulate a general-ized market entry strategy for digital payment platformsthrough the study of secondary data in a competitivelyfierce environment.

Figure 1: Beginning with the background to this thesis, an environmental analysis is performed to find a case country most suitablefor developing a generalized market entry strategy for digital payment platforms. The literature review enables forming a theoreti-cally sound entry strategy based on which, acquiring case-company empirical data relies on publicly available data towards either anew strategy or mapping of future research.

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1 Introduction Choosing context for study

1.2. Choosing context for studyAs the choice of country can in and of itself have dramatic im-pact for whatever strategy is developed, the following sectiondetails how that choice was made in this report.

Because wealth is a broad term in our society which oftenvaries depending on context [40, 54, 55, 38], its meaningas used in this report has to be specified. Here, the defini-tion of wealth follows from a composite of indices wherethe selection of these has been made in consideration offinding a nation with strong tradition of investment intechnological resources, fostering innovation and free-dom of information but, perhaps most importantly: a na-tion that is already spearheading technological advance-ment and serving as a template for other nations to fol-low. Therefore, the term wealth in this report can be con-sidered as pre-conditions most favorable to digital economies.

Naturally, the choices made here could always be im-proved - one could for instance include a larger set ofindices, as is done for the compound Good Country In-dex1, and gain an even broader definition accounting formore aspects such as population health, longevity, orfreedom of press. In this report, the amount of indica-tors was limited to an assessment of seven indices (seefigure 2), and the significance of each is motivated in theupcoming sections followed by a list of the top 15 per-forming countries on each index.

1A compound index of a selection of indices, showing how much eachcountry on Earth contributes to the common good of humanity. [56]

Figure 2: Summarized descriptions of indices describing the wealth, level of innovation and technology in nations worldwide. Datawere compiled from Refs. [36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51].

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1 Introduction Choosing context for study

Prior to this, a pre-study was made with 30+ indices soas to also determine the validity of the method where amajority of indices were later excluded due to overlap -leading in the indices ultimately used in this report 2.

A measure often used to estimate the economic well-being of a country is the Gross Domestic Product (GDP)of a nation, where especially the GDP per capita gives anindication as to how well the countries are performingrelative each other. Many researchers however, find thismeasure insufficient as it focuses on economic output butnot economic well-being — excluding human- and socialcapital, raw labor, education as well as collectively heldassets [38, 40, 57]. The GDP per capita is therefore com-plemented with a literacy index and a democracy indexin this report.

2Limiting the study to the indices present in this report can be moti-vated as follows: Index data is often the result of compounding vari-ous studies into one model - these can often be derivative of one an-other, share relatively similar formulation or be closely related. Begin-ning with a large volume of index data ensures validity of the methodas well as availability of the data - especially for the latter as global in-dices tend to suffer temporal gaps or simply pertain to separate timeperiods. So even though a large set of indices could be perceived asmore accurate, because of the overlap in context - narrowing down tomutually exclusive components preserves the structure of the data butwith a concentration on the differentiating factors between each sam-ple. All indices and descriptions pertaining to each nation stem frompublicly available archives and have not been altered for the purposeof this report (for source citation, see figure 3 caption).

The reason why the level of democracy (DEM) is so im-portant for the subject of this report is because govern-ments of democratic countries often support R&D, gen-der equality and diversity, and give access to public doc-uments - affecting how well a country performs whenit comes to innovation. Democracy also raises growthby economic reforms involving investment in primaryschooling, better health, and taxation laws [42, 46]. Toadd to this, nations with autocratic regimes tend to per-form worse in trading with and prospering from its nat-ural resources due to the lack of well-functioning in-stitutions [58]. A nation simply cannot thrive in thedigital payment industry absent such institutions be-cause nations wealthy in natural resources run the riskof falling under what is referred to as a resource curse3

[58, 59]. By setting up laws through the oversight ofwell-administered institutions, such laws often increasethe chances of fostering a positive, conflict-free environ-ment promoting economic growth. As such, a high scoreon DEM is a pre-condition to a working digital paymentsociety.

3Resource curse - if a state lacks the necessary governmental infrastruc-ture to properly administer regulation of its own natural resources, itoften also lacks the means to effectively enforce restrictions for the ex-ploitation of those resources by others

Figure 3: Top 15 countries on each index. Data were compiled from Refs. [36, 37, 38, 39, 40, 41, 42, 44, 45, 46, 47, 48, 49, 50, 43, 52, 53,51]. For each index, the last data that has been made publicly available is included.

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1 Introduction Choosing context for study

Assessing the literacy level (LIT) of a nation is moti-vated by the fact that countries promoting strong literacyskills throughout their population are more successfulin fostering growth and well-being than countries withlarger gaps between high- and low-skill groups [60]. Hu-man capital indicators based on literacy scores affectthe growth path and long run levels of GDP/capita, aswell as labour productivity in a positive way, affectingthe level of innovation in a country [60, 61]. To deter-mine the literacy rate, instead of only assessing literacyachievement tests, research has focused on literate be-haviour characteristics [62, 48], referring to numbers oflibraries in a country, years of schooling, education in-puts/outputs and computer availability in the countries.

To assess the business environment in a nation, the levelof English proficiency (ENG) becomes an important con-sideration. Due to the British colonization, English hasbecome and remained the official language of business,science, diplomacy, communications and IT and withUSA’s cultural, economic, political and military influ-ence during the 20th and 21st centuries English is nowa key component of economic competitiveness [63]. Ahigher English proficiency often correlates with higherincomes, quality of life, more dynamic business environ-ments, greater connectivity, and more innovation [47].Countries that have better English skills also producemore high-technology exports and have high researchand development intensity, which is why it is an impor-tant indicator for the topic of this report. [47]

And as for digital payment platforms in particular, threeindices have been chosen to give an overview of the dig-itization level of countries — the Internet penetration(ITP), Global Innovation Index (GII), and Digital MoneyIndex (DMI). As digital payment platforms by their na-ture only exist online, and as innovation, growth, GDPper capita and social prosperity is closely linked with theusage of Internet - it enabling businesses and individu-als to do business globally and share information withinand across borders [30, 46, 64, 65], the Internet penetra-tion of countries is an important indicator as to whichmarket is most suitable to enter [64, 66]. The Global In-novation Index has the particular focus to assess the levelof innovation in a country [49]. With indicators aimed toexplore a broad vision of innovation, including politicalenvironment, education, infrastructure and business so-phistication, it becomes a necessity for this study. Finally,the Digital Money Index investigates how countries en-able a digital economy by analyzing the government andmarket environment of each country, financial and tech-nological infrastructure, the availability of governmentand private sector solutions that exploit digital moneyand the extent to which consumers and businesses adoptdigital solutions [39].

Figure 4: A compound of all the indices, see figure 3. The resulting score is a sum of the what scores (1-15) a country received oneach index. Only countries that are among the top 15 on any of the compared indices are shown.

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2 Literature review Timing of entry characteristics

In sum, while the GDP gives a bearing of the countries’overall economic wealth, the DEM, ENG and LIT covermore intangible measures such as education, interna-tional trade-readiness, and openness to innovative solu-tions. The industry-specific indices GII, INT and DMIgive further insight into which countries are currentlymost advanced in regards to digital payments in partic-ular. The 15 countries in each index category form thecompound result seen in figure 3.

Based on these results, there are several countries thatcould be chosen as the focus point of this report. As canbe seen in figure 4, the Nordic countries compose the topthree tier — Denmark, Sweden and Norway which ap-pear in the top 15 on every of the chosen indices. Thoughall these countries are deemed suitable candidates as forthe purpose of this report, the choice has been narroweddown to Sweden.

Figure 5: Data were compiled from Refs. [67, 68, 69, 36, 35, 70,71, 72, 73, 74, 70, 75, 76, 77, 78, 79, 80, 81, 82, 83]

But despite its advantageous business climate and read-ily available resources, few non-regional payment plat-forms have come to actually invest greater effort into es-tablishing a localized presence in Sweden. Although sev-eral digital payment giants like Apple Pay, Samsung Pay

and Android Pay have been introduced to various degreesin Sweden, none have established even a similar marketpresence as in their home-country or have come close totheir local competitors such as Klarna Bank AB (Klarna)or Getswish AB (Swish) [16]. Examining for instance Ap-ple Pay — with its 23 percent market recognition in Swe-den, although a seemingly high percentage, only 2 per-cent among these have actually used the product [16].In contrast, Swish has a 96 percent market recognitionwhere 59 percent of the survey participants are using it.To put that in a larger context, having launched in 2012,the company already has a user base of 5 million peo-ple only in Sweden, meaning that more than half of theSwedish population is currently using the service [84].Therefore, it becomes the main objective of this work to,by the application of modern concepts, theories and be-liefs, bridge the current gap in understanding how theunique conditions of this country’s market can be usedas a template for the future of the global market as awhole.

2. Literature review

The following literature study combines traditional market en-try principles with new research developed within the last twodecades. Beginning with key considerations in market entryfor digital payment platforms such as timing of entry, plat-form characteristics, network effects and pricing - the synthe-sis thereof later becomes the baseline for research questions.

Figure 6: Main entry strategy components evaluated in this re-port

2.1. Timing of entry characteristicsThe timing of entry into a market has substantial im-pact on a company’s competitive ability. By extractinga cross-section of academic work on this subject, threedominant methods of market entry timing are revealed[85, 11, 10, 86] — where at the market, the company caneither be a first mover, early follower or late entrant, asseen in figure 7.

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2 Literature review Platform characteristics

Figure 7: Main timing of entry approaches

The timing of entry approaches can be described as:

First mover refers to a company that pioneers a mar-ket offering which in turn may generate an entirelynew market in and of itself. [85, 11, 10, 86]

Early follower is a company introduces a new productalmost at the same time as a competitor, in order torestore competitive equilibrium. [85, 11, 10, 86]

Late entrant encompasses companies that strategicallyopt to postpone their entry so as to acquire thetime and resources necessary towards developinga solution that is better equipped to weather theunique conditions of its market. It also extends tocompanies that in one way or another have failedto assess their opportune moment of entry andhave to face an already matured market where anabsence of a robust solution may impose greateradversity for these types of ventures. [85, 11, 10, 86]

There are certain advantages which are inherently avail-able to the first mover [86]. Having a higher potentialof acquiring large market shares, building brand loy-alty [10], locking up sales by relying on switching costsor defining the standards for new technology [11], thefirst mover often gains experience from the market be-fore others. This becomes an important consideration interms of loyalty and recognition of the brand where re-search shows that customers have a tendency to remainwith the first brand they are exposed to rather than mov-ing onto subsequent entrants [87]. However, though be-ing first comes with lucrative opportunities, in the ab-sence of knowledge regarding the specific needs andpreferences of the market ahead of entrance, the venturewill at some point steer into uncharted territory. Doingso may of course carry broader consequences as an ill-prepared company’s entrance may entail significant lossof capital, valuable resources and time - only to map thecourse for those that eventually come in its succession.[10, 87, 85, 11]

In pursuit of the first mover, the early follower enters themarket with the intention to prevent the consumers frombecoming too accustomed to the initial offer, to capital-ize on the new surge in demand and to warn the com-petition that any new entry will be met with increasedopposition [85, 11, 10, 86].

Delayed entry might seem less intuitive at first due tothe increased saturation of the market. However, thisapproach too comes with certain advantages, for exam-ple — a company can strategically wait for the competi-tion to test the market, and by observing, gain an under-standing of the customers’ needs and the optimal marketoffering, without suffering substantial product and mar-ket development costs[86]. Also, late entrants can takeadvantage of the latest technology, while already estab-lished competitors must rely on past investments [88].

2.2. Platform characteristics

Figure 8: Platform characteristics

The term platform has seen broad application inacademia, and the definitions of it are many [12, 7, 8, 89].In this report, when referring to platforms, that meansthe following:

Platform a product or service that provides an infras-tructure facilitating interactions between groups ofusers. Can for instance be physical products, likecredit cards and authorization terminals, or ser-vices such as shopping malls or websites [8]. Ex-amples of platforms include Google, the YellowPages, and eBay.

DPP Digital Payment Platform, a specific type of plat-form, mediating monetary transactions betweenusers of the platform, where a mobile payment isdone by transferring money from one party to an-other by some digital means [90, 12, 91]. PayPal,Google Wallet and Samsung Pay are all examplesof digital payment platforms.

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2 Literature review Network effects

The platform market is often divided into categories,where the definitions thereof tend to vary, in this paper,three distinctions are made:

Plat f orm =

1S , one-sided2S , two-sidedMS , multi-sided where,M ∈ [3,∞[

This definition assumes that: 1S -users can gain benefitsfrom interaction with users on the same side of the plat-form whereas in a 2S , users gain benefits from interact-ing with a separate, complementary class of users on theother side of the platform. The MS is an extension of 2Sto which one or many sides of users are added 4.

2.2.1. Homing- and switching costsAs mentioned in the introduction, the platform marketis also characterized by the presence of switching- andhoming costs [8], where the definitions for these are:

Homing Costs include the costs that network users in-cur when making a "home" at a platform, includ-ing adoption, operation and the opportunity costof time [8, 12].

Switching Costs refer to the costs the consumer is facedwith when switching brands, suppliers or prod-ucts, and are therefore one-time costs in contrastto homing costs [7, 12].

The costs that arise when a customer begins using a plat-form are known as homing-costs [92], including the costof creating an account at a platform, downloading a fea-ture, or the cost of time spent when starting to use theplatform. When a buyer repeatedly purchases a ser-vice/product, or finds it costly to switch from one sellerto another - this is what gives rise to switching costs[93]. These costs can be strictly monetary, meaning thatit costs money to switch providers, or it can for instancerelate to the time the consumer spends in switching sup-plier [7, 12]. Large switching costs can create lock-in ef-fects, meaning that a customer would rather continuetheir affiliation with a platform provider, than switchingto another. By offering services such as long-term con-tracts to the buyer or by selling bundles of goods whichare compatible with one another companies can increasethese costs [93]. An example when switching costs cre-ate lock-in effects is in the case of mobile phone serviceproviders — to switch brand often requires a timely re-search on which other brands offer better or cheaper ser-vices, meaning the consumer might instead choose to re-main with its original provider.

4The MS platform is included here for the sole purpose of accountingfor all cases. However, throughout the paper, the MS platform liesbeyond the scope of the work.

2.3. Network effects

Figure 9: Network effects

Evans (2009) describes the number of users a DPP has togain in order to survive at the market as a critical mass,where he argues that the users on each side of the plat-form need to exist in the right proportions in order forthe platform to grow fast and often exponentially [94].

Critical mass refers to the number of users required tosecure the platform’s survival upon entry. [6]

Prior to reaching critical mass, the platform is very vul-nerable to competition [94, 7, 6], which is most oftenthe case for 1S platforms [7]. But, after reaching thatamount of users, there is potential for cross-side net-work effects to arise — which is the value created for onegroup of customers that depends on the number of othercustomer-groups joining the same platform [12, 7, 8] -and if positive, these can further incentivize the cus-tomers to continue using the platform. Network effectsare often described as follows:

NFX Network effects - referring to when participants oneither side of the platform are co-dependent on oneanother, such as consumers and merchants [12] andrely on the platform to mediate transactions be-tween them [7]. There are two kinds of networkeffects - cross-side and same-side network effects,which can be either positive or negative [12, 7].

Cross-side NFX if positive, refer to when members ofone side of the platform exhibit benefits from anincrease in the number of users on the other sideplatform. Negative cross-side NFX occur when anincreased number of users on the one side of theplatform affects the other side negatively. [7, 6]

Same-side NFX if positive, these occur when users fromone side of the platform attract users on the sameside of the platform by growing in size. If negative,more users on the one side of the platform repelmore users from joining on the same side. [8]

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2 Literature review How the components go together

Positive cross-side NFX occur for instance when morepeople start using Google search, providing the com-pany with more data which results in better search re-sults [6]. [6]. Another example of positive cross-side NFXis when an increased number of sellers on Amazon cre-ates a larger selection of products for the user base on theother side of the platform — the buyers [95]. And viceversa, the more buyers that start using the site, the moreattractive it becomes for sellers as their chance of sellingtheir increases [95]. An example of negative cross-sideNFX occur is when a website allows too many advertis-ers, repelling the users on the other side of the platform.The stronger the positive cross-side NFX, the larger theinitiatives for both sides to start and continue using theplatform [8] - this also increases the chances of the plat-form remaining competitive upon entry.

Positive same-side NFX occur for instance when morepeople start using a gaming console on one side, re-sulting in more people to trade games and play onlinewith on the same side [8]. Negative same-side NFX occurwhen a service becomes less attractive for users on oneside of the platform, the more users enter it on the sameside [8, 96]. Such is the case in for example the eBay-platform where, if more merchants enter the platform,the other merchants on that side are exposed to compet-itive pressure, effectively influencing the prices they cancharge for their service [97].

2.4. Pricing

Figure 10: How platforms are priced

One important factor affecting whether or not the cus-tomers start and continue to use a DPP is of course - theprice of the service [8]. To set the optimal price, plat-form providers have to not only create strong positiveNFX, but also consider each side’s willingness to payand the factors influencing that [7, 8]. Based on that, thetwo sides of a 2S platform are often charged differently— for instance, Google’s users are not charged for usingthe platform’s search function, whereas advertisers in-terested in gathering the search data from the other side,are charged a fee [6].

The two sides are defined as follows:

Subsidy-side charged nothing or a lower price than theother side of the platform, i.e. the money-side [8].

Money-side charged a higher price than the other sideof the platform, i.e. subsidy-side [8].

Determining the subsidy- and money-side most often in-volves looking at which side of the platform is most sen-sitive to price and quality [8], where that side is revealedby considering which side is most likely to discontinueinvolvement when exposed to increased charges.

2.5. How the components go togetherAccording to Evans (2003) and Lilien and Yoon (1990)a first mover should build its expertise in R&D, engi-neering, production and marketing ahead of entering themarket in order to successfully enter the market [85, 7].As mentioned earlier, the first mover advantage is signif-icant at the DPP market in particular, based on researchshowing that as soon as the first mover has entered themarket, that action speeds up the entry of the early fol-lower [12]. When demand for the product is made ap-parent at the market, Staykova et al (2013) and Thomas(1985) recommend for the early follower to launch itsDPP as soon as possible after the first mover as the en-try barrier of a large user base is often hard to overcome[12, 10]. This is supported by Lilien and Yoon (1990),stating that, unless the expertise in R&D, engineering,or production can be enhanced significantly by enteringlate, then the early follower should enter as quickly aspossible after the first entrant.

On the other hand, Staykova et al (2015) are less com-promising on this matter as they argue that, especially atthe DPP market, the early follower should ignore stallingthe entry altogether and instead immediately focus onimitating the first movers strategy due to the fact thatthe switching costs and lock-in effects are initially low.According to these authors, if the first mover offers aplatform with low homing and switching costs, the earlyfollower’s solution should do the same, as that can en-courage the consumers to use several platforms at once- so called multi-homing. If the early follower wouldin fact offer a platform with high homing- or switchingcosts, it might deter users from the initial offer to mi-grate to another, later solution [12]. As such, by enter-ing rapidly after the first mover and imitating its strat-egy, the early follower may therefore restore competitiveequilibrium [10]. This seems especially true for the lateentrant as presented by Thomas (1985) and Lilien andYoon (1990), who argue that the penalty for late entry in-creases rapidly and the chance of benefiting from furthermarket development decreases [10, 85]. Therefore, opt-ing to become a late-entrant with the intention of creat-ing a more competitive product seems to have predomi-nantly negative consequences in this market [12].

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2 Literature review How the components go together

After gaining a competitive advantage, the question be-comes how to sustain that advantage in order to sur-vive the whole entry effort [12]. According to Eisenmann(2006), when a market exhibits NFX, a first mover tendsto increase its market share to a point where it eventu-ally takes over the entire market [8]. Then, if homingcosts are high for using several platforms at once, theuser-base needs greater incentives to frequent more thanone platform, creating further lock-in effects for the firstmover. So, unless a competing platform offers its usersa way to reach a side that they themselves cannot reach,or if the competitor’s NFX are stronger - then the userhas few incentives to migrate to the alternative option[8]. According to Eisenmann et al (2006), due this mar-ket’s low homing- and switching cost characteristic, thebest strategy for a competitor is to offer cost- or differen-tiation advantages [8].

As for choosing the right platform category, though itmay seem that DPP’s are inherently 2S platforms (as it isindeed the form in which they most frequently appear)- when entering that market, the platform does not nec-essarily have to start as one. Given the fact that 1S plat-forms are easier to manage and often offered for free, thehoming costs are often low, meaning that the companycan rapidly acquire a large user base upon entry [12].But, due to their nature, they also have low switchingcosts, where it has been widely acknowledged that 1Splatforms become easy to attack and imitate. Therefore,a prolonged stay in this state makes the company morevulnerable to competition over time. [12, 6]

On the other hand, entering as a 2S platform, the socalled chicken-and-egg problem has to be considered —referring to the difficulty in entering the market whilsthaving to accommodate two- or more sides within theplatform itself, where the fact that each opposing sideis strictly dependent on the actions of the other and hassignificant impact on the platforms success. As such,the obvious complexities inherent of a 2S platform maypresent hindrance to the growth of a new venture. Thisis perhaps best exemplified with the case of merchantsand consumers involved in online shopping, where theplatform thereof has to facilitate a broader level of trustbetween the parties in order to provide both with incen-tives to participate despite the inability to also guaran-tee the other side’s interest and exact involvement in theservice. As for providing those incentives, here the pres-ence of high homing costs may induce deterrents for ei-ther side to participate, especially in a market highly sat-urated with platforms competing at lower costs [6].

One way of addressing the chicken-and-egg problem isto enter the market as a 1S platform with the intentionof later evolving into a 2S platform [12]. In fact, this hasoften been deemed as the optimal entry strategy for aDPP [12, 6]. This of course varies depending on the com-pany and market, but the point is that evolving the plat-

form in stages increases the chances of remaining com-petitive upon entry, as it allows to prepare a more robustsolution that is less reliant on trust and more likely toattract the other side whilst streamlining its progressiontowards becoming a 2S platform [12, 7, 6].

In literature, the pivotal point at which a company oughtto consider transforming from 1S to 2S is when its plat-form has accumulated a critical mass [7, 96]. However,often this transformation might have to occur prema-turely, far ahead of reaching the point of critical mass.This because, it is broadly recognized that as soon as thefirst mover detects competition, it should expand into a2S platform as soon as possible in order to sustain its firstmover advantage [12].

The literature review also reveals that, after acquiringa critical mass of users and during the transformationinto a 2S platform, the pricing should be consideredwith care. Because most 1S platforms are offered forfree, they are later priced upon expansion towards a 2Splatform since charging customers in a 1S platform un-der competition of lower costs is not recommended dueto its vulnerability to competition [12]. As DPP’s relyon relatively substitutable product offerings, they oftenencounter difficulties in maintaining a sense of loyaltyamong their customers and thus, have low lock-in ef-fects [7, 12, 8]. For instance, merchants often have severalpayment options available at their websites where con-sumers often use, not one, but multiple platform optionsto pay for their goods online. According to Eisenmannet al (2007), the platform provider should charge the sidethat supplies the quality, rather than the side that de-mands it [8]. Also, the side who’s demand for the serviceincreases by the opposing sides growth, is the one thatthe platform provider should be charging [8]. Similarly,Bolt and Tieman (2005) conclude that the price shouldbe skewed towards the side of the platform that is mostprice-sensitive [98].

Furthermore, platform-pricing can in and of itself createpositive cross-side NFX [8, 96]. By and large, if the plat-form is able to attract more customers on the subsidy-side, the money-side will pay more to reach those cus-tomers. This works both ways — if there are more userson the money-side, more customers will sign up to usethe platform. However, if the platform provider presentsa market offer of high cost to the subsidy-side while themoney-side lacks the incentive to cover that cost in or-der to reach its customers, this may lead to a substan-tial loss of company resources in the process [8]. Andso, in order to make the right pricing decisions, cross-side and same-side NFX also have to be accounted for[8, 94], where according to Eisenmann et al (2006), inthose cases when negative same-side NFX arise, the plat-form provider should consider deliberately excludingsome users from the service [8].

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3 Method

2.6. Research questions• How does the timing affect the market entry?• How does the platform category affect the entry

within the market?• How do platform characteristics affect the NFX?• How does the price of the platform affect the entry

within the market?• To what degree is research in this field dependent

on primary data?

3. Method

This chapter describes the data-collection methods in this re-port, what sources of information were used, scopes and con-straints as well as an evaluation of the quality of this study.

Still being a very recent area of research, this work ismainly exploratory in that it offers new insights into thismarket but it is also explanatory as it incorporates tradi-tional market theory as well [99, 100]. While the envi-ronmental analysis in section 1.2 is a cross-cultural studyresting on data-sets obtained from a selection of inter-governmental economic organizations (such as the UN,OECD and the World Bank), in order to study the DPPcompanies, this report has assumed a case study ap-proach [101, 102]. The companies are later comparedwith each other in a cross-sectional study, see figure 11.

Because market analyses are often based on primarydata, such as survey results, interviews or internal com-pany data — the road to entry from the perspective ofan outsider, often having to rely only on secondary data,is in many ways left unexplored. As such, the methodof investigation in this work rests primarily on data de-rived from case-company websites, annual reports, sci-entific journals and web articles published for each com-pany. In order to corroborate any findings thereof, thedata is triangulated and validated against peer-reviewedmaterial sourced from the Linköping University elec-tronic archives [103, 104, 105, 106, 107]. Although sec-ondary data is readily available and free of intricaciesinvolving publishing rights and non-disclosure agree-ments [108, 109], it usually suffers extreme filtration andis often subject to interpretation even before it reachesthe public domain. And though there are strict rules and

regulations imposed on annual and quarterly reports,each company’s natural incentive is to present them-selves in the best light possible - a process which cannotbe said to guarantee objectivity of data. Corporate trans-parency being an academic research topic in and of itself,a question still worth asking is whether market entrystrategies can be deducted based on secondary data only.The goal of doing so in this report has a two-sided pur-pose: for one, the idea is to show the obstacles that out-side research-teams and companies meet when attempt-ing to enter new markets so as to provide a pathway forovercoming those obstacles. On the other hand, merelystudying the availability of such data can in and of itselflead to valuable insights like - what is the general stanceof DPP markets towards public disclosure? How trans-parent are these companies with regard to their strate-gies and future plans? And perhaps most importantly,this also reveals the dependency on primary data con-tinued studies will need to face in the future.

As such, the study in this report begins with a literaturereview to deduct a theoretical framework aimed at ex-posing the most important components of an entry strat-egy for DPP’s [110, 101]. But because the payment pref-erences differ greatly depending on nation and the the-ory is not always entirely applicable to this new mar-ket - where the current academic theory is lacking, thegoal has been to formulate new theory through induc-tive research [110, 101, 111]. For example - with the aimof circumventing the shortage of data, this investigationhas taken to analyzing the architecture of each platform’sweb-based solution and mobile application. The motiva-tion of doing so is heavily tied to one particular charac-teristic of this market - that the digital product itself actsas the one and only conduit by which the company’s of-fering is exposed to the customer, i.e. there is no physicalequivalent of the company’s online offer, such as a store-front or warehouse. So, as the thought-process which hasgone into the interface of each solution is fully containedwithin the interface itself - a backwards-engineering ap-proach allows a glimpse at the companies’ internal deci-sions, strategies and overall approach towards the mar-ket as well as how the platforms retain their customersand increase switching costs.

Figure 11: Simplified sketch illustrating case analysis methodology

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3 Method Scope and constraints

Evaluating how prone customers are to use one platformover another was done by establishing a method of mea-suring the usability - complying to criteria regarding aplatform’s degrees of navigation, content, cognitive load,how errors are handled, assessment of input method andmore [112]5. Not all of these factors were pertinent tothe context of this report, for instance: error handling,design of the platform, content and input method relatemore to the software development process itself. In thisreport, the solutions under examination were consideredfinished products, so the factor of highest importancewas the degree of navigation from which it was possi-ble to deduct the cognitive load.

Figure 12 shows the degrees of navigation - in this reportreferring to the amount of choices the user is presentedwith when attempting to either perform a payment inthe company’s 2S solution or in the application.

Figure 12: Degrees of navigation for a case company, wherethere are 3 top menus and 7 sub-menus. Steps such as loggingin to an account, setting up a payment method (such as linkingcard to account), or the bank-confirmation are excluded whenaccounting for navigational degrees, as these are necessary forusing each of the platforms and often require similar set-up.

Furthermore, any quantifiable data [101] indicating acompany’s timing of entry, platform characteristics, net-work effects and pricing strategy was collected for eachcase company. This included for instance detailedrecords of a platform’s pricing specifications or descrip-tions of platform characteristics. Here, the individualwebsites of the Swedish banks often proved to be a goodsource of information. Some of the data was qualitativein its nature, for instance - any articles stating that a com-pany was met with adversity at its launch or described as

5Borrowed from the field of Computer Science, these conditionsand constraints are most commonly seen in software developmentprojects. In this report, this framework is used as a tool for measur-ing usability as well as gaining insights as to the underlying strategybehind each product.

revolutionary, innovative, new to the market - this typeof information was used to determine its timing of entry.

In regards to how the case companies were chosen - animportant prerequisite for this study was to establish aselection of study-cases comprising of both local and in-ternational firms. The purpose thereof was to create asmuch of an internationally applicable strategy as possi-ble. Naturally, these companies also had to offer solu-tions for digital monetary transactions in order to qualifyas a suitable case to study, being either a 1S - or 2S plat-form (or both). The choice was made in accordance toconstraints proposed by Eisenhardt et al. (2007) wherein,a minimum of four distinct cases are selected to increasegeneralizability and determine patterns in the data [111].With these prerequisites in mind, the companies thatwere selected to be studied in this report were Klarna,Swish, PayPal, WyWallet, and SEQR - as these are a mixof international and local companies, distinct in terms ofmarket shares and brand recognition, but at the sametime, similar in that they all provide digital platform-based solutions for transferring money.

3.1. Scope and constraintsThe work described here is limited to the study of fivecase companies that have an established presence on theSwedish market. The payment industry is inherentlysubject to regulation, but due to present time constraints,such considerations with respect to entry strategy lay be-yond its scope. However, provided there is substantialevidence in support of a competitive bias being intro-duced for a company under investigation as a result ofeither regulation or any other surrounding environmen-tal aspect impacting the firms growth and success, onlythen will such aspects be taken into consideration.

Also, many of the studied companies offer multiple 1S -/2S -/MS -solutions - for example, PayPal offers wholepackages to their merchant-side, such as the PayPalStandard - enabling merchants to create customizablecheckout experiences and authorize transactions in real-time [113], or the Marketplaces offer which is specificallyadapted to marketplaces, crowd-funding platforms andsimilar environments [113]. In order to enable a cross-case analysis, a choice had to be made as to which oneof these solutions was most pertinent for the purpose ofthis study. As such only the main payment solution wasstudied - i.e. the offer most often referred to in publishedmaterial, for example: the majority of published articlesrefer to Klarna’s payment solution Klarna Checkout as themain source of the company’s revenue, as do the creatorsof the offer themselves.

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4 Empirical Material Case Company: I

3.2. Quality of studyThe reliability, validity and generalizability of a studyare concepts most often discussed when performingqualitative research, as its data is subject to interpreta-tion to a much higher degree than quantitative data. Asthis research does not rely on the analysis of interviewsor field data, and because it revolves around the assess-ment of factors that do not change much depending onday or observation - the risk of subject error and subjectbias are significantly lowered than would be the case fora qualitative study. A well-known caveat of quantita-tive deductive research however, is the risk of introduc-ing confirmation bias [114]. As such, the investigationin this report has used the theory only as a blueprint fordata-collection and does not necessarily aim to confirmor contradict it, but rather to generate new theory wherethe available research proves to be insufficient.

The main element that has to be assessed for its validityis the data retrieved from analyzing each platform’s ar-chitecture, as that is the data in this report that has beenmost subject to interpretation [101, 115, 116]. There isnaturally a risk of overestimating the relationship amongvariables that may in fact be only slightly related or noteven related at all. For instance - are the switching costsreally related to the degrees of navigation? And does thefact that a platform was a first mover at the market standfor all of its competitive advantages or are other factors,such as the market offer, responsible for high switchingcosts and the platform’s success? Rather than giving ex-act answers to what constitutes a perfect entry strategyon this particular market, the idea is to determine whichparts of the current research are applicable to this type ofmarket, where the theory can be deemed insufficient, aswell as how it should be improved. In other words, thegoal was not to determine the causality between a plat-form’s architecture and exact switching costs for a DPPbut instead, by mapping all platforms’ architectures inthe same way and comparing them to each other, gaininsights as to how the underlying strategy affects the us-age of the platform. And, with this, to what degree isthat strategy able to retain customers for the company.

As mentioned before, this study aims to map an entrystrategy for DPP’s by analyzing the conditions of a tech-nologically advanced nation with the intent of increasingthe chances that the strategy is in fact generalizable simi-lar markets. Even so, naturally there is no guarantee thatthe conditions of another market will be a perfect mirror-ing of the market under investigation - that of course isnot the intention behind this work. Instead, rather thanadapting the strategy to one nation at random, the ideais that the choice of nation should be made in such a waythat it maximizes the potential for the strategy’s general-ization. Aiming therefore at countries with higher tech-nological advancement, assuming an ever more global-ized economy, this is done in an effort to increase thestrategy’s long-term standardizability.

4. Empirical Material

This chapter provides an overview of each case company, theconditions at the market when it entered, and a description ofthe platform characteristics and pricing.

4.1. Case Company: IKlarna Bank AB (Klarna) — a Swedish bank provid-ing a wide suite of payment solutions, such as debt col-lection and credit payments to privately owned compa-nies, online storefronts, organizations as well as privateconsumers [117]. Today, Klarna has approximately 1600employees [118], integrates into approximately 65000merchant-websites [119] and in Sweden, the platformprocesses around 40 percent of all online payments [120].

4.1.1. When Klarna entered the marketThe company was founded in 2005 during a time whene-commerce suffered from a reputation of having low se-curity [120] in a climate where many maintained thatcard payments were the future of the payment indus-try and that payments should be handled by banks alone[121, 122, 120]. The company first began signing on mer-chants [120] before turning to private consumers andin 2007, Klarna’s growth rate began to increase signifi-cantly, enabling an extension of its domain to Norway,Finland and Denmark [120].

4.1.2. Platform detailsThe architecture of both the web-based solution as wellas the application is shown in figure 13, also showinghow Klarna communicates with the bank.

Regarding the homing costs - to register as a new user, anaccount can be created by providing an e-mail and deliv-ery address, which can be saved for later use, or at thecompany’s website, where an account is created usingBank-ID [123] — an electronic identification service thatis developed by a number of large banks for use by mem-bers of the public, authorities and companies [124]. Theservice is connected to the customer’s bank, providingKlarna with the necessary information required to per-form a transaction.

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4 Empirical Material Case Company: I

Figure 13: The architecture of Klarna’s platform. The naviga-tional degree for the 2S solution reaches to 7 number of inde-pendent SM’s. With 5 TM’s (boxes seen in bold on the left), thetotal for the 2S solution reaches a navigational degree of 12. Asfor the application, there are 6 TM’s with 16 SM’s, amountingto a total navigational degree of 22.

2S solution

Klarna Checkout is the name of Klarna’s all-round pay-ment solution, offering their payment methods in onesingle, integrated solution [117, 125]. In comparing avail-able payment options for several merchants’ websites,Klarna Checkout is often the sole payment alternative(apart from the credit-/debit card option) where thethree main payment alternatives included in this solu-tion are called Klarna Direkt/Pay Now, Invoice/Pay Later,and Installment Plans/Flexible Financing.

Figure 15: Klarna’s Checkout solution.

With Klarna’s Direkt/Pay Now option, the customercan pay directly at checkout, without having to providetheir password or card details upon revisiting the service[117, 125]. The user-data is stored such that recurringcustomers, reducing the time between purchase-decisionto actual transaction [118, 120]. By allowing the customerto buy a product and paying for it later through the In-voice/Pay Later solution, Klarna further incentivizes theconsumer to go through with the purchase [118]. It isthe facilitation in performing a secure transaction that isconsidered the main selling point by the company itself[120]. Klarna steps in-between the merchant and con-sumer, settling the bill within 14 days with no interestwhile maintaining assurance towards the merchant sidethat any credit or fraud will be absorbed by the serviceitself [120]. Paying by Installment plans/flexible financ-ing, the consumer can spread out the cost over severalmonths, paying an interest rate [117].

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4 Empirical Material Case Company: II

Figure 14: Klarna’s P2P solution Wavy. Selecting the option "Send money" redirects the user to a transaction-page.

1S solution

Most recently, Klarna launched their Europe-wide newPeer-to-Peer (P2P) payment service, called Wavy, see fig-ure 14. It is a application separated from their mainKlarna-application that enables users on the consumerside of the platform to send and request money fromusers on the same side of the platform. The servicediffers from similar such solutions mainly in that it en-ables money transfers and bill-splitting across 31 Euro-pean markets (Swish is so far only available in Scandi-navia), however it does not yet include the Swedish cur-rency. The recipient of the transfer does not have to havea Wavy account to redeem the payment, as it can be sentto their bank account directly. [126]

4.1.3. PricingKlarna charges their merchant-side a transaction fee anda monthly fee as well as a starting fee for offering in-voices [127]. As for the consumer-side, a large part of thecompany’s offering is its invoice solution, charging theirconsumers whenever they choose the option of payinga month later. If the consumer chooses to pay with in-stallment plans, this is associated with an interest rate.As Klarna is also a debt collecting company, whenevera customer neglects to pay on time, the company sendsout a reminder with a fee, and then later a debt collectiondemand. In fact, a significant share of the company’srevenues come from reminder fees and debt collection[128] but the fees placed on the individual customer are

significantly lower than what the company charges themerchant-side [129, 130].

4.2. Case Company: IISwish — a collaborative effort between six of Sweden’slargest banks [131], enabling both P2P transfers, onlinepurchases as well as QR code reading. The company’smarket consists of both privately owned companies, on-line storefronts, organizations, and private consumers.Today, the company has a user base close to six mil-lion users, meaning that approximately 61 percent of theSwedish population is using the service [131, 132].

4.2.1. When Swish entered the marketSwish launched in 2012 and is often attributed character-istics of being ’innovative’, ’revolutionary’ and ’unique’globally - where although there were similar servicesavailable internationally at that time up until that point,none had yet created the same kind of collaboration be-tween banks [133, 134, 132, 135]. It started as a 1S andevolved into a 2S two years later [131]. In 2014, theamount of Swish users grew to 1,6 million [136], whichtherefore marks this company’s critical mass of users, asit was at this point that the company evolved into a 2Splatform. Within three years of launch, Swish gainedover three million active users [137] and between 2014and 2015, the company’s net sales increased by over 300percent [137].

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4 Empirical Material Case Company: II

Figure 16: Swish’s P2P solution. Courtesy of Getswish AB.

4.2.2. Platform detailsThe architecture of the platform and how it communi-cates with the bank is illustrated in figure 17.

In regards to the homing costs - as Swish interacts di-rectly with a large network of banks, a particular trait ofthe application is the high level of security requirementsto be fulfilled upon initial setup [138], increasing the plat-form’s homing costs. Users have to authenticate them-selves using encryption technology and atop the pro-prietary decryption-device usually offered by the banksthemselves – the users are required to own a desktopclient software or a smartphone [138, 139, 131]. To startusing Swish, a phone number has to be connected witha bank account [138, 139, 131]. The user has to log in totheir bank where the Swish application can be accessed[138, 139, 131], the bank then sends a code via SMS toverify the phone number [139, 131], then the user hasto install BankID, [139, 131], activate it, and downloadthe Swish app, which should then be ready to use[138].Swish-users can only send/receive money to/from otherSwish users, as the bank account has to be connected tothe senders/receivers phone number.

1S solution

A monetary transaction between two Swish users isachieved by one participant entering the others phone-(or specific Swish-) number, to whom the money is di-rectly transferred. In this sense, Swish merely acts asa simplified layer atop the existing banking framework,connecting two bank accounts by means of a telephonenumber, where all the user has to do is provide the num-ber, the amount and validate their own identity. Thetransfer happens in real time, meaning the money isavailable at the receiver’s account soon after the senderhas confirmed the payment. It is not a requirement forthe receiver to have the Swish application, meaning thatthe money can be sent even if the receiver does not havea smartphone. [139, 131]

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4 Empirical Material Case Company: III

Figure 17: The architecture of Swish’s platform - it communi-cates with the bank only with the use of Bank-ID, and the 2Ssolution has 1 TM and 1 SM, reaching a navigational degree of2. As for the application, here there are 5 TM’s with 15 SM’s,amounting to a total navigational degree of 20.

2S solution

After achieving critical mass in 2014, Swish evolved intoa 2S platform, offering a new side that would enablebusinesses to handle payments using Swish [131]. Muchlike the P2P option where a phone number is associatedwith the recipient, in order to pay at a merchant websitethe user has to provide the specific company-number inthe Swish application. To complete the transaction, theuser goes through the same validation process as in the1S solution [139]. The amount of navigational steps thatare needed to perform a payment is lower however, asthe user skips the front-page of the app, thus not havingto make any superfluous choices.

4.2.3. PricingWith Swish, every bank is responsible for developingtheir own market offer, their terms of use and poten-tial fees associated with their customers using the service[131]. When Swish launched its DPP, it was free of chargefor the first six months, after which the banks were al-lowed to start charging their users [140]. Usually, the

fees are higher for businesses/organizations than privateusers pay for each individual transaction [141].

4.3. Case Company: IIIPayPal — a DPP enabling customers to send, receiveand hold funds in 25 currencies worldwide [142]. Usingthis solution, the customer can perform purchases andreceive payments for goods and services, transfer andwithdraw funds [142], as well as postpone payments.Today, PayPal operates in over 200 markets where, in2016, it had approximately 197 million active customeraccounts [143, 144, 142]. According to DIBS (2016), 92%of the consumers at the Swedish market are familiar withthe brand, where 37% have heard about the DPP buthave not used it, and 55% of the ones that recognize theDPP have used it [16].

4.3.1. When PayPal entered the marketAlthough often referred to as a first mover globally, Pay-Pal registered their company in Sweden in 2010 [145,146] - meaning it entered the market before Swish, butafter Klarna had already established a market presence.It started out as a 2S platform, but unlike its competi-tors at the Swedish market, at the time of its launch itentered a collaboration with eBay enabling it to offer itsservices to both sides of the platform, guaranteeing in-centives that both sides will actually use it, solving thechicken-and-egg problem.

4.3.2. Platform detailsThe architecture of the platform is shown in figure18, where instead of communicating with the bank viaBankID, PayPal relies on credit-/debit card paymentsand an ACH-interface6.

In terms of homing costs - to set up a PayPal account,the user first has to select whether they want to set upa private- or business account. Next step is to fill outpersonal information, such as country of origin, name,email, password, delivery address, and phone number.After confirming their email, the user has to link theirbank account, credit card, or visa debit card to their Pay-Pal account [148].

6ACH - electronic payments created when the customer gives an orig-inating institution, corporation, or other customer (originator) autho-rization to debit directly from the customer’s checking or saving ac-count for the purpose of bill payment [147].

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4 Empirical Material Case Company: III

Figure 18: The architecture of PayPal’s platform. The naviga-tional degree for PayPal’s 2S solution reaches to 4 number ofindependent SM’s. With only one TM, the total for the 2S solu-tion reaches a navigational degree of 5. As for the application,there are 9 TM’s with 22 SM’s, amounting to a total naviga-tional degree of 31.

2S solution

PayPal’s main 2S aimed at the customer-side, that is alsoavailable in Sweden, is called Express Checkout. Of allits solutions, this is the only one that will be analyzedas the other solutions are aimed more towards creatingcustomized experiences for merchant’s and in the con-sumer’s view (on the other side of the platform) - theydon’t differ much in how they appear.

By integrating this solution at a merchant’s website, Pay-Pal aims to simplify the checkout experience for the buy-ers. The Express Checkout lets the buyer stay at themerchant’s website or mobile app throughout the pay-ment authorization process — meaning that the con-sumer does not have to wait for being directed to a newwebsite/environment to authorize the payment [113].Similar to Klarna, PayPal also stores details about theircustomers, enabling a user to skip logging in and fasterpay for their purchase.

Figure 20: PayPal’s Checkout solution.

1S solution

PayPal has several 1S options: Email-transfers, Pay-Pal.Me, and Moneypools. These solutions require thatboth the sender and receiver have a PayPal account, andthat the two parties have each other’s email-addresses.In this report, only the email-transfer is discussed, as thatis the P2P-solution that has existed for the longest periodof time and is most comparable to the solutions offeredby the case companies in this report. Also, PayPal.Meand Moneypools have only been available for a shortamount of time and are, as of yet, not as widely usedas email-solution. To send money through PayPal’s P2Psolution, the sender has to enter the recipient’s email ormobile number from their computer or phone, and addan amount to send [149], shown in figure 19.

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4 Empirical Material Case Company: IV

Figure 19: PayPal’s Application.

4.3.3. PricingThe customers are not charged to fund or draw fromtheir accounts, save for having to pay exchange feeswhen shopping internationally [150]. There are no addi-tional fees if transferring money locally to other users ifpaying with the balance available at their PayPal accounthowever, if transferring money using a credit- or debitcard, the user has to pay a transaction fee that variesdepending on which country the money is transferredto/within. Also, the consumer has to pay a relativelysmall transaction fee (in comparison to the fee placed onmerchants) when choosing to pay internationally withtheir PayPal balance, and these fees are a percentage ofthe transaction sum. Merchants always pay a fee pertransaction, which are volume-based meaning that themore the merchants sell, the less they pay. [150]

4.4. Case Company: IVWyWallet — a 2S platform, where a payment is madeby sending a text message to the receiver. This SMS-payment feature is made available to both smart- andstandard- cellphones — as long as the texting feature issupported. In order to pay online, the merchant receiv-ing the payment has to be a WyWallet user. WyWalletmade 21 million SEK (approx. 2.6 million USD) in salesin 2014, however it also had 70 million SEK (approx.8.7 million USD) in losses [152]. In 2015, WyWallet had1,5 million users, and was only available at the Swedishmarket. According to DIBS, 55 % of the Swedish DPPmarket recognizes the brand, where 45 % have heard ofthe service, but never used it, and 10 % have used it [16].

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4 Empirical Material Case Company: IV

Figure 21: The architecture of WyWallet’s platform. WyWallet communicates with the bank through credit/debit card companies.The only choice the customer is presented with when shopping online selecting WyWallet as payment alternative, therefore, theweb-based solution has only one TM. The customer is then redirected to continue the payment process within the application. In theapp, counting the step of specifying a phone number upon choosing to pay with WyWallet online, there are 6 TM’s, and at least 20SM’s, amounting to a total navigational degree of at least 26. [151] For this application, the degree of navigation becomes obscuredby the fact that this solution has been discontinued and is no longer supported by the company or any merchants.

4.4.1. When WyWallet entered the marketWyWallet was developed by four Swedish mobile op-erators in 2011 [152], and was launched in 2012 at atime when Klarna and Swish were already establishedat the market. As the platform does not exist any longer,no information has been made publicly available as towhether WyWallet started as a 1S or 2S platform.

4.4.2. Platform detailsThe platform’s architecture can be seen in figure 21. Noinformation can be retreived in terms of homing costs, asthis platform is no longer available for download.

2S solution

Upon choosing to pay with WyWallet, the user typestheir own phone number, receive a verication code viatext message, which is then typed in the checkout at themerchant’s online storefront. [153]. The money is addedto the user’s phone bill by mobile invoice, drawn fromtheir WyWallet balance or credit payment.

The payment options include Mobile Invoice, Account-and Credit payment [153]. Only consumers with a pri-vate mobile subscription can pay using mobile invoices,where the invoice is sent to the phone network opera-tor on a monthly basis [153]. If a consumer chooses topay through their WyWallet account instead, this is doneby first adding money to that account, using a card orbank transfer. The money is drawn automatically whena payment is performed, either directly from the bank-or credit card that is connected to the account, or takenfrom the balance previously added to the WyWallet ac-count. [153] There is also the option to pay with credit,whereupon the company sends out a monthly invoice tothe consumer [153].

1S solution

Although WyWallet no longer offers P2P payments, itdid in 2012. The process of sending money to an-other WyWallet user is shown in figure 23, where uponopening the application, the user selects the "Person-to-person"-option, specifies a phone-number, amount, andconfirms the payment.

21

4 Empirical Material Case Company: IV

Figure 22: WyWallet’s web-based solution. By selecting WyWallet online (leftmost image) and clicking "Perform payment" the useris redirected to the second image, where the user specifies their phone number and clicks "Pay". The user is then redirected to theapplication and confirms the transaction by typing their personal PIN-code.

4.4.3. PricingWyWallet charges their consumer-side approx. 2 USD ifthe user chooses to pay with invoice [154, 155]. If the con-sumer transfers money to another user’s private bank ac-

count, or performs a payment using their WyWallet ac-count balance, there is no fee associated with that [155].The company charges their merchants at all times, wherethe fee depends on the price of the sold product [155].

Figure 23: WyWallet’s application.

22

4 Empirical Material Case Company: V

4.5. Case Company: VSEQR — enables users to perform payments in physi-cal stores, restaurants, parkings or online, as well as tosend and receive money without any fees [156]. The DPPcommunicates with the bank through Bank-ID, wherethe consumer first tops-up their account with money andconfirms with their personal Bank-ID. After this, the userconfirms each payment with a personal PIN-code. InSweden, 4000 merchants have started using SEQR, andinternationally the DPP is available in 16 different mar-kets. According to DIBS, 27 % of the Swedish market arefamiliar with the brand, where 21 % recognize the brandbut have never used it, and only 6 % have used it [16]. In2016, the company recorded a loss of 65 million SEK (ap-prox. 8 million USD), in 2015 - 120 million SEK (approx.15 million USD), and the year before, 78 million SEK inlosses (approx. 10 million USD) [157].

4.5.1. When SEQR entered the marketSEQR added a 1S option one year after the launch ofits 2S solution [156], and deployed the solution inter-nationally 4 years later [158, 159]. It was launched inSweden in 2012, and at that time, there were in factsimilar options available at the market that offered pay-ments with the use of QR codes [160]. However, accord-ing to SEQR’s CEO, none of the available options weresufficiently competitive [160] and that the company wasunique in offering a solution that had a direct connectionto the central bank of Sweden, Riksbanken — other com-panies focused on payments via card companies, mak-ing the solution unique on the global market as well[161, 160].

4.5.2. Platform detailsSEQR’s platform architecture can be seen in figure 24, aswell as how it interacts with the bank.

Regarding the homing costs - setting up a SEQR account,the user has to download the company’s application, cre-ate a PIN, type their phone number, social security num-ber, e-mail address, and type a verification code that issent by text message. The user then has to link theirSEQR-account to a bank account or activate an invoicefeature in order to be able to pay. To verify their identity,the user is requested to take a photo of some sort of iden-tification card (such as ID, passport or driver’s licence).

Figure 24: The architecture of SEQR’s platform. For this com-pany, the 2S solution does not have any TM’s or SM’s, as theQR code and NFC machine are physically based and do not ex-ist online. Therefore, upon scanning a QR code or tapping anNFC machine, all subsequent steps occur within the applica-tion, which is why the degrees of navigation will only be an-alyzed within the application. With 6 TM’s, and 23 SM’s, thetotal navigational degree is 29.

23

4 Empirical Material Case Company: V

Figure 25: SEQR’s application

2S solution

SEQR’s DPP rests on one main feature to perform pay-ments — its solution for scanning QR-code to performa payment, available both online and in physical stores.The user can scan a QR code generated at a merchantswebsite or in a physical store with the SEQR app in orderto perform a purchase. It is then confirmed with a PIN-code within the app [162]. Their NFC-option only worksin physical stores and to use this, the user has to activatea so called "blip & pay" feature within the SEQR-app,turn on NFC on the phone, and then near their phone toa NFC reader [163].

1S solution

SEQR’s 1S offer enables P2P transfers, where bothsender and receiver have to download the applicationand connect it to their bank account for a transaction togo through. Users transfer money based on phone num-ber, whereupon the money is registered in their bank ac-count one working day later. [162]

4.5.3. PricingSEQR charges only the business-side of its platform,where the pricing differs depending on each merchantsindividual terms and agreement negotiated prior to inte-grating the solution [164].

Figure 26 shows all the solutions in one image, withamount of top- and submenus, as well as how each solu-tion interacts with the bank.

24

5 Analysis Timing of entry

Figure 26: All solutions in one figure, showing how they interact with the bank, as well as the navigational degree of each. Thethree companies originating from Sweden that are still available at the market, i.e. Klarna, SEQR and Swish, all perform transactionsthrough Bank-ID, while WyWallet and PayPal either go through credit/debit card companies or an ACH.

5. Analysis

In this chapter, a cross-case analysis is performed for each casecompany to identify a market entry strategy most suitable forthe DPP market.

5.1. Timing of entryAt the time of Klarna’s launch the general consensus atthe market was that card payments would become themain form of payment method in the future [121, 122,120]. This suggests an absence of digital payment meth-ods to say otherwise, something which Klarna’s offerwould eventually do - it is therefore categorized as a firstmover. In much the same way, Swish can also be catego-rized as a first mover, where at the time of its launch, nocompany offered similar services in collaboration withmultiple banks and it is also often described as uniqueboth internationally and locally [133, 132, 135, 134]. Asfor SEQR, the company’s solution was said to be uniqueat the market due to the collaboration with Riksbanken,

where it was stated that the company was also firstat the Swedish market to offer contact-free (NFC) pay-ments [161, 160]. Although the company was not first atthe Swedish market in offering QR code reading, somemaintain that its overall solution was unique at the timeof its launch [160], which would indicate that it is a firstmover. And in some ways is this true - at the parkingtickets segment and the market of in-store purchases,SEQR entered as a first mover although less successfulthan Klarna’s and Swish’s first mover entries. How-ever in terms of digital money transfers (shopping onlineand P2P transfers) the market had already been cateredto. As SEQR did not attempt to copy the competingcompanies offers (as an early follower might do [10]),it seems more correct to assume that the company tookits time to study the success and failures of the com-petition, gaining insight of which market segments re-mained free of competition - from the position of a lateentrant [10, 85, 7].

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5 Analysis Network effects

As for WyWallet, launching six years after Klarna andone year after PayPal, the market demand was alreadypopulated with similar offers. Based on the company’scurrent predicament - the fact that it has gone into fore-closure - combined with the later arrival to the marketsuggests it to be a late entrant [10, 85, 7]. With the manycaveats that come with this entry approach, aside frompotential product-derivative issues, it could be that thecompany failed to assess the timing-factor, or (unlikeSEQR) that it did not draw knowledge from its competi-tors prior to its entry so as to tailor the product to theactual market demand.

The market entry theory which has been studied re-volves mainly around the entry decisions of local en-deavours, not focusing on the influence from foreign en-trants. PayPal is acting almost independently of any ofthe Swedish companies where, having a net worth of 300billion USD [165], Klarna becomes a small player in com-parison with a worth 2,5 billion USD net worth [166].With this, PayPal is able to survive through its off-shoredealings and so, because the company operates mostlyindependently of the local efforts, analyzing whether itis a first mover, early follower or late entrant in Swedentherefore becomes somewhat ambiguous. It is not a firstmover as already existing, similar solutions were avail-able at this market prior to its entry. Neither is it an earlyfollower, as there is nothing to suggest that it entered un-der the banner of following or imitating the strategy ofa particular first mover. Classifying it as a late entrantwould be inconsistent as well, as it seems unlikely thatthe company withheld its entry under the intention ofcreating a more suitable product to this market (nothingin their current product suite would suggest this) or thatit missed its opportunity of entering at the right time.

5.2. Platform characteristicsIt was stated earlier that according to the literature, aDPP should first enter as a 1S , gain a critical mass ofusers, and then transform into a 2S platform [12, 7, 6, 8].Almost all case companies (both successful and less suc-cessful) started as 2S platforms, all except Swish which isthe only company that adheres to the strategy presentedin the literature review - in that it entered as a 1S onlyto later evolve into a 2S platform. Even though it is saidthat relying on a 1S -only solution for an extensive periodof time increases the platform’s vulnerability to compe-tition due to low switching costs, Swish did exactly that,evolving into a 2S after operating for 2 years. It bearsrecall however, that this company has been dealt advan-tages largely unavailable to its competition. Having apre-established strong tie with Sweden’s largest banks —it seems entirely plausible that this solution was aimedas a preemptive move to secure a dominant market po-sition by the banks themselves. So it seems that being a1S for an extensive period of time still remains difficultdue to the low switching costs and the high competitive

threat, that is - assuming the effort is not supported by acountry’s banking network.

In terms of homing costs - most of the platforms requiresome sort of personal authentication when performing apayment, where Klarna, Swish and SEQR rely primarilyon BankID. This, in and of itself, adds another layer ofcomplexity to the registration process, greatly increasingthe initial homing costs. PayPal is able to bypass suchextraneous registration- and authentication-steps by in-stead relying on the ACH interface. This is exactly whereit becomes important to consider the degrees of naviga-tion for each solution. Despite having a difficult setupprocess - Swish still enjoys an unprecedented level ofusers in comparison to the other DPP’s, but it also hasthe fewest amount of navigational degrees, which couldbe taken to indicate that the users of this particular mar-ket tend to overlook a more convoluted setup with thepromise of a simple and expedient payment solution.

5.3. Network effectsAnalyzing the cross- and same-side NFX for all casecompanies shows similar results for each, i.e. the morecustomers that use a certain DPP to pay for their pur-chase, the more data it receives on what that specificuser prefers to buy [6], enabling for the creation ofmore customer-tailored offers, which further increasesthe positive cross-side NFX [95]. Also, the more usersthat join on one side of a platform, the easier it be-comes for users on the same side of the platform tosend money to those users - creating positive same-sideNFX [8] (which is especially true for Swish’s platform).Some DPP’s, such as Klarna, seem to actively create posi-tive cross-side NFX through exclusivity, by collaboratingwith merchants so that their payment solution is the onlyone that is offered in the merchant’s shopping cart. Bydoing so, the consumers have to register as Klarna usersin order to go through with the purchase. Naturally, thisincreases the positive cross-side NFX where, the moremerchants that offer Klarna, the easier it becomes forKlarna-users to shop online [8]. As for Swish, being inte-grated into the online-banking service of each bank fromday one, the company would become a household namealmost overnight. Because it was instantly made readilyavailable to every consumer registered with a Swedishbank account - with the surge of users on one side of theplatform - it is not surprising to see positive cross-sideNFX in this solution.

Coming in with a large suite of signed international mer-chants with a fully established 2S solution, PayPal haspositioned itself on the Swedish market as the go-to plat-form for international shopping, creating positive cross-side NFX between international stores and Swedish con-sumers. And where PayPal, Swish and Klarna all focuson online merchants, the positive cross-side NFX gen-erated by SEQR is a function that mostly depends on

26

6 Conclusion

how many deals the company is able to make in its par-ticular market segment - non-digital merchants such as:supermarkets, parking facilities and restaurants. As forWyWallet, it becomes difficult to objectively assess theexact nature of its NFX save perhaps for saying that itis fair to assume that these could not have been verystrong, given the company’s current predicament as wellas the consecutive profit-losses prior to being phased outof the market.

5.4. PricingKlarna’s merchant-profits consist of monthly fees, trans-action fees and a separate charge for invoices, whereasconsumers only see charges related to invoices and in-stallment plans. If their business model was alteredto instead charge the consumer directly at checkout, areasonable outcome is that this would come to act asa strong deterrent for spontaneous shoppers, signallingthat this side is currently the most price-sensitive, i.e.Klarna’s money-side is the merchant-side. In fact, allcase-companies primarily charge their merchants, wheredifferences appear largely on the subsidy-side. Therein,the subsidy-side has been made free of charges (Swishand SEQR), others prefer to add a fee associated with in-voices or installment plans (Klarna and WyWallet), whileothers still add fees related to currency exchange and in-ternational money transfers (PayPal).

6. Conclusion

In order to formulate a generalized market entry strat-egy for digital payment platforms through the study ofsecondary data within a competitive environment, thisstudy set out to investigate how the timing, platform cat-egory, network effects and price of a DPP affect the entry.Although no definitive conclusions can be drawn regard-ing which platform category is preferred upon entry, norwhich side of the platform should be charged the most,this study has revealed several new insights with regardto the timing of entry, homing- and switching costs, plat-form architecture, and NFX of DPP’s.

First of all, contrary to the arguments presented in theliterature review - it is in fact possible for a 1S entrantto withstand competition for an extensive period of timewhile remaining a 1S despite low switching costs andhigh vulnerability to competitive threat. In this, Swishoffers unique insights about the DPP market, clearlyshowing the upper-hand advantage to be gained in be-ing first to secure a strong cooperation with a country’sbanking industry. And in terms of timing of entry - giventhat the two companies with the largest market sharesand brand recognition on the Swedish market were bothfirst movers (Klarna and Swish), the first mover advan-tage is indeed confirmed as significant, something that isfurther supported by the fact that the less recognizableand less successful companies were not.

Including PayPal in the study has also revealed a ratheroverlooked aspect relating to timing of entry theory forplatforms, where it has been shown that companies of itskind do not necessarily fall within the first mover/earlyfollower/late entrant definition. Naturally, the compet-itive pressure has greater impact on the timing of entryof local and small endeavours than it does for a globalenterprise such as PayPal where in the end, the timing ofentry-category a company falls under is not only deter-mined by the actual timing itself but also - by the under-lying motives behind that entry. In PayPal’s case, it couldeven be that the company’s motive to enter the Swedishmarket arose purely out of the idea of solidifying itself asa global brand. This is seen in the design of their digitalproduct as well where - in contrast to most of its Swedishcompetition - the application presents its user with nu-merous options and high cognitive load. It is interestingto note that PayPal’s application follows a very similardesign-strategy to that of WyWallet, one which has notbeen able to survive the local competition. Based on this,it could be deducted that PayPal is a lot less concernedwith adaptation of its product towards the Swedish mar-ket than the local competition, as it instead presents astandardized solution seemingly averaging the require-ments of a global consumer. In the end, competitive pit-falls at the Swedish market which could rock even thelargest local player would likely only pose minor threatsto PayPal - its overall operation in comparison to the lo-cal competition measuring a ratio of 120:1 in terms of networth, the company is understandably able to approachthis market rather indifferently without great fear for anyconsequences thereof. Where small- and local endeav-ours speed up or slow down the entry timing of eachother, PayPal has the luxury of biding its time, studyits market from the position of a late entrant but withthe operational capacity of a successful first mover. Assuch, either this company is simply not a suitable candi-date for these types of comparisons or, perhaps (atop thefirst mover, early follower and late entrant) there maybe room for a separate, fourth timing of entry category- a sovereign entrant - an outside entity with the poten-tial to shift the competitive paradigm among the localplayers upon entry while also being able to survive andremain virtually unaffected by the dynamics of the mar-ket under investigation. Ultimately, given the reality ofthis rapidly growing market, there is a need for morecomprehensive models able to accurately chart the in-tricate dynamics between the foreign and local competi-tion. Especially so, now that many corporate giants suchas Google and Apple have managed to successfully de-ploy nationwide payment solutions across North Amer-ica - where it seems companies like Swish, SEQR andKlarna should no longer contemplate if these companiespose a threat, but rather, prepare for when they arrive.

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6 Conclusion

Studying the platform architectures and comparingthem with respect to one another has shown the levelof collaboration each DPP has with the banking indus-try. This has revealed two distinct groups - one whichprocesses payments primarily through BankID, and theother that goes through card or a bank-interface. As bothPayPal and WyWallet are the only case companies thatdo not process payments using BankID, coupled withthe fact that PayPal’s and WyWallet’s market shares andbrand recognition are low in Sweden - it is fair to as-sume that an integration of BankID signifies a deeperlevel of cooperation with the banks themselves, some-thing that most certainly could have a decisive influenceon the success-rate of a DPP. Mapping the platform archi-tectures and determining the degrees of navigation alsoshows that Swish has the highest focus on simplifyingthe buying experience for its users, where Klarna’s over-all solution is a close second. Klarna, Swish and PayPalall focus on optimizing the online shopping experienceby lowering the amount of choices the customer needsto make in order to perform a payment. This - coupledwith the fact that PayPal and WyWallet both have thehighest number of navigational degrees, where WyWal-let even has recursive menus - signals that consumers onthis particular market are in fact deterred by an overlycomplicated application.

In regards to the NFX - most researchers seem to be inagreement that negative cross-side NFX occur when aplatform allows an over-abundant amount of advertis-ers, leading to a cluttered view that detracts from theuser-experience. But, beyond this frequent example,there are few that manage to come up with another sce-nario where negative NFX occur. After all, what is thedistinction between negative NFX and simply a bad solu-tion? For example, the term revenue cannot be negative(in fact, we have other definitions for this: debt, deficit,obligation or any other suitable synonym depending onexact context) and in much the same way - the same goesfor NFX. In this report it is argued that the commonlyadopted positive / negative appendage to NFX is mis-leading and therefore, to a large extent, incorrect - as itshould instead be defined as always positive and binary:it either is there, or it is not. At the very least, when itcomes to the DPP market, a discussion around negativeNFX is largely academic without any practical use andso, from now on, all descriptions assume positive NFXwhenever this term is used. So, as for how the NFX af-fect the market entry - one way of actively increasing thelikelihood of surviving the entry effort, apart from estab-lishing collaboration with the banks such as Swish, is tofollow Klarna’s way of becoming the exclusive paymentoption at merchant’s websites. Creating such collabora-tions with merchants offers opportunities for increasedcross-side NFX, at the same time also increasing the in-centives for consumers on the other side of the platformto use Klarna over other DPP’s.

Moreover, in the analysis section it was mentioned thatSwish enjoys a vast amount of users in comparison toits competitors despite having high homing costs andthat this could be taken to indicate that the users of thisparticular market tend to overlook a more convolutedsetup. While this may be true in this particular instance,given the security requirements leading these platformsto present higher cognitive load during the initial setupfor the user (high homing costs), it is easy to also assumescenarios in which this can induce high switching costs -where the user is no longer willing to overlook the costof a new setup. For example: If a user waiting for a trainhas to purchase a ticket with either Klarna or Swish andis already registered with one of these solutions, due tothe time constraint, it seems unlikely that the transac-tion will occur with the other platform, as this would in-volve going through the lengthy process of setting up anew account - only to then perform the purchase. This isalso applicable in the case of companies targeting park-ing facilities (such as SEQR): Being in a rush and if theparticular parking facility supports a different mobile-payment solution than what the user has installed - heretoo it seems far more likely for the user to instead deferto either card payment or, even park in a different facilityall-together, rather than switching DPP supplier.

This becomes an interesting dilemma for the DPP marketwhich in many ways is comparable to the Swedish bank-ing industry’s stance towards cash-withdrawals duringthe early 90’s. During this time, a client of a bankwithdrawing money from an ATM owned by the bank’scompetitor would subsequently be charged a fee by thecompetitor. And while this increases the switching costit also creates a stagnation effect: the market is seg-mented through walls made up of high homing costswhere clients of Bank A have very little incentive touse the services of Bank B. The change came when thebanking industry realized that, rather than punishingthe client for using the ’wrong’ ATM - removing thesetypes of fees all-together meant an increased total vol-ume of cash-withdrawals, and so - larger turnover for thebanks themselves. Though the decision may have under-standably seemed quite unintuitive at the time, beyondshort-term benefits there are also broader after-effects toconsider - such as cultural impacts. Before, ATM-feesprovided incentives to search out the ’right’ ATM - butbeing given more time to reflect over a particular pur-chase is not necessarily conducive to spending. Allow-ing a whole population free-of-charge-access to personalfunds regardless of location on the other hand - promotesthat. So not only did this decision come with addedshort-term benefits for the banks, but in the long run, thedecision also shifted the societal mindset with regardsto fiscal spending. With the rise of digital transactionplatforms, seeing as there are many similar players offer-ing similar services, history seems to repeat itself. It alsoseems merely a matter of time before the same realiza-

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6 Conclusion

tion occurs here as well - introducing a new market dy-namic, one where DPP players thrive not through mar-ket segmentation - but perhaps on additional servicesand benefits offered to the customer, much like Swedishbanks today compete on interest rates and loan benefits.

Overall, much like observing the tip of an iceberg, theanalysis of secondary data only provides a glance at thesupposed strategy of each venture, and as competitionseldom is an incentive for full public disclosure, obvi-ously - there is far more hidden beneath the surface.An absence of publicly available data is not necessarilycause for great concern for already developed and sta-ble markets as these usually have been put under theacademic microscope several times already, backed bydecades and even centuries of aggregated, primary data.But considering that the digital payment platform mar-ket is very much in an early stage and that the eventsoccur in a nation at the brink of traversing into becom-ing possibly the first cashless society - here, the apparentshortage of academic material on the subject becomes animportant issue.

The reason why Sweden was chosen for this study hasbeen motivated by its score in a compound index basedon indices revolving around societal progress, innova-tion and technology. But this choice was also influencedby other reasons as well. Those are somewhat less quan-tifiable than index-data and so, their inclusion couldtherefore be dismissed as favoring one nation over an-other. Because, the success behind the Nordic nations’has often been accredited to aspects such as: its businessculture, societal mindset towards technology and a po-litically conducive climate for its growth as well as non-hierarchical business structures.

And for this specific nation, the lack of data becomesan even more pressing issue especially because there aremany similarities between the business climate currentlyseen in Sweden (not unlike the remaining Nordic na-tions) and the precursors of Silicon Valley. Much like theValley, these countries are currently experiencing a boomof venture capitalist-investment with close collaborationbetween scientific institutions and large economic corpo-rations. And with the entry barriers to start a companyalso being extremely low, this has fostered the emergenceof experimental new business ventures to arise allow-ing efforts such as Spotify and Skype to grow into globalmega-corporations. But perhaps what is most compara-ble to the very early days of the semi-conductor industryis the fact that few have come to realize the same. Thosethat have made an attempt at entering this market, likePayPal, seem either not entirely convinced of its poten-tial, or lack a more profound understanding of its condi-tions where, instead of tailoring their product to this na-tion’s specific needs, deploy offers with myriads of func-tions in an attempt to sway a population that is picky andboth understands and demands more of technology.

It might very well be that the current knowledge vacuumis precisely what has lead larger firms to abstain fromgreater involvement in the Nordic markets. And in noway is this surprising, after all - absent the groundworkexploration of scientists and engineers into the true po-tential of the silicon based chip, it seems few would haveseen the value of investing in early experimental com-puter research projects - efforts which today have cometo be celebrated for laying the foundation for the globalcomputer industry. And in much the same way, with-out more comprehensive, global studies performed intothe digital payment industry, there simply is no basis ofrealization to push larger players towards establishinggreater market presence in these fragmented markets,currently dominated of mostly small players. While in-vesting in these types of markets comes with relativelylow short-term profits - there is also a low investmentcost - lower risk for larger, international contestants. Soas these markets compose some of the world’s most de-veloped infrastructures, with populations of high tech-nological proficiency - nations like the Nordic countriespresent low risk opportunities for conducting highly ad-vanced research and development efforts towards glob-ally sustainable products and strategies.

Finally, one of the underlying questions which lead tothe formulation of this report was - exactly to what de-gree is research performed within the digital paymentmarket dependent on primary data? While answeringthis question from the standpoint of a secondary dataanalyst provides the tip of the iceberg, revealing a greatdeal about how much there is left to explore - the truemagnitude of what is hidden beneath the surface re-quires primary data. It is reasonable to assume that, savefor a limited core of scientists and engineers, few couldhave been equipped to fully anticipate the geo-financialrevolution to be brought in by the rise of the computerindustry. And with lessons from the past, seeing similartrends and preconditions within a fraction of the world’snations - at this junction, it seems that there are two pathsto follow: either academic institutions will have to playcatch-up to a new economic reality, or the decision couldbe to act proactively. These relatively small nations haveoptimal conditions for reduced-risk entry as well as of-fering grounds for experimental research efforts. Giventhe current digital payment landscape, rather than enter-ing markets with a focus on quantity - targeting highlypopulated nations offering promises of fast and substan-tial revenues - focus should instead be geared towardsquality market entry, accelerating the company’s globalgrowth by evolving within markets of the future. Itseems that, at the very least, more studies should be de-voted towards the exploration of these ideas.

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6 Conclusion

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