Digital ecosystems for mobile payments

The battle of the platforms

Source: Informatie (December 2014); Authors: Bjorn Cumps (Professor Vlerick Business School), Stijn Viaene (Professor Vlerick Business School and KU Leuven), Wesley Bille (Service team lead architecture LoQutus) and Pascal Dussart (Senior EA consultant LoQutus).

New technologies increasingly have an impact on our businesses. The spotlight is on the impact and possibilities offered by big data, mobile, social, cloud and cyber security. But what of digital ecosystems? The times of businesses functioning as a closed system with only limited links to the outside are long gone. A true social enterprise is a collective partnership of people who work together in a digital business ecosystem. Before we take a closer look at the foundations of a digital ecosystem, we will first be examining where businesses are currently placing the emphasis in their digital strategy. We will be discussing the results of studies and examples from the financial sector, which is currently marching full steam ahead in the field of digital innovation.

Mobile and ecosystems

It has emerged from a study by Vlerick Business School1 on digital innovation at Belgian retail banks that mobile technology is the leader of the pack when it comes to expected future investment.

(figure 1) What will banks be investing in over the next 3-5 years?

Over 90 per cent of respondents (85% of Belgian banks participated) expect mobile technology to play a prominent role in their future investment portfolios. For investments in big data, social, cloud and cyber, this is a touch lower, at around the 50 per cent mark. Mobile is clearly a driving force for digital innovation in Belgian banks. It has also emerged from the survey that innovation with regard to expanding digital ecosystems is clearly on many banks’ agendas. Almost two out of three banks are already investing in this at present.

Ecosystems and mobile are clearly two major digital innovation priorities for retail banks. But an ecosystem cannot be built from one day to the next. We will be putting forward three fundamental points for businesses that want to be active in upcoming ecosystems: aligned visions (alignment), well-designed systems (architecture) and finally, fast and flexible governance (agility).

(figure 2) The Vlerick Triple-A Framework

Below we will be exploring these three points in more depth, and will be illustrating these with current examples from the financial sector.

Alignment, aligned visions

Digital ecosystems are formed by a network of businesses linked together through a collective goal2. It is apparent that it is becoming increasingly important for businesses to form part of the right ecosystem. In the financial sector, especially in the area of payment traffic, the battle of the ecosystems marches full steam ahead. It is striking that this does not necessarily revolve around technology. Finding the correct partner with the same aligned vision is at least as important, or even more so. Ask Apple, which is currently in full swing with the build of its own ecosystem for mobile payment solutions. Alongside banks and credit card companies, which Apple involves in its ecosystem, Apple must primarily be seen to convince traders.

Here they collide with another ecosystem in the United States, namely the Merchant Customer Exchange (MCX). MCX groups together over fifty large US retailers (such as Walmart, Best Buy, 7-Eleven, Sears, ExxonMobil and Shell) which have developed their own mobile payment solution (CurrentC) and collectively have a different vision of mobile payment traffic. Apple optimises and improves the payment experience but allows traditional players in the field, such as banks and credit card companies, to play their part in the future payment traffic. All partners in the Apple ecosystem have the same clear vision: they work with existing payment networks but optimise the underlying business processes and user experience. Good news for the banks and the big credit card companies! This is different with the MCX ecosystem, where the partners’ clear vision is to replace existing payment networks with a new mobile payment solution. MCX puts itself fully behind new technologies, new processes, new services and new players. More importantly though, it opts for an open platform with broad access for new partners (retailers) but also for all consumers. The Apple Pay ecosystem is, on the other hand, a closed platform, and the payment solution can only be used by Apple clients who have an iPhone 6 or an Apple Watch. In Belgium, a separate ecosystem for mobile payments is also being developed. Sixdots, as an ecosystem, has an altogether different composition. It is made up of all the large banks (BNP Paribas Fortis, KBC, ING, Belfius) and a number of smaller banks, the largest telecoms companies (Belgacom, Mobistar and Base) and MasterCard. It is an open ecosystem with an open platform. The battle of the digital ecosystems for mobile payments is clearly in full flow. The dynamic that we see among many competing ecosystems is one of convergence/divergence. Maximum convergence with regard to the vision within an ecosystem, combined with maximum divergence between the various ecosystems themselves. Alignment is not only important within a business (e.g. between business and ICT) but clearly also between an ecosystem’s various partners.

Architecture, well-designed systems

Ecosystems are complex structures. Enterprise architecture is a way to reduce or control complexity within a business. Architecture also plays an important role in an ecosystem. Ecosystems are primarily based on complementarity: a mutual, aligned vision, and the products and services of the various partners that reinforce one another. This is best when the businesses are built upon a modular and open architecture with clearly defined interfaces3. This makes it easier to connect both business and ICT components of different partners in the ecosystem with one another. For example, different partners can assess which business capabilities they each have, where their strengths lie, and whether they are complementary and reinforce one another.

For Apple, it is far more logical not to broaden any of their own business capability to process payments, but to use that of the banks. For risk management too, banks have historically acquired better business capability over the years than technological businesses. Apple in turn has a far stronger business capability in product design, platform management and the creation of a good customer experience, in comparison with most banks. The business capabilities of both partners in the ecosystem are clearly complementary, creating added value. The same applies for the process-, information- and technological architecture. If the building blocks are modular and the interfaces clearly defined, it is quicker to see how complementary the various partners really are and how quickly partners can be linked with one another. There is also another reason why good architecture is important. Changing from one ecosystem to another is certainly not made easier when partners are linked to one another in a certain way and via certain interfaces, for both the integrated business and ICT services. If they do want to go ahead despite this, there are switching costs associated with this. A clear architecture is not only necessary to oversee and control the complexity of an ecosystem, but can also be instrumental in instigating the desired form of participation in the ecosystem.

Multi-sided platforms

The reason why architecture is such an important building block of a digital ecosystem is that digital ecosystems are based on platforms. These platforms generally have a major technological component. Multi-sided platforms are technologies, products or services that create value by facilitating direct interaction between two or more groups4.

A number of good examples and the groups that they connect are Alibaba (buyers and sellers), Airbnb (lessors and tenants), Facebook (users, advertisers, game developers), Google Android (mobile manufacturers, users, application developers), and Sony PlayStation (gamers and game developers). Each of the groups is a client of the multi-sided platform and the platform brings the groups into direct contact with one another. What is typical of multi-sided platforms is that the value of the customers on one side of the platform rises as the number of users on the other side increases. The core of the Apple Pay ecosystem is a multi-sided platform of traders, iPhone users, banks and credit card companies. The more traders connect and install payment terminals that can make use of Apple Pay (requires NFC technology), the higher the value for iPhone users, as they will then be able to pay in more shops. Conversely, the more iPhone users there are, the higher the value for traders to connect to the platform, as they will be able to allow more clients to pay via this platform. The same applies to the multi-sided platforms MCX and Sixdots.

Agility, flexible governance

Agility is all about flexibility and speed. For ecosystems it is important to be able to make connections in a flexible and speedy manner on the platform that has been designed. The governance must enable fast connections and flexible methods of cooperation. In this context we will be looking at three important aspects of governance: 1) How are decisions made that impact on the whole ecosystem? 2) What rules are there with regard to joining the ecosystem? 3) What rules are there with regard to what the different groups in the platform may or may not do? Large, complex organisations on the whole have extensive and bureaucratic processes, structures and governance rules. Ecosystems are also large complex organisations, but they must try to keep governance as flexible as possible in order to be able to come to decisions quickly. When we look at the Sixdots ecosystem, which is made up, among others, of large banks and telecoms companies, it is important that the governance isn’t prohibitive. If, with all these different partners in the ecosystem, strict governance rules have to be followed before decisions can be made, this is certainly of no benefit for the ecosystem’s flexibility and speed. Each of these organisations already has its own strong governance structure. If this is also imposed within the ecosystem, quick decisions certainly cannot be expected with so many parties. Access to the platform and the rules imposed can also differ between ecosystems. Apple Pay, similarly to other Apple platforms, will have a much stricter approach than other platforms. Apple has a reputation for not letting just anyone onto their platform. Even with their App Store platform, where there are strict procedures for developers, they regularly turn away developers and lay down strict limits with regard to what the developers can and cannot do. The choice to opt for stricter governance appears overall to be a quality versus quantity consideration. Do you allow everyone onto your platform or do you go for more limited access with stricter governance rules in the hope of achieving a more qualitative platform? In the first instance, Apple Pay opts for the latter. Not every local trader will in the first instance simply be able to offer Apple Pay. An ecosystem such as Sixdots will, however, take advantage of this, and will try to connect those local traders to their platform by being more accessible for them, in order to win over a large section of the local market. The choice for the type of governance sought in different ecosystems is about much more than rules, and also determines how the market is approached.


In the world of mobile payment traffic, there is clearly more to consider than simply a product or a business. It is a competitive race between ecosystems based on multi-sided digital platforms. It is hard to predict who will emerge as the winner. Which ecosystem will succeed in attracting the most offerors (traders) and users (payers)? Both groups are important and they must maintain the right balance between them. Nobody has any interest in a mobile payment solution with plenty of users but few traders. There is also little point in bringing together a large collective of traders when there are too few users. Just as in nature, it is important to have balance between the various components of an ecosystem. If we view social enterprise as an ecosystem of businesses, there are three points we must bear in mind. Between the parties there must at least be an aligned vision on the nature of value creation, distribution and harnessing in the ecosystem. This does not mean that there cannot be discussion between the partners, but the collective project takes precedence. Above all, given the importance of platforms within ecosystems, the necessary attention must be devoted to a well-designed architecture, both to control the complexity and to incorporate the necessary flexibility. Finally, the governance structure selected must be a determining factor for the success of the platform to be built. The world of mobile payment solutions is marching full steam ahead and is a good example of how social enterprises are learning to compete with one another.

[1] Viaene, S. & De Hertogh, S. (2013). Post-digital innovation in financial services. Vlerick Business School.
[2] Moore (1993). Predators and Prey: a new ecology of competition. Harvard Business Review, May-June.
[3] Gawer, A. & Cusimano, M.A. (2002). Platform Leadership: How Intel, Microsoft and Cisco drive industry innovation. Harvard Business School Press.
[4] Hagiu, A. (2014). Strategic decisions for multi-sided platforms. MIT Sloan Management Review, 55 (2).

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