The emergence and scope of complex system/service innovation : the case of the mobile payment services market in Finland

Technological advances in the telecommunications sector have made it possible to conduct commerce and payments via mobile handsets enabling a new marketplace based on network technology to emerge. This new marketplace could expand the input and output markets for firms and benefit consumers in the form of time and place independent services. In the emerging market, mobile payment services can be considered a primary element in facilitating the functioning and growth of the overall market. Nevertheless, the existing mobile payment services market is about 95% dominated by mobile operator based billing (pre-or post-paid) services and in general the mobile commerce marketplace in Europe is very limited in its scale and scope and mainly based on selling ring tones, logos, and other limited services. However, the general assumption since the end of the 1990s has been that to make the mobile commerce market grow, there must be more effective and reliable mobile payment systems than those offered by current mobile operator based billing systems. In the European Union, the industry actors are expected to lead the way in establishing the new mobile commerce marketplace, where particularly mobile operators and financial institutions, but also some new independent entrant firms have been interested in capturing the “transaction centre” role in the emerging mobile commerce marketplace. The study focuses on understanding the main factors and forces that shape the emergence and scope of the mobile payment system/service market by constantly questioning the existing frameworks and trying to understand the nature (and business logic) of the innovation process from the perspective of a broader organisational field level, mainly in the light of how the key industry actors have tried to create the market up until approximately autumn 2005. On this basis, the study sheds light on what could be done to accelerate developments in the field. It focuses on the supplier side (/industry) of the phenomenon as it is ultimately the industry actors who will decide which types of mobile payment solutions (/standards) are brought onto the market. The phenomenon has been studied predominantly as it emerged from 2001 to 2005 with a qualitative case study method where the aim has been to develop a theoretical model/s on the basis of the Finnish case study and hence, the analysis techniques provided for grounded theory building studies on the basis of case studies have been used in conjunction with the systematic combining approach. The main theoretical contributions of the study culminate in the following views. Firstly, the study proposes a theoretical framework for understanding the underlying factors and forces that shape the emergence and scope of the mobile payment system/service market by integrating existing theories and literature from various disciplines together in a way that best fit the empirical findings of the study – where particularly, the co-evolving resource dependence, or hierarchy of resources, of the key industry actors appears as an interesting result, which would deserve further studies. Secondly, the study is able to provide some light on how organisations actually shape (or have tried to shape) technological change in the era-of-ferment phase of a complex system/service industry (mainly in the light of the mobile payment business models created until approximately autumn 2005), which according to Tushman & Nelson (1990) and Tushman & Rosenkopf (1991) deserve further studies. Thirdly, the study provides understanding on the overall nature of the innovation, suggesting that a marketplace level view should be taken for the companies to be able to create the market, and in the light of which the regulatory authorities could be better able to direct and coordinate the related industry efforts in the field in order to prevent the emerging mobile commerce and related payment system/service market from fragmenting into several non-interoperable technological systems and business plans. It can therefore be argued that instead of taking the firm level view, as suggested by Lee et al. (1995), the nature of the innovation requires the companies to take a marketplace level view. The main implication for managerial and industry policy suggested by the study is that to expand the scale and scope of the mobile commerce and payment services market, competition should be ensured between similar service providers or industries in the emerging market, not for the market, as has been the case. At least, competition for the market between financial institutions and mobile operators is not beneficial for the overall market outcome if the aim is to maximise social welfare; instead, compatibility and industry based competition in the emerging market should be guaranteed