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Journal of Internet Banking and Commerce
An open access Internet journal (http://www.arraydev.com/commerce/jibc/
)
Journal of Internet Banking and Commerce, April 2008, vol. 13, no.1
(http://www.arraydev.com/commerce/jibc/
)
The Adoption and Diffusion of Electronic Wallets:
The Case of Monéo
Jean-Michel Sahut
Professor of Finance, Amiens School of Management & Cerege - University of
Poitiers
Postal Address: Amiens School of Management, 18 place Saint Michel, 80 000
Amiens, France
Email: Jean-Michel.Sahut@supco-amiens.fr
Dr. Jean-Michel SAHUT is a Professor at Amiens School of Management. He teaches
Financial Market, Financial Analysis and ICT for Finance (e-banking, electronic
payments.) for engineering and management students. Previously he was professor of
Finance at Telecom & Management Paris Sud and director of the RESFIN Laboratory
(studying impacts of New Technologies on Finance). He has a wide international
experience of executive education, in France and abroad, especially in Eastern
European Countries. He is co-author of the Mobilix simulation game for the mobile
market. He is also an expert for the 7th EU Framework Program. He has published more
than twenty articles about Electronic Finance in peer review journals : The Journal of
Internet Banking and Commerce, International Journal of Business, La Revue du
Financier, Finance & Technologies, Banque et marches, Gestion 2000, Banque
Magazine, etc.
Abstract
Despite the strong and consistent increase in the use of electronic payment methods
worldwide, the diffusion of electronic wallets is still far from widespread. Analysis of the
failure of electronic wallet uptake has either focused on technical issues or chosen to
analyse a specific scheme (Stalder, 1998). This article proposes a joint approach to
analysing key factors affecting the adoption of e-wallets by using the ‘Technology
JIBC April 2008, Vol. 13, No. 1 - 2 -
Acceptance Model” (Davis, 1999) which we have expanded to take into account the cost
of using e-wallets. We use this model to analyse Monéo, the only French electronic
wallet still in operation.
Keywords: Electronic wallet, TAM, user acceptance, adoption, diffusion, bank
© Sahut 2008
INTRODUCTION
After the initial craze for electronic wallets at the beginning of the 90s, and their
subsequent failure, the 2000s have seen the arrival of a second generation of products
such as Proton in Belgium and Monéo in France. However, the development of this
second generation has not been smooth either. This highlights the fact that both the
general public and retailers are reluctant to adopt e-wallets in two-sided markets where
the cards are in direct competition with cash which they are supposed to be replacing.
This article explains the elements affecting the adoption of this electronic payment
method using the ‘Technology Acceptance Model” (Davis 1999) which offers a
conceptual framework for analysing the adoption of new technology from its perceived
usefulness and ease of use. We propose extending this model to incorporate the cost of
using e-wallets using the ‘perceived advantage’ variable that is the result of the relation
between the perceived usefulness and the cost. Then we will try to explain the adoption
of different e-wallets and of Monéo in particular by applying this new variable.
T
he factors for adopting e-wallets
-wallets and network externalities
electronic wallet is an e-money payment instrument. It is a smart card with a
analysing the many failures (Mondex) and rare successes of e-wallets (EDI and
irstly, setting up a new payment solution is a long process in which network
E
i
An
microprocessor whose memory is credited with purchasing power stored in a float
account that has previously been deposited in a specialized company (bank or e-money
issuing company). This float account is debited at each purchase with no involvement
from the issuer. The e-wallet offers many advantages: transactions are secure, it is
adapted to make micro payments, it is easy to use, universal (there no link with the bank
account during the payment process), and it has a wide range of uses. It can be used for
point of sale payments and for other applications (social security card, loyalty card, an e-
key for building access…), as well as for Internet payments. The e-wallet is similar to the
‘Télécarte’ smart card issued by France Télécom. Both systems use pre-payment, the
difference being that the e-wallet is credited with a purchasing power shown in euros,
whilst the Télécarte converts the top-up into telephone units. This example and the
smart card’s wide range of potential uses show that by combining services offered
(travel pass plus e-wallet, phone-card plus e-wallet…) the opportunities for penetrating
the market increase.
By
Felica in Japan) we can reach several conclusions.
F
JIBC April 2008, Vol. 13, No. 1 - 3 -
externalities play a vital role. These effects are only felt indirectly and over time as
merchants decide to offer this payment solution: the more people use e-wallets, the
greater the number of merchants inclined to offer this payment solution and,
consequently, the more useful e-wallets will become. Consequently, how extensively a
payment method is accepted depends closely on the number of users. Eventually, it is
the number of possible connections between users of a payment method that makes it
useful (Katz and Shapiro, 1994).
Secondly, when network externalities occur, the consumer is not necessarily aware of
part from network externalities, the weak penetration of e-wallets into the European
e Technology Acceptance Model and a proposal of extension
nology remains an
d by Fishbein and
del in different contexts by using quantitative
the network effects they are experiencing. One result may be locked-in inefficient
technology. Consumers do not choose a product uniquely on the basis of the intrinsic
qualities of specific technology; they are also influenced by the number of people who
have chosen one or another of the rival solutions in the past. That is what makes one
technology more attractive and increases its chances to dominate in the future. When
launching of a method of payment it should be considered as a ‘network good’ because
network effects are responsible for increasing adoption uptake. In much the same way
Internet payment systems are affected by the same issues as ‘network goods’, which
explains why the market is dominated by SSL in spite of its precarious security (Sahut
2001). Its ease of use and the fact that it is already integrated into the two main Web
browsers including ‘Internet Explorer’, has given it an installed base of users which other
systems such as SET or 3D secure
ii
can not rival, despite the fact that they provide
better security. Shapiro and Varian (1999) suggest subsidizing the development phase
of the most efficient technology right from the start, so as to generate a large installed
base and subsequently increasing prices. Furthermore, research carried out by
Chakravarti & Xie (2006) on the impact of a standards war on the adoption of a new
technology product by consumers shows the necessity of communicating the relative
advantages of e-wallets over the existing standard, in other words cash.
A
market can be explained by the fact that their promoters are confronted by the problem
of a two-sided market made up of merchants and consumers (Verdier, 2006). However,
the development of this market depends mainly on consumers adopting this technology,
as the merchant will equip himself if there is a sufficient potential user base.
Th
The question of why people decide to accept or reject a specific tech
important issue. Literature on information systems has offered numerous models to
explain how the technology is adopted within organizations. The standard reference
model is the ‘Technology Acceptance Model’ (TAM) by Davis (1989).
This model is an adaptation of the theory of reasoned action propose
Ajzen (1975) to explain and predict the behaviour of people in a specific situation.
(Figure 1 depicts a simplified version of the model). The TAM postulates that two
particular beliefs - perceived usefulness and perceived ease of use - are of primary
relevance to ICT acceptance behaviour.
Numerous works have validated this mo
research methodology: email (Desq 1991), computer aided software engineering (Chau
1996), e-library (Hong et al., 2001). They have helped prove a statistical relation
JIBC April 2008, Vol. 13, No. 1 - 4 -
between the variables thought to be determining and measures representing user
behaviour. A fundamental limitation of this model is that it explains statistically (a
snapshot at a given moment) a dynamic phenomenon (which is developing over time).
The in-depth understanding of an eventual relation between factors and behaviour is still
beyond the reach of this type of model.
Figure 1: simplified version of the Technology Acceptance Model
rceived usefulness
(Adapted from Davis et al. 1989)
Pe
is defined as “the degree to which a person believes that using a
rceived ease of use
particular system would enhance his or her performance”.
Pe
is defined as “the degree to which a person believes that using a
ne of the goals of the TAM (Davis, 1989) is to serve as a starting point for examining
hese extensions assume that the decision to purchase is made by the company or
Perceived Usefulness
Perceived Ease of Use
External Variables
Technology
Acceptance
particular system would be effortless”.
O
the impact that external variables can have on behavioural intention. So, a lot of
researchers have proposed to expand the TAM in order to explain perceived usefulness
by a wide range of external influences: computer attitude (Chau, 2001); relevance (Hong
et al., 2001; Shih, 2004); perceived enjoyment (Yi & Hwang, 2003), perceived risk (Chan
et al., 2004), efficiency gain (Hu et al., 2005), etc.
T
organisation. The user is thus uniquely confronted by the choice of whether or not to use
this technology. Yet, when one is considering adopting an e-wallet, the perceived
usefulness (expectation of result) must also take into consideration the cost of this
payment instrument, which will determine its relative perceived advantage. We therefore
end up with an expanded TAM that can be used to understand consumer acceptance of
a technology and not only by users within an organisation.
JIBC April 2008, Vol. 13, No. 1 - 5 -
Perceived Advantage :
utility / cost
Perceived ease of
use
External
Variables
Attitude
Intention
to use
Figure 2: expanded TAM
EVALUATION OF E-WALLETS ADOPTION
Model for assessing e-wallets
Within the enlarged TAM, two dimensions should be taken into consideration when
assessing the perceived relative advantage of e-wallets: the perceived usefulness and
the cost. The consumer may be prepared to pay a certain amount (either a set price
and/or per transaction) to use this method of electronic payment if the perceived
usefulness is superior to that of cash for which there is no direct cost.
Cost
A
C
B
D
Probable Success
Probable Failure Uncertainty
Uncertainty
Perceived
utility
Figure 3: Model for assessing e-wallets
If these two dimensions for assessing methods of payment for consumers are presented
graphically, we end up with four situations.
JIBC April 2008, Vol. 13, No. 1 - 6 -
Squares B and D represent situations in which the cost of use is high. If the perceived
usefulness is low, failure is highly probable. On the other hand, if the perceived
usefulness is high, the situation is indeterminate. In this case it is recommended to
reduce the costs whilst increasing (or at least conserving) the level of usefulness for the
consumers.
Squares A and C represent situations in which the cost of use is low. If the perceived
usefulness is also low, the situation will be undermined as the consumers will choose
between this method of payment and cash. On the other hand, if the perceived
usefulness is high, this method of payment is likely to be chosen over cash.
Currently in Europe, most e-wallets stand a high risk of being rejected (fig no. 3 square
D). Indeed, the level of usefulness perceived by the consumer is often very low because
these e-wallets only allow them to carry out payment operations and consumers do not
want to bear the cost of use as there exists a substitute which is almost perfect and free:
cash.
E-wallet promoters should implement a policy aimed at increasing the usefulness
perceived by the consumer and/or reducing the costs they incur. Several studies show
that consumers see e-wallets as a substitute for notes and coins (Bourne et al. 1999).
The usefulness of an e-wallet depends therefore in its faculty to fulfil the traditional
functions of cash more efficiently and possibly to fulfil others. For example, it has been
clearly identified that there is an advantage for consumers to own an e-wallet in
situations where a micro payment has to be made and where it may be difficult to find
the exact amount of money needed for the payment. One of the conclusions drawn from
the analysis of the relative failure of Mondex’s introduction trial in New York (Van Hove,
2001) highlighted the necessity of offering e-wallets where they would be most useful,
for example for automatic payments (vending machines, launderettes…).
The e-wallet can also be useful to the consumer if it makes the payment process in itself
simpler or faster. This is one of the justifications for adding on complementary services
to e-wallets. When taking public transport, the user will usually have to queue to buy a
ticket, pay, go through a ticket control system, and finally hold on to the ticket for
inspection. With the e-wallet, all these steps can be covered in one single action. The
user presents his e-wallet at the control point activating the payment and registering it
(this provides proof of being in possession of a valid ticket and the payment registering
also updates the e-wallet’s accounting system). The process is therefore both simplified
and speeded up by using an e-wallet.
The e-wallet will be considered useful when available in situations where the consumer
recognizes its advantage over cash; if it fulfils certain functions better than cash, or if it is
combined with complementary services which the consumer considers to be useful in
themselves.
However, although it is necessary for the consumers to recognize the usefulness of an
e-wallet, this is not enough to guarantee its success, particularly if there are costs linked
to its use (fig no. 3 box C).
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The e-wallet’s cost burden is a crucial factor. As long as the advantages that the e-wallet
offers to one of the parties do not compensate for the share of the cost incurred, the e-
wallet has little chance of being widely adopted. The questioning of e-wallet users
(Bourne et al. 1999) revealed that when faced with a free alternative, consumers prefer
to use that solution if it is easily accessible.
Finally, the use of a payment method is based on confidence and its universality, two
qualities which themselves depend on our social experience. If we continue to use coins
and notes extensively to pay for purchases, it is because in our experience they are
universally accepted. In order for a consumer to consider the e-wallet as a credible
payment method, it must guarantee a certain universality of use. But, as we have
already seen, when its usefulness becomes low, if the cost for using an e-wallet is too
high, the consumer will prefer to use cash. Consequently, for its most common use,
point of sale payments, the consumer often perceives the e-wallet’s utility as limited. He
is therefore unwilling to pay to use it. The consumer will not consider e-wallets as
universal, as in most cases its cost makes it useless. Moreover, as e-wallets are
generally billed by fixed charge payments rather than by transaction, giving the
consumer the impression that he is paying for all the payments he makes, even though
the e-wallet is only useful for a tiny fraction of all these payments. However, the adoption
of a discriminating pricing system that would bill only for certain uses is not a workable
solution today. It would call for technical measures and a structure of costs close to
those of credit cards.
The Moneo case
In France, the Monéo e-wallet was launched in 1999. It is either included as a chip in a
bank card or comes as a stand-alone card. In fact, even though it is present in most
bank cards, Monéo is seldom activated by the cardholders.
In order to evaluate an e-wallet, the first step is to study how it can accomplish traditional
functions of cash:
• the e-wallet can facilitate conserving and transporting value by avoiding carrying
around heavy or bulky notes and coins,
• it facilitates payments by cutting out the need to count and recognize coins, thus
speeding up payment,
• it is supposed to increase the security of value, by limiting the risks in the case of
loss or theft, and guarantees anonymity of payments.
These functions are fulfilled to a greater or lesser degree by Monéo. In the domain of
security, Monéo offers little more guarantees than a bank note because in order to
reduce investment costs, its designers fitted it with a chip which is much less secure
(and much less expensive) than those used on a bank card. In the event of a fraudulent
reloading (which according to the UFC – Federal Union of Consumers in France – is not
difficult at all
iii
), the customer risks losing up to 100 euros which corresponds to the
maximum amount that can be loaded on the card plus a deductible which could be as
high as 275 euros to which you must also add another deductible of 275 euros if the
reloading by bank card, making a total of 650 euros. Moreover, Monéo is not an
anonymous payment instrument as the issuer can track the user’s consumer habits.
These limitations of Monéo can induce a low perceived utility by users.
JIBC April 2008, Vol. 13, No. 1 - 8 -
On the other hand, we show in the first part, the importance of the cost pay by users in
the adoption of an e-wallet. Monéo is still an expensive option for both parties in the
transaction. Retailers must carry the cost of installing a payment terminal as well as the
transaction costs when they use the system. The banks offer them two rates: a fixed
monthly charge of around 5 euros or a commission which may vary between 0.3% and
0.9% on each transaction. The card carriers pay an annual charge of between 7 and 12
euros even though this service is free in most other European countries (Spain, Holland,
Austria, Norway, and Switzerland). Moreover, the business strategy chosen by some e-
wallet issuers which means that retailers and card users have to carry the cost of the
system is difficult to justify from an economic point of view as, contrary to cash which
brings them no benefits, the money in the e-wallets’ float account (prepayment system)
can be invested and generate interest revenue. The revue generated would allow them,
much as providers of free Internet services such as Google, to consider an alternative
business strategy.
In total, the cost and low perceived usefulness explain the rejection by the consumer of
this e-wallet. According to official figures
iv
from BMS (Billettique Monétique Services, the
Monéo promoter), only 1 million Monéo e-wallets had been activated by the end of 2005
even though more than 51.2 million bank cards were in circulation. Moreover, the system
was generating around 78 million payments annually across a network of 100,000
affiliated retailers - around the same number of transactions as carried out using bank
cards in a single day (bank cards are used for 6.27 billion transactions totalling 325.4
billion euros
v
). These figures highlight the difficulty the e-wallet is having taking off
despite extensive trials and advertising campaigns. Around 300 million euros have been
invested directly and indirectly to launch the scheme.
That is why Monéo has redefined its strategy since 2004 concentrating on specific and
captive markets such as municipal services or student services; more specifically for
payment in pay and display machines and university restaurants respectively. In the
latter, students had little choice in adopting the Monéo as some university restaurants
didn’t accept other payment methods. Student protests were held to denounce these
practices and ended with 8 Monéo reloading terminals being destroyed in Tours
vi
. One
can legitimately wonder if Monéo’s change in strategy doesn’t reflect an
acknowledgement of powerlessness in its ability to become a universal method of
payment.
CONCLUSION
The key factors of success of this payment method are security, anonymity of
transactions, the cost of transactions, as well as the plurality of functions (payment,
travel card, e-key for building access, etc.). These key factors, already known to banks
from their experience with bank cards, have often been neglected and explain why many
e-wallets have encountered problems developing. In particular, the implementation of
multiple functions will be necessary to reduce the cost for users but the problem will be
to find agreements on revenue sharing between different actors in the value chain. It is
therefore necessary to wait several years before seeing e-wallets really emerge as a
credible alternative to cash payments for point of sale purchases, and still more time
before they can compete with micro payment solutions on the Internet.
JIBC April 2008, Vol. 13, No. 1 - 9 -
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i
http://ec.europa.eu/internal_market/bank/e-money/index_fr.htm
JIBC April 2008, Vol. 13, No. 1 - 10 -
ii
https://partnernetwork.visa.com/
iii
http://www.quechoisir.org/Position.jsp?id=Ressources:Positions:ABCDDAE2266A8409C1256C
75004A72A6
iv
http://www.moneo.net/pages/infos/coinpresse.asp
v
http://www.cartes-bancaires.com/
vi
http://www.lepost.fr/article/2007/12/07/1063986_les-amis-du-negatif-plutot-solidaires-avec-les-
faucheurs-moneo.html
