Focus on merchants or consumers

I’ve kept an eye on Mocapay, a pioneer in the mobile payments space, since it launched in 2006. I noticed that while my former employer focused on consumer acquisition, Mocapay focused on merchant acquisition. Strategy A says the more consumers you have enrolled in your rewards program, the greater the volume of reward-able transactions. Strategy B says the more merchants you have accepting mobile payments, the greater the volume of mobile transactions.

Of course, it’s not exactly one or the other. Consumers need places to buy things that earn rewards and merchants need consumers to make purchases using a mobile technology. They are two sides of the same transaction. But the choice of focus indicates a belief that one group leads the other. Which is better – using a large group of consumers to attract merchants or a large group of merchants to attract consumers?

Recent news from Mocapay suggests they are having some success focusing on merchants. I don’t have any inside knowledge about their business model, but I think I understand the underlying logic. Merchants bear the direct cost of the transaction, so they pay attention to the value. They check to see if the profit from incremental purchases covers the cost of handling those purchases. If there’s a positive ROI, the merchant remains a Mocapay customer.

This vendor-customer relationship forces Mocapay to constantly tweak its business model to make sure it is delivering value. It keeps Mocapay focused on getting and keeping merchants.

It’s so simple it’s hard to write that without thinking, “Duh!” But focusing on the consumer side of the equation is alluring. At my former employer, we got to work with some of the world’s largest card issuers. We signed huge numbers of cardholders and investors quickly jumped on board as a result. But these consumers didn’t pay anything to be members of our rewards program, so they didn’t pay any attention to its value. In fact, most of them never knew they were in a rewards program.

Stay the course Mocapay, you’re on the right track!

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