Investment Timing for Mobile Payment Systems

• Main Authors: KAUFFMAN, Robert J., LIU, Jun, MA, Dan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Decision-making under uncertainty; economics; e-payments; investments; mobile payments; network effects; stochastic processes; value; Computer Sciences; E-Commerce
• Online Access: https://ink.library.smu.edu.sg/sis_research/1740; https://ink.library.smu.edu.sg/context/sis_research/article/2739/viewcontent/InvestmentTimingMobilePaymentSys_2012_ICEC.pdf
• Institution: Singapore Management University

The recent launch of Google Wallet has brought the issue of technology solutions in the mobile payment (m-payment) area to the forefront. In deciding whether and when to adopt m-payment technology, senior managers in banks are naturally concerned about uncertainties regarding future market conditions, technology standards, and consumer and merchant responses, especially their willingness to adopt. This study applies economic theory and modeling for decision-making under uncertainty to bank investments in mobile payment technology. We assess the projected benefits and costs of investment as a continuous-time stochastic process to determine optimal investment timing. We find that the value of waiting to adopt jumps when the related business environment experiences relevant shocks. Our analysis shows that when the volatility of the expected payoff, the time horizon for decision-making, and timeframe of the choice changes, the recommended investment timing will change too. We also consider how network effects influence managerial decision-making for this IT investment analysis context.