Mobile payments startup Droplet has just begun a third round of funding as it seeks to expand into new UK cities.

It is operating in a very competitive market that has already seen some of the major players try and fail to attract an audience.

Droplet was launched in Birmingham two years ago and is already being used in 600 businesses in four cities. The app has 18,000 registered users.

The business has already raised £850,000, which has been spent on product development and market testing.

This new funding round is being hosted on Crowdcube and aims to raise £500,000, which will help Droplet expand into 10 new UK cities.

Here at Econsultancy we’ve been guilty of buying into the hype around mobile payments, even though consumer interest and adoption was still lagging.

For new technology to take off it has to solve a problem, and as yet there’s no pressing reason for people to give up cash and bankcards in favour of a mobile payment option.

Droplet’s founders think they’ve overcome this barrier by bundling loyalty services into the app.

Droplet founders Will Grant and Steffan Aquarone

The payment system itself is free, instead Droplet charges merchants for using the loyalty features.

But though the business is ready, are consumers really ready to fully embrace mobile payments?

To find out more about the marketplace and this latest funding round, I spoke to Droplet co-founder Steffan Aquarone...

Do you think mobile payments might finally be catching on with consumers?

When sectors tip there’s usually a combination of timely factors.

We’ve been through the initial hype cycle and passed the trough of disillusionment, and we’ve also seen the failure of other tech providers in this space (e.g. Weve, O2 Wallet).

However the continued adoption of mobile technologies is an obvious benefit for us, as is the launch of Apple Pay.

The latter has been hugely beneficial as it normalises the idea of having money on your mobile and has reassured people around the potential security issues.

Finally, for adoption to take off someone has to be the first to crack the go-to-market strategy.

We think we’ve done that now, as have Apple in the most basic sense. It’s now down to consumers to feed back their views and vote with their feet.

Why is now the right time for you to go for more funding and expansion into new cities?

We now have a blueprint where we can see how much it will cost to go into new cities, and that can be repeated across the country.

We also know that our customer acquisition costs are lower than the amount we make from our merchants, so it’s now a scalable business model.

In addition to that, we were always of the opinion that the tech had to be about more than just payments.

There’s no real problem to be solved just by moving payments to mobile, so it’s by building additional services around it that we’ve found something unique.

In product terms we’ve done something that nobody else has done. Droplet is still free to use, and it combines payment and loyalty in one step.

Why do you think you’ll succeed where the big banks have failed?

The addition of a loyalty scheme was the real breakthrough as it ties into existing behaviour patterns, so it’s easier to get people to adopt the app.

You don’t even have to pay with Droplet to collect points with it. 

The problem with a lot of existing loyalty schemes among SMEs is that you don’t really collect any customer data, you’re just giving stuff away to people who would buy from you anyway.

The way the app works is that when users go into their favourite coffee shop they are automatically recognised, so their face and avatar appear on the point-of-sale screen.

After placing an order Droplet makes the payment, so the user just gets a push notification to say they’ve paid and have also collected their loyalty stamps. 

The irony is that in the context of the mobile payment market, nobody really cares about the payment.

And we’ve proved that because people still loved the app even when we removed payment entirely.

How do you plan to increase adoption as you expand into new cities?

In the past we found that if you put money into social ads you could drive a lot of downloads, and if you had a good product you could get a lot of traction.

That has now changed as people seem to be more precious about the space on their smartphones, so they’re less inclined to make a speculative download or try something out.

This has made it harder for app startups to drive adoption through digital channels.

Instead where we’ve had success is through our merchants.

We did a lot of data analysis among our user base - which, as a startup, I recommend doing as early as possible - and found that people tended to use the app as part of a daily routine.

We’ve educated our merchants how to pitch Droplet to their regular customers. It’s a fairly easy sale as the use case is immediate and obvious, and there’s an incentive for the retailer as it removes costs for them.

But how will you get the merchants on board in the first place?

One of the reasons we’re doing the funding round now is that we’ve learned some important lessons about going to market.

We now have a template that can be applied to new cities.

Basically, having sales teams stomping around pitching for new business doesn’t work. Instead we recruited people who were connected to the local communities who could act as ambassadors.

They were able to sign up hundreds of businesses largely through word-of-mouth marketing.

Now our whole go-to-market strategy is based on ‘place’ and having that local knowledge.

And how is the funding round going? Why did you choose Crowdcube over the numerous other crowdfunding sites?

Crowdcube basically works like Kickstarter but with shares. We wanted our early adopters to be able to buy a part of Droplet, and more than 100 already have.

If you look at the site you’ll see our business plan, a description about where we’re going, and also a request to help us grow.

So as well as investing money, people have been helping us to open new doors and even recruit new ambassadors.

Our new ambassador in Lancaster came about thanks to someone who found us through Crowdcube.

The funding round has been a mini digital marketing strategy in its own right, as you have to do a lot of work to get people to come to the page and either invest or share it with their networks.

So far we’ve had more than 15,000 views and 1,000 share in six days, and there’s still around 40 days left to go.

David Moth

Published 17 March, 2015 by David Moth

David Moth is Editor and Head of Social at Econsultancy. You can follow him on Twitter or connect via LinkedIn

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