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Summary:

There are a ton of mobile payment initiatives getting under way. But to get mobile payments to soar, it takes the buy in from merchants, who have to be convinced that it’s a necessary and beneficial step up from the current way of doing business.

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For mobile payments to soar, it doesn’t take just the creativity and resources of carriers, financial institutions, start-ups and Web players. The gobs of money spent on making mobile payments happen may be for naught if merchants aren’t on board. And the industry is learning that. That’s one of the key lessons absorbed by Michael Abbott, the CEO of Isis, a mobile payment joint venture by Verizon Wireless , AT&T and T-Mobile.

Abbott, who joined Isis in November after ten years as CMO of GE Capital, said the carriers all considered their own payment services but they realized after talking to merchants and businesses that they didn’t want a bunch of competing options from the operators. So the carriers banded together to create Isis, which initially was designed to run on a new near field communication (NFC) payment network. Then when they took their payment service to the merchants, they were again told that they don’t want a separate payment network apart from the big players like MasterCard and Visa. They wanted a solution that works together. So Isis put aside plans for its own Discover-powered payment network and is now looking to partner with more credit card companies and banks. 

“It was always part of our plan to go open but we thought we needed to catalyze the new NFC payment network first,” said Abbott. “Once we started talking to merchants and banks, the merchants said flat out, if we enabled NFC, they didn’t want another network.”

This is not completely surprising if you’ve been following along. Of course, merchants play a huge role in the success of NFC and mobile payments. But we’re realizing just how essential it is to get them on board because despite all the movement by payment networks, banks, carriers and start-ups, it’s critical to ensure that merchants and retailers have the confidence, assurance and incentive to move forward on mobile payments. They need to know that it reduces friction, builds more loyalty and leads to more traffic and sales. And as we saw with Isis, they’re not shy about solutions that aren’t well designed with them in mind.

That’s something I recently went over with Vivotech’s CEO Michael Mullagh, who rightly pointed out that merchants have a perfectly good payment system right now with debit and credit cards. For them to jump on NFC, they need to have the ability to establish a closer relationship with their customers and be able to push out marketing offers and discounts to them. If it’s just a credit card replacement, what’s the big rush for merchants to make the investment in new point of sale readers?

That’s why things like Verifone’s decision to bundle NFC support in all future point of sale terminals was so key and necessary. It makes the process of upgrading to NFC automatic for Verifone customers, that is when they decide to buy the hardware. But as Abbott said to me, merchants usually upgrade every three and a half years so many are not in the market for new hardware right now. If you can give merchants a reason, however, to sign-up, it’ll make the whole process go faster.

So it’s important to evaluate all the different payment initiatives based on how valuable they are to merchants. And that’s why a start-up like Google-backed Corduro caught my eye last week because it was designed to not only lower the transaction fees merchants paid for mobile and traditional payments, but it also provided a system to manage customer relations through the same platform. They’re not just looking at making life easier for consumers. It’s merchants they had in mind. Now, it’s no guarantee that it will work but I think that’s what all payment solutions need: clear upside for businesses.

Abbott, the Isis CEO, said it’s not just merchants. Banks and consumers also need to be brought on board. But I think the banks are already moving in this direction. Consumers will need to be educated too. But it won’t cost them much to embrace NFC and other mobile payments. But merchants are the ones that have to shell out bucks to get on board. But they have a lot to gain if vendors can come up with solutions that make sense to them. And that’s why getting their buy-in will be key.

Image courtesy of Flickr user SuperTechnoGirl

  1. “They need to know that it reduces friction, builds more loyalty and leads to more traffic and sales.”

    Huh? I don’t spend money I don’t have, so I’m not going to buy more just because of a new payment system. And maintaining and worrying about security for yet another payment system certainly doesn’t lead to less friction for the consumer. And will I be able to choose among a debit card and multiple credit cards on my phone? If not, then I still have to carry physical cards, so what’s the point of NFC?

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    1. You’re right, consumers aren’t going to just up on a new system because it’s there. So security will be key. And they will be able to choose between which debit and credit cards they want to put on their phone and use. But the real value for consumers will be in getting personalized offers and discounts in-store from businesses. If can see value in that, they may adopt NFC quicker and ultimately spend more money, which retailers will appreciate.

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  2. As someone that lives in this space, I call BS on the comment that merchants replace their terminal every 3-5 years. The average lifespan is quite a bit longer. On a DAILY basis, we replace terminals that are 10+ years old.

    I DO agree that the merchant needs to be the focus, but in the end, NFC won’t be a viable alternative to swiping a card until the phones catch up. Verifone, Visa, Hypercom, or VivoTech could replace every terminal in the world….but they can’t replace the 120-million phones in the US that DON’T have NFC functionality. That’s the part that everyone keeps forgetting.

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  3. Either merchants are contradicing themselves or there’s something that ISIS is not saying something here. On the one hand, merchants are complaining to the regulators that the Visa/MC oligopoly is exerting a tight stranglehold over them as a result of which they are unable to decline cards even though they have to cough up what they call exorbitant merchant fees. On the other hand, when ISIS offers them an alternative, they are not interested. Sounds that the merchants’ stance is highly contradictory. Unless ISIS went to them with the proposal for another payment network that had even higher fees than what they pay on Visa/MC networks.

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