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Summary:

While the carriers and banks behind Isis reinvent a wheel that already works, the real innovation is happening elsewhere.

PayPal mobile app wallet
photo: PayPal

“If you build it, who will care?”

That pretty much sums up the last few years in the mobile payments space, as banks scrambled to remain relevant and mobile carriers tried to grab a piece of the pie. So began the mobile wallet revolution – the answer to the question nobody asked.

The Big Kahuna of the mega-wallets – or at east the poster child for wasted effort – is Isis, the mutli-vendor project with a fat budget and a roster of tier 1 backers, including Chase, Wells Fargo, and three of the Big Four carriers. Isis is adding users, and brands we know are seeing a trickle of  transactions, but at its core, the program is not creating much new value.

The problem is that Isis and its kin aren’t offering anything particularly new. Users are comfortable with swipe cards, which, thanks to Square, work just about anywhere. In theory, a mobile wallet is more secure than a magnetic stripe card, but even in a post-Target world, security isn’t a big customer concern. Plus, the banks’ own move to EMV cards over the next few years should address most card-present fraud issues. So while massive incentives might boost short-term adoption, the long-term picture is pretty gray. Your swipe card works everywhere, every time. Isis doesn’t – and if you’re on Sprint or an iPhone (unless you want to a buy a special case), you’re not even invited to the game.

As independents like Loop and Coin have shown us, there’s some incremental value to be squeezed out of streamlining the existing payment process. Still, while reducing the number of cards in your pocket is helpful, it’s not exactly a disruptive transformation.

So who’s going to bring us the next round of knock-your-socks-off innovation? In her recent Sector RoadMap: the U.S. mobile payment market in 2014 report, Kristina Yee identified five companies poised to shake up the market in the next 24 months. Not a single bank or carrier made the cut.

Three of the five are names you know. From its iBeacons to its wireless payment patents to the announcement of support for 3rd-party iTouch developers, Apple has the pieces it needs to build a mobile payments ecosystem. Sure, the payments would probably settle through a bank, like most iTunes purchases, but they wouldn’t have to. Facebook has the country’s largest captive mobile audience, experience in quasi-currencies, and now, with the hiring of former PayPal President David Marcus, a payment heavy in charge. And Microsoft, for all its lumbering, has a compelling cross-platform story, a mobile OS, and an army of young, mobile-friendly Xbox users who love impulse buys.

The last two are the most interesting for the industry as a whole. Cardis attacks a very real problem – microtransactions – in a way that can offer merchants of low-priced goods tangible value and lower transaction fees. And as Yee points out, Cardis is “able to operate outside of MasterCard’s or Visa’s networks, an advantage that provides the company with significant flexibility for hedging its bets in the future.” The final disruptor, Bitpay, provides a settlement bridge between traditional and alternative currencies, which – love them or hate them – are here to stay.

And that brings us back to Isis. If the banks and carriers want to remain relevant, they need to create something fundamentally new. Instead of trying to migrate existing merchants and card users to a new platform, why not provide new services to new users? Look to what Safaricom has done with the M-pesa in Kenya, where it accounts for a third of the country’s GNP, and serves as a model for mobile money services for the unbanked. What can North American providers learn from that?

I’m not suggesting that Wells Fargo and Verizon form a Bitcoin exchange, and banking as we know it will be here for some time, but the carriers and banks need to look beyond swipe card 2.0. There’s an enormous market of cash-based services for the unbanked and underbanked in the United States, and if they don’t back the winning mobile solution, Walmart, Western Union, someone else will.

By Cormac Foster

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  1. The obvious missing factor for all these intiatives is the value for the payer. Most are designed to save costs for the merchants, remove chargebacks, etc ….but nothing concrete and revolutionary for the end user. This is the main issue for Mobile Payments …and untill someone comes with a revolutionary approach on this end…nothing significant will happen.

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    1. Cormac Foster Monday, June 16, 2014

      Agreed. I think the ease-of-use argument may eventually come around, but we’re not going to get there with with payment mechanics alone. Something like iTouch or its equivalents will help, but when you look at the mobile payment apps that have really spiked (particularly Starbucks), they’re integrated with other services (loyalty programs, coupling, etc.), and usually driven by a brand. The discounted NYC taxi fare on first use offer might get me to install the Isis wallet, but it’s not going to convert me to a long-term user until I’m getting something back on every use.

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    2. james black Monday, June 16, 2014

      Cost savings for merchants equates to lower prices for consumers, but as of today, mobile payments is lead by Google Wallet and isis mobile. Both of which ultimately partner with traditional credit card issuers, and in the case of isis mobile, insert yet another greedy middle man(wireless carriers) in the transaction process.
      I do agree with the usability aspect, the worst part is, mobile payments systems like isis mobile neither provide the cost savings, nor any usability improvement. In fact, from what I’ve heard, isis mobile actually complicates the payment process.

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  2. Lori Santa Maria Monday, June 16, 2014

    I think creating a product that is universal and simple to use is key. If payment systems were tied SMS instead of the IPhone app store or the Android marketplace more mobile users could access the platform.

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  3. missing Ripple here

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  4. Interesting piece. It’s worth noting that mobile payments is starting to become a hot industry for young businesses. Older, more stale companies like Square are losing steam while up and comers like PayAnywhere (http://www.payanywhere.com/) are surging (and for good reason).

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  5. Marker Karahadian Monday, June 23, 2014

    I love Starbucks app for convenience and simplicity. Why can’t they spin that off as a payment system? It is essential a gift card [quasi debit card] system and not that different from M-pesa.

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  6. Brand-specific holistic commerce solutions (e.g. mobile marketing, shopping, payments, loyalty/rewards and service) that are situated within the various vertical industry segments are gaining momentum while horizontal (cross-industry) payment-centric applications sputter along. The real question is this: Can a horizontal payment platform ever provide the value of a brand-specific holistic commerce solution? Not likely. The marketing, shopping, payment, loyalty and service needs of each industry segment, and their associated brands, are just too diverse to be adequately covered by one app.

    Thank about it. The marketing, shopping, payments and loyalty requirements of Food & Beverage is vastly different from the needs of Grocery & Drug. The needs of both of these are vastly different from Fashion & Apparel, Home & Garden, Sports & Entertainment, etc.

    Those companies that offer horizontal (cross-industry) payment applications need to more open to what is occurring in the vertical industry segments. If they were, they’d likely rethink their reason d’être.

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  7. I’m not sure Isis is available for all android users. When I last tried to get the app for android, it was successful. Hope this doesn’t create another Visa/MC/Amex situation for consumers and merchants.
    http://www.vilaku.com

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  8. Bottom line is every mobile payment APP is being built by M.I.T engineers and bankers not business owners. They don’t know what the businesses needs are. Until NOW “STRAIGHTPAY” solves the mobile problem. Value proposition for both the merchant and the end user!!! CHECK IT OUT

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