Three U.S. Carriers Team Up On Developing Credit Card Competitor

Square Mobile Payments Signature Screen

There’s no shortage of hype in the mobile payments space, where everyone from online leaders like PayPal to a host of well-funded startups, are claiming to have what it takes to displace Visa or MasterCard at their own game.

This time it is the carriers. AT&T (NYSE: T), Verizon Wireless and T-Mobile USA have reportedly formed a partnership that would let a consumer tap their cellphone at the register to pay for items in a store, Bloomberg reports.

The deal, which is still operating under the radar, may involve a partnership with Discover Financial Services and Barclays to create pilots in Atlanta and three other cities, according to people familiar with the situation.

The technology is not novel and is used in many other countries today. However, nothing has changed in recent times that makes rolling out such a system any easier here. Merchants would have to upgrade their systems to support cellphones, which could cost $200 per reader. Additionally, every cellphone would need a corresponding chipset that would cost $10 to $15 each. By teaming up, the carriers would have a great chance of influencing the whole ecosystem from merchants to banks and handset makers. Some say that T-Mobile’s share in the venture is smaller than either Verizon’s or AT&T’s and there is no explanation for why Sprint (NYSE: S), the third largest U.S. carrier, is not participating. The group is also seeking a CEO to spearhead the initiative.

To be sure, the carriers are not seeing the hurdles, but rather, dollar signs. Visa and Purchase, New York-based MasterCard handled $2.45 trillion, or 82 percent, of U.S. consumer spending on general-purpose cards last year, according to the Nilson Report, reports Bloomberg. That figure is something other startups are also salivating over.

For now, many companies have focused initially on the virtual goods space since paying for physical goods is more complicated. Boku, mopay, Zong and publicly held Hi-media are just a handful of the companies that have thrown their hat into the ring over the past year. The big leaders, Visa and MasterCard, should also not be discounted as players. Recently, MasterCard said it will let third-party developers tap into its payment systems so they can be used for online or mobile applications. And, Dan Schulman, the head of Sprint’s prepaid business, stepped down to take on a job at American Express, where some of his responsibilities will include mapping out its mobile plans.

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