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Can a Carrier Consortium Make Mobile Payments Work?

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AT&T (s t), Verizon Wireless (s vz) and T-Mobile USA said they are banding together to create a new mobile commerce network, called Isis, that utilizes near field communications. The new venture confirms an earlier report, but leaves a lot of questions about how well Isis will compete and whether it will help kick-start the NFC payments market.

The premise is that the carriers are building a payment network that allows users to use their phones as credit cards. With near field communications chips embedded inside their phones, consumers will be able to tap their handset at point of sales terminals and make a purchase. The network will work in conjunction with Barclaycard, the first issuer, and Discover Financial Service’s (s dfs) network, which has 7 million payment locations. Isis will expand over the next 18 months to key markets in the U.S. Michael Abbott, a former financial services executive with GE Capital, has been named CEO of Isis.

On the face of it, it looks like the carrier support should add more momentum behind NFC, which also got a boost Monday when Google CEO Eric Schmidt (s goog) said Android 2.3, the upcoming OS release, will include support for NFC. Buthaving the carriers on board doesn’t guarantee success for Isis or NFC in general. Isis is working with fourth-place Discover, which is far behind leaders Visa and Mastercard, and it’s signed up Barclaycard, which isn’t well-known in the U.S. as a credit card issuer. Combined with a vague 18-month rollout, it raises questions about how effective the carriers’ efforts will be.

Verizon and AT&T have also already rolled out their own carrier billing systems through BilltoMobile and other payment platforms like Zong and Boku. While that can be used to pay for digital goods, it can also work for physical items, which may undercut the need for an NFC solution and could cause confusion for consumers as to which payment method they should use for what. Meanwhile, there are a lot of challengers looking to get their slice of the pie. Mastercard (s ma) is one of the early leaders in NFC with 80 million NFC chips in use, mostly embedded in credit cards, and 265,000 payment locations.

There are still also larger questions about consumer appetite for NFC. Contactless payments can work in under-developed areas with less banking infrastructure, but it doesn’t offer the same appeal in mature markets, where swiping a card usually isn’t thought of as a chore. Also, the merchants have to sign on, which isn’t guaranteed. First they have to see the audience, but they also have to contend with adding a new point of sale terminals, which cost about $200. As Colin over at GigaOM Pro asked earlier: Is NFC more of a solution in search of a problem? (GigaOM Pro, subscription req’d)

A lot will depend on how fully the ecosystem develops. If there are just a few ways to use NFC, many consumers won’t see the need to rely on it. But if it can expand beyond just paying for gas, it has a better shot at gaining adoption. Abbott, the new Isis CEO, seems to understand that and said Isis will also be used for reward cards, coupons, tickets and transit passes. Google’s Schmidt also imagined being able to check into locations with a tap of a phone, which could be a boon for location-based services.

Make no mistake, there’s definitely big momentum behind NFC. Nokia (s nok) has already started shipping phones with NFC. And if Apple (s aapl) is rumored to be looking at including NFC for its next iPhone release. Juniper Research forecasts that one in every six mobile users worldwide will have an NFC-enabled phone by 2014. It makes sense to go after what is estimated to be an $633 billion market for mobile payments by 2014. However, it remains to be seen how much the carriers’ efforts with Isis will contribute to that total.

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14 Responses to “Can a Carrier Consortium Make Mobile Payments Work?”

  1. All I can say that is that it is about time we caught up with the rest of the world that have already implemented mobile payments system for years. I can only see this taking off in the major cities with a very mobile population. ISIS would be useful for public transportation fees and vending machines. The only limitation is how many places would accept this as payment.

    Too bad that this already sounds too idealistic for the US. There are a lot of barriers the companies have to overcome in order to make this work. This reminds me of a polls question I took this morning about it, From the poll results so far, it seems that people are mostly concerned how secure this kind of technology is since it will be linked to your credit card at all.

  2. Especially in the U.S. there is a log jam between the banks, incumbent payment companies and the mobile operators.

    Put aside for the moment the slew of VC backed mobile payment specialists. They really matter little right now.

    The big issue is the battle for consumer ownership.
    Where does a consumer and end their purchase transaction.
    That is what this carrier JV is all about.

    Whether Discover is the 4th payment rail or not, matters less.
    It is a payment rail, sorely needed by the carriers Its more than big enough.

    These telco’s will fight the fight they need to have with MC and Visa over interchange fee’s. And of course this makes that matter nearly mute for the moment.

    I suspect one of the next moves by this JV will be to work with Discover on more merchant acquisition similar to what Amazon Prime is.

  3. NFC has been around for a while but no carrier, payment provider, consortium, manufacturer …has been able to make it a reality…in payment.

    Few reasons to that and the recent Google announcement or Apple rumors will not change this reality.
    – swiping vs contactless approaches are more like products feature to feature comparison. None buys from such. There is always a deeper reason as why you select a product. This means NFC is a communication technology first just like bluetooth, wifi …before being a payment transport mechanism. Apple i think has started from that…and Google said vaguely something alike. This means, using such for other applications along with pure payment may be the right answer.

    – Casual merchants that will use simply a smartphone to accept cards or coupons or vouchers payment are being really explored now…as the right type of merchants, still not well served. No point looking at Walmart, Best Buy…all big merchants that have plethora of choices and can sometime aggregate payments by themselves. These casual, smaller merchants are also those most involved in these local geo deals …
    NFC appeals more these smaller merchants …typically if the payment provider can be involved in the deals, coupons, mayorships etc …since customer booking ( not just a POS). After all, many people like to have platinum cards for the status effect…would it be nice to have mayorships and deals attached to one’s card?

    In sum, it is not just a matter of payment. The novelty is that ability to see beyond the payment act…and either use the mechanism for broader checkins associated with status and deals awareness.

  4. I can assure you that if the carriers didn’t create this partnership mobile payments would be a “world of pain”.

    Look at countries where this is a reality like Japan. The carrier there had to battle the card cartels (Visa, MasterCard) to get this going. When the cartels made it difficult, the carrier pushed forward investing on a proprietary end to end solution. They took the market and the other carriers joined the consortium. Guess who lost control of the credit market? VISA and MC!

    By uniting now they have more leverage on the card cartels and possibly doing their own thing. Even using the cartels infrastructure for scraps. A real serious challenge to Visa, MC and Amex.

    • Agree.
      GSM is the best example of Carriers uniting to create a global technology and reach billion customers.

      This said it is Not enough and finding real value proposals are probably better starts.

      Japanese examples have been cited in so many wireless technologies starting from 3G. Carriers poured zillions of dollars with Japan in sight …and then other players ( RIM, APPle, Google,…) are taking the value of 3G.

      This scenario may happen in NFC…even after carriers uniting.