Can a Carrier Consortium Make Mobile Payments Work?

nfc

AT&T, Verizon Wireless 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 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 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 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 has already started shipping phones with NFC. And if Apple 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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