Telecommunications, Automotive and Market Research

More than 15 years in the mobile telecommunications industry and an industry analyst since 1998.

Wednesday, May 4, 2011

“Pay-by-Phone Dialed Back” is NOT bad news for mobile payments in the US

If you don’t read past the headlines, things look pretty gloomy for Isis, the AT&T/T-Mobile/Verizon Wireless joint venture for mobile commerce:

Sounds pretty grim with all those negative words: "Dialing back… losing… mounting competition." It almost sounds like this is the end, doesn’t it?

Actually, no. In fact, it indicates that Isis (and presumably the companies behind it), are maturing and facing the realities of the mobile payment market. And, perhaps, they were also reading my blog. So what's happened so far?

Isis started out with a business plan that basically put the mobile operators in the middle of the transaction, collecting fees on transactions. Everything passed through their system – and ONLY their system – using their specifications and their business systems… the entire process from start to finish. If you’ve been in this business a while, you’d recognize it as a pretty typical heavy-handed first draft from the telcos.

The dissent showed up pretty quickly when Research in Motion announced that its NFC-equipped handsets would not be compatible with the Isis approach. The result was a public row over who “owns” the customer  (personally, I don’t care to be “owned” by anybody.)

The reaction was hardly predictable, though. Isis seems to have realized that their requirement that they own mobile financial transactions would delay or even kill the prospects of the technology.  ( Instead of taking their toys and going home, Isis appears to have taken a much more mature approach and called for open standards that would allow everybody to participate. (I mean, seriously, Isis, did you think you could have your own nationwide financial transaction system and leave VISA and MasterCard out of it? Seriously?)

What did Isis do?
The Fierce Wireless article by Jason Ankeny says,
Citing sources familiar with the matter, The Wall Street Journal reports the three operator partners are now in talks with Visa and MasterCard to bring the credit card giants into the Isis equation after determining building a rival payment network would have been too complex and time-consuming.

"Too complex and time consuming? I'd like to add "nearly impossible" to that list.

The article also says,
Isis previously said it would partner with Discover Financial Services to build out the necessary mobile payment structure, but in April the firm stated the service would be available to all payment networks, merchants, banks and mobile carriers. The Wall Street Journal notes many merchants expressed major doubts over Discover's reach: In 2010, 57.2 percent of debit or credit card purchases were transacted through Visa, nearly a quarter were executed via MasterCard, and Discover accounted for a market share of only 3.3 percent.

What does this mean for mobile payments in the US?
ViVOtech 4500m Contactless transaction device
Forget the doom-and-gloom sound of the headlines. What this about-face really represents is the first acknowledgment that the carrier-centric closed mobile payments system was not really practical from a commercial point of view. There are a lot of people who need to own part of this and Isis appears to be taking steps to open things up.

The best approach would be to offer a handset that provides a way to use Near Field Communications technology to securely include credentials and payment methods from a wide range of sources, including financial institutions, credit card issuers, loyalty cards and even identification cards like your library card or gym membership.

A mobile wallet that can replace your leather wallet is going to require an open system. If that’s where Isis is headed, I can once again be optimistic about getting mobile wallet in the US.