"The biggest U.S. wireless carriers are scaling back a joint venture for mobile payments that they originally hoped would compete with Visa Inc. and MasterCard Inc., reaffirming the traditional credit card companies' clout in the nascent market for mobile transactions.
The venture known as Isis, formed by AT&T Inc., Verizon Wireless and T-Mobile USA, initially aspired to set up its own payments network and collect fees on every transaction. Customers would maintain accounts directly with their wireless carrier, rather than with a credit card company.
Now, the group has adopted the less ambitious goal of setting up a "mobile wallet" that can store and exchange the account information on a users' existing Visa, MasterCard or other card, people familiar with the matter said. The carriers are scrambling to find other ways to make money from the transactions.
To get as many users as possible, the carriers are now in talks with Visa and MasterCard to have them participate in the system they will embed in phones, people familiar with the matter said.
"The carriers have to include MasterCard and Visa," said Drew Sievers, cofounder and chief executive of mFoundry, a leading provider of mobile banking technology. "Not including the 800 pound gorillas of the industry will make it very hard to succeed."
The embrace of the major card companies was needed to avoid falling further behind in the race to establish a standard way for letting consumers pay for products with their cellphones, the people said.
Setting up a separate network would have been too difficult and time consuming, two people said. Meanwhile, competitors like Google Inc. and BlackBerry maker Research in Motion Ltd. are racing forward with plans of their own.
When Verizon Wireless, AT&T and T-Mobile announced their Isis joint venture last November, they touted it as a new "mobile commerce network" and chose Discover Financial Services Inc. to provide the venture's payment network. But many merchants were cool to the idea, since Discover is a small player that lacks the reach of Visa and MasterCard, said one person familiar with the situation.
Last year, 57.2% of purchases made with a debit or credit card were done through Visa, nearly a quarter were done through MasterCard, while Discover was well behind with a 3.3% share, according to the Nilson Report, a Carpinteria, Calif., newsletter that tracks the payments industry.
A spokesman for Isis said Discover remains the venture's partner, but said it was open to new alliances. He declined to comment on future partnerships.
Isis, which also counts card issuer Barclays PLC as a current partner, won't hold its first trial until early to mid-2012. The pilot, with the Utah Transit Authority, will allow people to pay by tapping an electronic fare reader with an Isis-enabled phone using so-called near field communications technology, which transmits data over short distances.
Meanwhile, mobile software vendors and device makers are steaming ahead to build their own mobile payments systems. Google is working with MasterCard and Citigroup Inc. to embed NFC technology in smartphones. Google's Nexus S smartphone already has an NFC chip, and the company's latest Android software for mobile phones supports NFC.
Research in Motion is working on a trial with MasterCard to allow Bank of America Corp. customers to make payments with their phones.
The trial, already begun in New York, is set to expand to San Francisco and Atlanta in the next few months. The company has said most new BlackBerrys will have NFC chips later this year.
Without their own network, it remains unclear how the telecommunications carriers plan to make money from mobile payments. One option is a "pay-to-play" program that would charge card-issuing financial institutions to piggyback on their technology, people familiar with the matter said. Another is coupon-style offerings that would allow the carriers to take a cut of the revenue made from special offers served up to mobile payments customers, the people said.
They may also continue to seek a cut of the transaction fees, though they would likely receive a smaller amount than if they were running their own payment network.
Either way, for the phone companies, the battle now is less about who will process transactions and more over who controls the valuable customer data contained in a mobile wallet.
Instead of sparring with the payment networks, the phone companies are now locking horns with device makers and mobile software providers over the control of the "secure element" on a cellphone. The secure element, now stored on the magnetic strip on a credit or debit card, contains a person's secret information that allows credit-card payments to be possible.
The phone companies want to store the credentials in the phone's SIM card, the small chips placed in the back of phones to activate access to mobile networks. Device makers such as RIM and software providers such as Google want to store the credentials on an NFC chip or the phone itself, potentially cutting carriers out of the loop.
The company that controls the technology would have access to information about consumers that could be used to tailor special offers.
May 5, 2011
Mobile Wallet Pay-by-Phone Scheme Dialed Back
A consortium of mobile carriers including ATT and Verizon who were hoping to capture a fat slice of the mobile payments business have had to scale back, acknowledging the power of the credit card companies in this realm. The implication for consumers is that the prospects of competition that might have led to lower costs are now dashed. Given the insatiable demand for higher fees and profits from the bank-owned credit card industry, consumers can expect mobile transactions to be costly. It will be interesting to see whether this slows the growth of mobile payments or changes the nature of the business, possibly driving it to higher end products and services. Robin Sidel and Shayndi Raice report in the Wall Street Journal:
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