Friday, November 19, 2010
The race to capture the U.S. market with a viable near field communication (NFC) payment product grows more compelling as prominent players in the payments, technology and telecommunications spheres move forward with NFC projects.
Google Inc. revealed plans to release a new Android phone using its new operating system, Gingerbread 2.3, which will incorporate an NFC chip that, in addition to reading radio frequency identification tags, will communicate with other NFC-enabled phones and POS payment systems. The announcement was made by Google Chief Executive Officer Eric Schmidt at the Web 2.0 Summit held Nov. 15 to 17, 2010, in San Francisco.
In the same week, a group of companies that includes AT&T, T-Mobile USA, Verizon Wireless, Discover Financial Services and Barclays Bank confirmed it is forming a venture, called ISIS, to build a national mobile payment network. News that this consortium was piloting an NFC project in several U.S. cities was initially reported in August 2010. Now, the project has been officially confirmed and its expansion beyond the pilot phase revealed.
ISIS intends to provide NFC capability to the 200 million mobile users who subscribe to either AT&T, T-Mobile USA or Verizon services, using Discover's payment network (which serves about 7 million merchants). Newly named ISIS CEO Michael Abbott, who was formerly Chief Marketing Officer of GE Capital, said the company anticipates having the network up and running within 18 months.
It is not clear what options users of the ISIS network will have for paying – whether payments will require a Discover credit line or whether the network will open itself to other forms of payment, such as different payment cards or alternative payments settled with mobile carriers or other entities. It also isn't clear if the network will confine itself to phone-based NFC or include card-based NFC, which would presumably require embedding an NFC chip into consumer credit and debit – or, perhaps, prepaid – cards.
And Google has not revealed plans to partner with a major payment provider nor its intended business model for payment functionality. Yet analysts say Google has such a reputation for canniness and innovation that its role in shaping the future of NFC payments can't be underestimated. (The same goes for Apple Inc., which is rumored to be adding NFC functionality to its next iPhone.)
"That's a big factor entering into this mobile explosion: is Google getting involved in mobile payments and going to the point of sale instead of just selling card not present over the web?" said Linda Mahy, CEO of Texas-based payment consulting firm Connective IQ. "Everybody's doing the round robin speculation, and I'm really anxious to know who the other titans are going to be who get into this, and I think we're going to find that out pretty quickly."
Mahy described a "chicken and egg" scenario that has thus far prevented NFC from taking off in the United States and needs to be solved before any project truly breaks the stalemate. It appears both consumers and merchants are waiting for the other party to acquire NFC capabilities: consumers aren't interested in NFC-enabled devices if few merchants are equipped to accept them as payment forms, and merchants don't want to overhaul their POS systems to incorporate technology that customers aren't widely using.
Some companies are addressing the problem with what most agree are transitional technologies – like short message service-based purchasing or three-dimensional bar codes that can be scanned with smart phones – that mimic phone-embedded NFC and are less expensive to implement. Mahy said phone-embedded NFC products will be driven by "consumer pull instead of merchant push," and the emergence of new mobile devices that have NFC chips might be moving things in that direction.
Mahy said the missing component from most big NFC ventures is the inclusion of a major payment acquirer and/or processor with broad access to U.S. merchants, which, she said, would be the best way to attack the merchant adoption puzzle.
"I think the real winner is going to be the one that signs up with an existing payment leader," she said. "I think that's the other shoe that needs to fall. NFC is just one of the form factors, and I think the real winner will be a partner to somebody that has the existing rails and is the automated trusted service manager and has got the merchant reach."
Mahy believes ISIS is poorly positioned because Discover lacks the kind of leverage with major processors that Visa and MasterCard have. She added that a company such as First Data Corp. would be "swimming upstream against their customer base" to sign up with a venture like ISIS.
But Ken Musante, President of Calif.-based ISO Eureka Payments LLC, which specializes in mobile payments, said Discover has one clear advantage: it issues cards directly to its customers, rather than working through various issuing banks. Also, if it issues its new cards through consortium partner Barclays, that's a single bank already on board with its new project. That may allow Discover to bring NFC to market more quickly – and to broaden its user base – by embedding it in its new credit and debit cards in addition to the phones of its mobile partners.
"If Discover is connected to a wide customer base, which they are, they can in essence hatch the egg through immaculate conception, because they can then put the appropriate technology on all of their cards to enable them to work with NFC," Musante said. "Visa and MasterCard can't do that with a flip of the switch because they are working through issuing banks. Because Discover owns the cardholders, if they say, 'we're changing our cards,' it's a much quicker process for them to do so."
Musante said it was also likely that Discover would employ an "open" platform where different payment companies could use its network for a variety of payment applications and methods, which would help reach a broader audience and enable NFC growth.
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