Proximity mobile payments get closer

While the landscape for contactless mobile payments is anything but settled, a new pilot initiated by a five-party partnership of financial services and technology companies seems to have sharpened the focus on the high-stakes game of who will control how payments are made at the POS with smart phones.

The partnership involving Visa Inc., U.S. Bank, DeviceFidelity, Monitise PLC and Fidelity National Information Services Inc. (FIS) resulted in a pilot program begun in November 2010 and set to be expanded next year.

The pilot centers on DeviceFidelity's In2Pay microSD card – technically a chip holding the mobile payment enabling near field communication (NFC) technology. The technology on the microSD card is compatible with Visa payWave contactless readers, which can initiate payments when certain mobile phones are waved over them.

For the pilot, U.S. Bancorp subsidiary U.S. Bank is issuing the microSD card to its employees who have AccelaPayVisa prepaid payroll cards, said Dominic Venturo, Chief Innovation Officer of Retail Payment Solutions at U.S. Bank.

A cardholder inserts the microSD card that contains the prepaid account information into the memory slot of a smart phone and then places a call to activate the card; this action is followed by a download of the mobile banking and payment application to the phone, Venturo said. Monitise is supplying the front-end application in formats compatible with different types of smart phones. It is through the application that users can turn the microSD card on and off, Venturo said. FIS, which is already a partner of Monitise, is processing the payments over its prepaid card network.

The flexible hub

According to a DeviceFidelity white paper, the crux of the pilot is in the microSD card. The technology provider said current mobile contactless payment solutions lack flexibility for issuers and do not account for the needs of mobile phone users or the capabilities of mobile devices.

DeviceFidelity said its solution allows smart phone users to make current phones into payment devices and doesn't force them to buy new phones with NFC technology embedded in them. And since the microSD card is portable, when users switch to other smart phones, they simply insert the cards into the new phones and then go through the activation process as before.

"Being able to add the chip to an existing device solves a lot of problems," Venturo said.

DeviceFidelity said the microSD card is compatible with almost 65 percent of smart phones and personal digital assistants on the market today. Additionally, the company cited statistics indicating the card will function on 82 percent of mobile phone models shipped in 2010.

Because the card is compatible with a variety of mobile phones, issuers don't have to wait for new, NFC-enabled handset models to come to market, according to DeviceFidelity. Furthermore, since the chip card is separate from the phone, issuers can control the branding and user interface, the company said.

Control and conquer

For Todd Ablowitz, President of payment consultancy Double Diamond Group LLC, this new strategy for the implementation of mobile payments at the POS is part of a larger issue of who will control mobile payment transactions: Visa and the banks, the mobile telecommunication companies or the smart phone makers.

Ablowitz said the recently announced ISIS consortium is the telecoms' attempt to dominate the mobile payments market, at the expense of the banks and the largest card brands. Meanwhile, Google Inc. is apparently going to take another stab at mobile payments with the release of the next generation of smart phones that run on the Android operating system and will be embedded with the NFC technology. (See "NFC race heating up," The Green Sheet, Dec. 13, 2010, issue 10:12:01.)

Ablowitz said, "These are approaches to keep control of the card data … and the banks aren't going to be left behind. They will go out, and they will compete. They believe they are in the best position to win."

According to Ablowitz, the card brands and the banks have an advantage in that consumers already have strong banking relationships and preferences in what bank cards they use to pay for goods and services. The challenge for the brands and the banks is in "making sure they get these chips on phones, that it works in a seamless way, that it's a good consumer experience, and that the people will end up with them and have them in enough numbers," he said.

On the other hand, ISIS has the advantage of its consumer base of 200 million mobile phone subscribers, Ablowitz noted. But if telecoms are to gain control over the mobile payments sphere, they will have to make an offer "so compelling that consumers will switch because they see value in the payment mechanism," he added.

With both sides having strengths and weaknesses, Ablowitz called the battle for supremacy in the mobile payments arena a "very fair fight."

Venturo views the competition as a healthy development that spurs the ecosystem to evolve. "To me that's a good thing," he said.

Ablowitz predicts that one side will ultimately prove dominant. "And when that advantage becomes clear, the party that has the advantage is recognized as the winner and the other parties cave in and glom onto it," he said. "And when that happens – let's estimate two years out – everything comes together in one place and the market is ignited."

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