While everyone in my tweet stream is clamoring about the digerati’s opinions from the Web 2.0 Summit, the Beatles invading iTunes or girls’ youth soccer drama, I was pleasantly surprised to read the news on Isis today. And who’s Isis you ask? Just a mobile payments company that’s joint-owned by AT&T, Verizon Wireless and T-Mobile, and who just announced mobile payments are coming to your smartphone. Yeah, this ain’t some obscure startup promising (yet again) to crack mobile payments – this is the big boys making it happen. So let’s look at how this might play out.
First, it’s logical to look at Japan and South Korea as predecessors in the uptake of mobile payments. The folks at the Federal Reserve Bank of Kansas (of all places) produced a nice historical roadmap a couple years back. In short, the Number 3 cell carrier market-wise in South Korea (LG) partnered with the country’s largest bank (Kookmin) in 2002 to launch the first mobile phone to include an integrated circuit card (ICC, which is effectively ‘smart cards’). LG went on to gain major market share on the back of payments, and the rest of the mobile industry soon followed suit into ICCs after a series of early failures. According the report, “financial institutions were heavily involved in the eventual success of mobile proximity payments in South Korea.”
So how’s it going down in the US? The details are still a bit sketchy but rumors have indicated the key players are Discover Financial Services (currently #4 in the US market) from a payment networks perspective and UK-based Barclays Bank as the financial institution. These are both second-tier competitors in the US space, and each could use a nice high-profile win. Isis has also tapped former GE Capital CMO Michael Abbott as the company’s CEO, and rumors abound that Atlanta will be included in the early geographic trials.
The consumer experience will feel much like today’s MasterCard PayPass you may have seen at retail. Users will wave the phone near a scan pad, and near-field communications (NFC) will take over. There’s plenty of debate around the current pace of NFC roll-out, but I’d expect the big mobile players to be able to positively impact that dynamic. And in another limiting factor, almost no current-generation cell phones have NFC built-in, but iPhone 5 and next year’s Blackberry models are widely expected to contain the necessary gear. An interim solution could be as simple as an ICC-enabled sticker for your smartphone case.
So are seamless mobile payments coming to town tomorrow? Not really, but we just found out today who will bring them. And it seems like the direct involvement of Barclays bodes well historically for the success of the venture. Of course, Visa and MasterCard both have their own strategies (and have discounted today’s news) but ask yourself one question: Has it ever been an option for you? My guess is most consumers will demand the functionality from their cell phone, but will always take whatever card product their issuing bank gives them. Welcome to the intensely personal relationship we all have with our phones…