Recent developments suggest 2011 will be the year that mobile payments take hold in the United States in a big way.

Still, identifying which company's or companies' business model will lead the industry isn't easy. Despite a flurry of announcements about mobile payment trials, partnerships and other deals, no single player has demonstrated that it has a clear advantage over its rivals, experts say.

"As carriers and the handset manufacturers move in that direction, you can see that existing incumbent card networks like Visa and MasterCard are … looking at ways to push their own solutions," said Gwenn Bezard, a senior analyst with the Aite Group LLC research firm in Boston.

On Tuesday the wireless carriers AT&T Inc., T-Mobile USA Inc. and Verizon Communications Inc. formally announced their long-rumored mobile payments network Isis, which is working with Barclaycard US and Discover Financial Services to bring payment-enabled mobile phones to consumers.

And Google Inc. Chief Executive Eric Schmidt this week said the next version of his company's Android mobile phone operating system would support near-field communication technology, which is used for contactless payments. Google did not respond to a request for comment Tuesday.

Visa Inc., meanwhile, continues to work on mobile payments pilot programs with four of its card issuers, including U.S. Bancorp. Visa's program involves inserting a microSD card containing a consumer's account information into a phone. The company plans to make the program commercially available by the end of the next quarter.

"The most important thing is that the whole ecosystem is now rapidly moving to embedding NFC into mobile phones," Bezard said. "It's taking different shapes and … business models but ultimately what we're seeing here is a … shift with carriers and handset manufacturers embedding NFC chips into mobile phones."

No one is ready yet to say which of the current strategies, if any, will advance, noting each has clear benefits and drawbacks. What any mobile payments structure needs to do is appeal to a wide swath of banks and merchants to drive consumer adoption, experts said.

To succeed, "anyone who's going to introduce a new payment network has to make it so much better than" how it is already done, said Aaron McPherson, a practice director with IDC Financial Insights in Framingham, Mass.

Isis, which is being developed by the JVL Ventures LLC joint venture, is expected to be available in the next 18 months. Its strength lies in its ability to tap into its owners' combined base of 200 million wireless customers, McPherson said.

However, he said its approach of working with a single payment network, Discover, will hinder adoption by merchants.

"I think they're going to end up opening it up to Visa and MasterCard and [American Express]," McPherson said. "It just doesn't make sense to try and do this on your own."

Michael Abbott, a former chief marketing officer for General Electric Co.'s GE Capital arm, is leading the joint venture as its chief executive.

Abbott stressed that the venture will be looking to operate an open network, adding that it will focus on mobile couponing and other commerce services in addition to payments.

"We're open to all merchants," he said. "We're going to be open to all banks."

Barclaycard US, a unit of the London banking company Barclays PLC, is the first issuer working with Isis to help establish accounts for customers. Transactions will be routed over Discover's payments network using the Riverwoods, Ill., company's Zip contactless technology.

There are about 100,000 merchant locations that are equipped to accept Zip-enabled payments currently, said Diane Offereins, the president of payment services for Discover.

"Everybody's going to announce that they have a product but you have to be able to use your product, and the product can't be used until the terminals out there accept mobile payments," Offereins said.

Discover will be working to expand the roster of Zip-enabled merchants as Isis moves forward, she said.

The carriers' reach is a good asset for the joint venture, but the company still faces the challenge of getting multiple banks on board to widen consumer adoption, Bezard said.

"If it has a chance to succeed, they need to get on board major financial institutions," Bezard said.

"The devil might be in the details," he added. "We have yet to see what are going to be the conditions for financial institutions, what's going to be the costs, what are the fees that are going to be charged to financial institutions."

Visa, which is working on mobile payments pilot efforts with Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and U.S. Bancorp, sees the Isis joint venture as "validation" for its own approach, said Bill Gajda, the global head of mobile for the San Francisco payments network.

Visa is bypassing the mobile carriers by working with banks to issue microSD cards directly to consumers. Consumers then insert the cards, which contain their payment account information, into their mobile phone's external memory slot. In the case of the iPhone, which does not have a slot to insert a microSD card, consumers can use a specially designed case that can hold the card.

"We saw that it was going to take some time for devices that have NFC embedded to get into the market," Gajda said.

Isis "is going to ask consumers to make another choice around their financial services relationship and card types," Gajda said. "The switching costs are high."

"When we look at mobile payments evolving in the U.S. or other places, it really is going to have to be an open wallet," he added.

Visa's approach "shows that basically there's nothing that the carriers can do that the [payment] networks can't do without them," McPherson said.

However, Visa's approach is constrained by the need for banks to distribute chips to their consumers, McPherson added.

Visa is taking a more intermediary approach to mobile payments by starting with microSD cards, Bezard said.

This story has been reprinted with permission from American Banker.

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