Carriers Blink, Invite Visa to Be Part of Payments Cabal

According to Reuters and the Wall Street Journal three of the big carriers in the US (not including Sprint) are significantly scaling back ambitions for ISIS, their mobile payments effort that was to take on Visa and MasterCard. The original idea was that users would have payment accounts with their carrier directly and Discover Card was going to be used as the payments platform.

The plan was that the carriers would take a cut of each transaction. There were also shopping and mobile marketing fantasies associated with ISIS.

However, according to the WSJ, Discover was the weak link and many merchants balked at using the smaller company. It's a tiny player (3% of the market) compared with Visa, Mastercard and Amex. Very few US consumers have the Discover Card. Accordingly the US carriers have now invited Visa and MasterCard to participate in ISIS to help drive consumer adoption. 

According to the WSJ: 

[T]he 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.

However using Visa and MasterCard will mean the death of the intended business model. Merchants and consumers alike would reject any additional costs tacked on to transactions by carriers as a profit margin. 

Separately Google and RIM are moving forward with NFC-based payments trials. Google's NFC test is with a number of retailers in SF and NY. RIM is working with MasterCard and Bank America. Google's "Gingerbread" OS supports NFC currently. 

The first ISIS payments trial is slated for next year (2012) with the Utah Transit Authority. Assuming that was successful it would probably be several more years at least before any mainstream adoption of ISIS. 

Mobile payments in some sense are inevitable. But the specific models of what successful programs will look like have yet to emerge. Standards, security and privacy all remain open questions. 

Ultimately mobile payments are a kind of "one-click" convenience built on some stored credit card much like iTunes or Amazon. Beyond security and consumer acceptance the big challenge is the real-world infrastructure that will allow merchants, hotels, restaurants, public transit and other places to accept mobile payments. 

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