Carriers moving on mobile payments, but long haul remains

Three of the largest U.S. wireless carriers and the companies behind Android and BlackBerry smartphones gave Near-Field Communications (NFC) for mobile payments a boost this week, announcing a joint venture to build a mobile commerce network in the next 18 months called ISIS.

Verizon Wireless, AT&T and T-Mobile will work with the fourth-largest credit card company, Discover Financial Services, and Barclaycard US, part of Barclays PLC, which will issue credit accounts. The wireless carriers have a combined subscriber base of more than 200 million customers.

ISIS will use NFC short-range wireless networking to let users make payments from their NFC-equipped phones when they are passed within about four inches of a reader.

NFC has been around since 2004 and is used most widely in Japan and Korea. But the carriers' endorsements of the technology don't mean that consumers in the U.S. will begin using smartphones or other mobile wireless devices anytime soon to pay for groceries, movies or subway rides, much less big-ticket items like $1,000 HDTVs.

"It will be many years before you see this [mobile payment] technology moving into the mainstream, although within a decade there will be significant volumes of users in the U.S. and more outside the U.S.," Bob Egan, a mobile payments analyst and founder of The Sepharim Group, told Computerworld.

Egan predicted that it will be decades before consumers move to paying for purchases over $25 with a wireless phone, preferring to use credit cards for major purchases.

Unlike in some parts of the world, where a mobile phone doubles as a person's wallet, the traditional payment options for people in the U.S. are abundant, added Jack Gold, an analyst at J.Gold Associates.

"Here in the U.S., we have so many options," Gold said. "Is there really any benefit to having things charged through my phone as a consumer? I already have three to four credit cards in my wallet, and using them is not really that hard. Do I really need another payment method? So I don't see mobile payments taking off very quickly."

Indeed, the biggest obstacle to mobile payment adoption could well be widespread user acceptance. With credit cards entrenched, analysts wondered whether consumers will trust U.S. cell phone companies, much less Google or Apple, to become de facto credit card companies.

"Compared to banks, mobile operators are clearly the Wild, Wild West," Egan said. "The reputation of banks today is obviously not very good [with the recession and bank bailouts], but you could say the same for the carriers."

Gold said he agrees that consumers will be skeptical of carriers' handling mobile payments. "Can I trust my carrier to get the billing right? Can I trust that no one will be able to scam my account or steal my identity? All those questions need to be addressed," he said.

OS, handset makers join party

Also this week, Google CEO Eric Schmidt showed an upcoming Android-based smartphone with an integrated NFC chip set and said the next version of Android, code-named Gingerbread, will support mobile payments when it surfaces in the next few weeks.

Research In Motion co-CEO Jim Balsillie also said this week that future BlackBerry handsets will support NFC.

Apple is rumored to be planning to add NFC to a future version of the iPhone.

Nokia has long supported NFC phones and ships the new C7 with an NFC chip that needs a software upgrade to work. Samsung has a trial of an NFC phone under way, Egan said.

But analysts noted that NFC adoption also depends on having more NFC readers installed in stores and subway stops, at substantial cost, for further adoption.

Still, Egan said the ISIS, Android and RIM announcements will accelerate interest in NFC after years of logjams among banks, credit card companies, mobile carriers and retailers over how they will collect and share credit card data and payments for purchases.

Even with Android and BlackBerry phones equipped with NFC chips as early as 2011, it will take much longer for NFC readers to be widely adopted, analysts said.

Some contactless credit card readers, already installed at 230,000 retail locations and fast food restaurants in the U.S., can be upgraded with software to read NFC phones, Egan said, but even those readers have not been widely used thus far.

And even if there is a large volume of NFC-ready phones and readers, a supporting network infrastructure with solid security is needed, Egan said.

"The announcements of NFC in handsets is meaningless without the rest of it, including agreements between parties, infrastructure, processing procedures for data, security and reconciliation of accounts," he said. "That's already well established in the credit card world. There's a large laundry list of very important components that extend well beyond the NFC build-out."

The ISIS joint venture could be more important than the decision to include NFC chips in smartphones, Egan said, because it represents a "solution to the sense of frustration that mobile operators have with both the banks and the large credit card processors like Visa and MasterCard, who have been unwilling to negotiate over fees."

Carriers vs. the banks?

In recent years, Egan said, when it comes to mobile payments, MasterCard and Visa have taken the view that they would "engage in their own ecosystem, which is with their banks, but the wireless carriers are now saying, 'I am as big as you are, and I'm tired of waiting and tired of negotiating and will pick up my toys and play somewhere else. I'm doing it my way.' "

Even though the ISIS carriers are working with Barclays and Discover, Egan predicted that they will also issue their own ISIS credit cards eventually, to be carried alongside an NFC phone. "ISIS wants to become their own credit card company and ecosystem," Egan said. "I fully believe the cellular operators will issue plastic."

Both Visa and MasterCard, the two biggest credit card companies, have launched many mobile payment technology trials, including with NFC, analysts said. In one example, Reuters recently reported that Visa and Bank of America were beginning a test program of mobile payments for retail purchases.

Neither company could be reached to comment on their current plans for mobile payments or their reaction to the ISIS formation.

It is possible that major banks and credit card companies don't see a need to work with mobile carriers directly, since mobile payments will account for only a tiny portion of all retail purchases even though they are likely to grow tremendously in coming years.

Egan said that many analysts have forecast a doubling of mobile phones used for mobile payments by 2014, but the total value of the transactions will still be small -- only 1% to 3% of the amount of transactions conducted through credit cards or checks.

"Some of the forecasts are trying to drive hype in the market [for mobile payments], but even if you have four times as many handsets with NFC chips in the next two years, that's still a rounding error compared to purchases made with MasterCard of Amex," he said. "Those forecasts are not putting things in context."

Still, mobile payments do excite many users who would find the phone a convenient way to quickly buy a snack or pay for a train ticket, some analysts said.

Japan and Korea "lead the world in mobile commerce, largely because their [mobile payment] technology is inside the SIM card in their phones," said Howard Wilcox, an analyst at Juniper Research.

Wilcox said NFC is not only going to be valuable for making payments, but will also help companies with mobile marketing. In one example, he said an NFC phone could be passed over a smart poster to download a coupon or a link to a Web site to watch a movie trailer or find other content. "NFC is a lot more than payments," he added.

The U.S. carriers in ISIS could be taking tips from wireless carrier NTT DoCoMo in Japan, which has 55 million customers and promotes NFC payments on its Web site, Wilcox noted.

Wilcox conceded that aside from some parts of Asia, in most of the world, NFC has faced a "number of hurdles, with some still to come."

Juniper has forecast that nearly half of all mobile phone users globally will pay for digital or physical goods with a mobile device by 2014, an increase of nearly 1 billion users compared to 2010. Its forecast includes all types of mobile payments, not just NFC.

Gartner has forecast a doubling of mobile payment users by 2012.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen. His e-mail address is mhamblen@computerworld.com.

This story, "Carriers moving on mobile payments, but long haul remains" was originally published by Computerworld.

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