Is carrier role in mobile payments a blessing for mobile commerce?
The sheer convenience of carrier billing, which is already the practice for digital goods such as ringtones, is what makes the carrier role in mobile payments a blessing for mobile commerce. However, will the carriers be able to compete with mobile payment giants such as Visa and MasterCard?
“It’s important to keep in mind that details are still sketchy, although there is definite movement on the part of the mobile carriers,” said Red Gillen, senior analyst at Celent, Boston. “If the story is true, and the initiative proves to be successful, it will take payment volume away from Visa, MasterCard, Amex and Visa’s/MasterCard’s card-issuing bank partners.
“Because of the early stage of this initiative, there really aren’t any immediate beneficiaries – an unimaginable amount of details still have to be worked out,” he said.
The retail opportunity
The marketing power and customer relationships of the reported carrier partnership would rival that of payment brands and any partner banks.
If done right, this partnership would siphon payment volume away from the incumbent payment brands and banks, the supposed “inheritors” of the mobile payments space.
Nitesh Patel, senior analyst of global wireless practice at Strategy Analytics, Milton Keynes, Britain, said that Visa and MasterCard have most of the market stitched up in the United States.
These companies have relationships with banks who have relationships with retailers.
Reportedly, AT&T and Verizon are planning to partner with Discover, which has smaller market share than both Visa and MasterCard.
“If you’re going to get involved in the whole credit card ecosystem, you’re going to need to partner with banks, and they are obviously going to use Discover and their merchant partners to drive handset-based contactless payments,” Mr. Patel said.
“I don’t think it will cause any major ripples with Visa and MasterCard, which already have contactless payment solutions, which I believe will eventually be interoperable,” he said.
“I don’t necessarily see it being a threat to Visa and MasterCard, you’re not going to see fast food chains ditching Visa or MasterCard for Discover anytime soon.”
This announcement could potentially help retailers in two ways.
The first way would be carrier billing acceptance fees are lower than existing card program acceptance fees. Visa and MasterCard have no plans to charge lower interchange fees for mobile than for plastic cards, so their existing fees would continue to apply.
If the AT&T/Verizon partnership were to offer lower rates, merchants would benefit.
The second way would be if the carriers help enable consumers and merchants to take advantage of mobile-based incentives, such as couponing, discounts and points programs. This is what is done in Japan, and has been effective to promote payment adoption.
Hill Ferguson, vice president of marketing at Zong, San Francisco, said that a potential partnership mostly threatens card-issuing banks as any volume running on carrier rails will take a share from interchange or “swipe fees.”
Additionally, anyone employing retail POS payments that utilize mobile phones are threatened as well.
“On the flip side, the development immediately benefits merchants, to the extent that this reduces transaction fees relative to credit cards,” Mr. Ferguson said. “Also consumers, as the payment experience is easy and incremental.
“Obviously, carriers benefit through incremental fees and increased utility of consumer-carrier relationship,” he said.
This move into mobile payments could help carriers stay relevant and boost revenue.
“Similarly to other developed countries, the U.S. is rapidly approaching a point of mobile voice and data subscription saturation,” Mr. Gillen said. “As such, carriers need to find additional/new revenue streams.
“Many carriers see mobile payments involvement as a potentially new source of revenue,” he said.
But carriers are not risk free.
Going up against well-established payments brands like Visa and MasterCard will take millions of dollars in marketing and sales efforts.
The incumbent payment brands and their partner banks have been around for decades, and are not going to cede the mobile payments market to the mobile carriers.
If the carriers’ mobile payments partnership is not executed correctly and flops, that will translate into huge sums of wasted resource.
“Another potential risk would come into play if the carriers hold any consumer credit risk,” Mr. Gillen said. “However, given the reported involvement of Barclays, it is most likely that the carriers wouldn’t be exposed in this manner.”
Yankee Group believes that this potential contactless payments partnership could represent one of the most remarkable market disruption strategies in recent history, shaking up the hegemony of the payment card giants and demonstrating the tremendous market power of the mobile industry as a collective bargaining body and an agent of market change.
But only if lessons have been learned from past mobile payment failures.
“It’s déjà vu – remember Simpay?,” said Nick Holland, senior analyst at Yankee Group, Boston. “Simpay was a European mobile payment association formed in 2003 by Vodafone, T-Mobile and Orange.
“The initiative had a simple remit – that subscribers could charge merchants and content resellers for goods and services to their mobile bill, bypassing traditional payment networks,” he said. “It failed in 2005, after one of its founding members dodged out.
“The U.S. consortium that is yet to have a name has more potential than the not-long-deceased European predecessor—but the question remains if AT&T and Verizon can get along and come to some equitable agreement on forming a mobile payments network.”
The bottom line is that mobile commerce will only continue to grow.
“While the recent news surrounding some of the mobile network operators joining to develop a mobile payment system is in early stages, we believe this is another indicator that true mobile commerce is on the horizon,” said Dom Morea, senior vice president and division manager at mobile commerce solutions at First Data.
Dan Butcher contributed reporting to this story.
Giselle Tsirulnik, senior editor at Mobile Commerce Daily, New York.