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Visa, MasterCard, Amex mobile payments power play faces significant challenges

By teaming up to create a new standard that would streamline mobile payments, leading card networks Visa, MasterCard and American Express hope to ensure a prominent role in smartphone and tablet transactions while also driving overall adoption by consumers and retailers.

Visa, MasterCard and American Express this week said they are working together to introduce a new global standard for online and mobile payments intended to make them more secure and simplify the purchasing experience on smartphones and other devices. While the proposed standard would not replace current mobile payments solutions but be integrated into them, the card networks still face numerous challenges, such as picking an underlying technology and getting retailers to sign on.

“If this tokenization standard effort is successful and the networks develop an effective solution, it will help the industry address the interoperability and acceptance standards that are now lacking for wide-spread mobile payments,” said Jeff Crawford, senior consultant at First Annapolis Consulting, Linthicum, MD. “A single standard will make mobile payments more broadly accessible for merchants and issuers.

“However, multiple challenges and questions still need to be addressed including what form will the actual token take, which party will secure the token and is this a mechanism for physical point of sale payments,” he said.

“Perhaps more importantly, will be addressing the still-evolving business model around mobile. Finally, competitive considerations and easing consumer use will be critical to the long term success of a jointly-developed payment tokenization standard.”

MasterCard, Visa and American Express did not respond to a request for comment.

Streamlining payments
Any solution from Visa, MasterCard and American Express would not replace current payments solutions, but hope to be integrated into them as a way to enable users to fund mobile payments from their credit card accounts with these card networks.

The new standard would eliminate the need for users to key in their account number during checkout, something that can be a frustrating experience on a smartphone’s small screen. By making the process easier, the card networks’ standard could help drive mobile commerce sales volume.

The new standard is currently under development and would replace a traditional account number with a digital payment “token” for online and mobile transactions.

Since many consumers already trust these companies for their credit card needs, the card networks also help to alleviate some security concerns that smartphone users have regarding mobile payments.

It is not clear yet what the underlying technology would be for the payment token. There are many competing technologies for authorizing mobile payments, including near-field communications, QR codes and low-energy Bluetooth.

Once a standard is agreed upon and implemented, card issuers, merchants and digital wallet providers will be able to request a token to process, authorize, clear and settle a mobile transaction initiated by an account holder.

Wallet wars
The news comes at a time when there are a number of mobile payments solution all competing to gain acceptance from merchants and consumers, including PayPal, Google Wallet, Isis and MCX.

The card networks each also its own mobile payments solution, including MasterCard’s MasterPass and from Visa.

“In the short term, this announcement will likely have a limited impact on the ‘wallet wars,’ primarily because so many questions remain unanswered,” Mr. Crawford said. “Specifically, the wallet providers such as PayPal, Google Wallet, and MCX, along with merchants and card issuers, will need to understand how this tokenization will affect existing payment acceptance and verification along with other implementation considerations.

“The announcement does not preclude these wallet providers from continued development of various wallet design and payment system variations in the short term,” he said.

“In the long term however, they will need to consider how to integrate with these tokens, in whatever form they evolve. Additionally, variation in how these tokens are used in the digital channels versus at the physical point of sale will add another layer of complexity.”

Strange bedfellows
The unusual decision by the leading card networks to cooperate in this way is the latest example of how the significant potential perceived in mobile payments – and the fact that dominance here is still up for grabs – has made for strange bedfellows.

It also suggests that these companies are fearful of being disenfranchised from mobile payments by alternative solutions providers such as PayPal, which has made significant inroads here.

Competing wireless carriers AT&T, Verizon Wireless and T-Mobile USA teamed up to launch Isis, a mobile wallet based on near-field communications technology that is currently available in Salt Lake City, UT and Austin, TX.

Leading retailers Walmart, Target and others formed a partnership to develop their own mobile payments solution, which is expected to be introduced before the end of the year.

The reason these companies that are usually competing with one another have decided to cooperate is because stakes are high, with the combined volume of transactions made via mobile phones and tablets expected to reach more than $3.2 trillion in the next four years, according to recent data from Juniper Research.

Currently, six percent of all retail sales today are conducted digitally, up nearly 200 percent since 2004, according to recent figures from the U.S. Census Bureau.

Finding the right balance
The new standard would include new data fields for richer transactional information to help improve fraud detection and expedite approval; consistent methods to identify and verify a user before issuing a token, and a common standard to simplify contactless and online transactions for merchants.

“This announcement is significant for a several reasons,” Mr. Crawdford said. “The three major payment networks are working together; the companies agree that most payments growth is coming from the digital channel, and no one party (including these players) has successfully balanced enhanced security with ease of purchase.

“It does not, however, imply that an individual strategy from these players (or others) will not be successful,” he said.

“Rather, it means that Visa, MasterCard and American Express recognized that a common standard will help all payments participants. In fact, First Annapolis expects that these companies and others will continue to compete vigorously in digital payments with their own unique solutions.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York