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Visa, MasterCard look to gain bigger foothold in mobile payments

While Visa and MasterCard have not played a major role in mobile payments to date, they are betting big that the next generation of mobile payments from banks will leverage the networks’ platforms.

The leading payments networks face possible loss of brand recognition and disintermediation from digital wallets as mobile payments driven by alternative providers such as PayPal grow. However, it is still in the early days, and payments networks are betting that mobile payments offerings from banks will be an important way that users make payments via their phones in the future.

“Right now it is an open frontier for mobile in the U.S.,” said Jeffrey Green, director of the emerging technologies service at Mercator Advisory Group, Maynard, MA. “ You’ll see a lot of these startups trying to stake a claim in the market.

“Ultimately when this all settles out, it is the banks that are going to be in control,” he said.

“Payment networks are providing a means for financial institutions and others to broadly roll out mobile payment offerings through their initiatives as opposed to having consumer-facing initiatives.”

Mobile challenge
Banking institutions are expected to scale up quickly in mobile payments over the next couple of years and have the potential to play a leading role since consumers have a lot of trust in banks.

This is where the traditional payments networks such as MasterCard and Visa hope to be big players, as the providers of payments platforms on which banks can build their mobile payments services.

To date, much of the attention in mobile payments has gone to companies such as Starbucks and PayPal, both of which have reported significant transaction volume through mobile.

Google Wallet and ISIS also get a lot of attention because they are trying to push forward NFC-based contactless payments, which many believe hold significant potential for the future of payments even if widespread adoption is still a couple of years off.

In comparison, the payments networks have been moving significantly slower. While each of the four networks – Visa, MasterCard, Discover and American Express – has taken moves, it is Visa and MasterCard that have been more aggressive.

“All of the payment networks are working the mobile problem, but none of them have successfully created a real business around it,” said Drew Sievers, co-founder/CEO of mFoundry, San Francisco. “Even for them it’s challenging to manage the various parties involved: merchants, phone OEMs, processors and issuing banks.

“The payment networks have the same problem with mobile as every other incumbent party: possible disintermediation,” he said. “Unlike the mobile banking business where there were really no more than a half-dozen serious competitors, mobile payments is already littered with scores of well-financed competitors.

“So many players in a single space creates confusion across the retail and consumer spectrum, which probably benefits the [existing card networks and issuers] since they are known, trusted and hard to displace.”

Robust competition
Despite the fact that the payment networks are moving slowly with regard to mobile payments, they are still expected to play a big role in the future.

However, they do face competition, in particular from MCX, which involves many of the largest retailers in the United States. The company’s mobile payments solution is expected to be introduced later this year.

“The entrant they should be worried about is MCX,” said Sam Maule, a manager at Carlisle & Gallagher Consulting Group, Charlotte, NC. “MCX is partnering wisely, including the partnerships with FIS and Gemalto.

“Also keep an eye on the carriers,” he said. “While ISIS has sputtered the carriers are still well positioned in the payment value chain.

“This model has worked well in Africa with mobile banking and P2P with the masses. Visa, for one, is well aware of this trend and is investing in utilizing the African mobile payments space as a test sandbox for specific segments stateside.”

Different strategies
MasterCard and Visa both announced initiatives earlier this year to provide hosted platforms to financial institutions, merchants and telecommunications providers. These programs are being initiated outside the United States because mobile payments are more evolved in other regions but are expected to make their way here later this year.

MasterCard’s MasterPass is offered as a white-label solution or as an API so that companies can incorporate MasterPass into their existing mobile banking user interface. It supports QR codes, NFC and other technologies, with companies able to decide for themselves which technology to support in their mobile wallets.

Users can add a variety of cards to the wallet, including American Express, Discover, debit and prepaid cards.

When MasterPass will be available at point-of-sale is not known.

Visa’s approach is focused on NFC technology and more on keeping its brand at the forefront. The payments network has partnered with Samsung to preload the Visa payWave applet onto all of its next-generation devices featuring NFC technology.

Consumer’s choice
The idea is that banks and credit unions will tie the payWave applet to their mobile banking apps to enable NFC POS payment function. Visa also expects wireless carriers, wallet providers and others to incorporate payWave as a way to support NFC payments., Visa’s digital wallet for online use, is not part of the initial rollout of payWave. However, Visa could eventually enable use at physical merchant locations.

While NFC adoption so far has not really taken off, it is expected to play a bigger role going forward as mobile NFC-enabled devices make their way into consumer’s hands and as merchants make the transition to contactless POS terminals.

“All of the payment networks have embraced mobile and consider it a core strategy with very small gaps of differentiation in between their progress,” Mr. Maule said.

“However, bottom line, it still comes back to consumer adoption,” he said. “Consumers will pick the winner.”

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