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September 20, 2011

Visa said earlier this morning that it is joining MasterCard in selecting Google Wallet for its new mobile payment system.

Google Wallet's launch in the United States was limited to CitiBank customers and its own prepaid card, and was only accepted on MasterCard's PayPass terminals.

Just a few days after MasterCard said it has chosen Google Wallet for its PayPass system, Visa wasted no time announcing that it too will be finding space in the Google Wallet, and that Wallet users will be able to pay anywhere there's a Visa PayWave terminal installed.

Just about every payment terminal shipped these days supports NFC (the near-field communications radio standard used to make the payments), and millions of Europeans can already make payments of up to £15 with a tap of a card, though few of them are aware of it. Those payments are based on PayWave and PayPass - provided by Visa and MasterCard respectively - and most terminals support both these days.

At the launch of Google Wallet, a bank wanting to create an instance of their credit card for Wallet had to sign up with MasterCard, which was quite a limitation. Now, thanks to Visa, they won't, and Google Wallet can play on an equal footing with operator-backed ISIS as the shape of the industry starts to come together.

The mobile payment industry is based on a model that adds an additional layer to the distribution of credit cards, allowing that layer freedom to make money from coupons and other kinds of on-mobile-handset advertising while the traditional credit card companies make money in the usual way-- by charging a percentage for every transaction, as well as interest fees on overdue accounts.

A bank wanting to get into NFC can now create an instance of its existing credit card, backed by either Visa or MasterCard as most cards are, and take that instance to Google, ISIS or the UK's as-yet-unnamed platform.

The mobile user who has the appropriate hardware downloads the app from their bank and can then use it to pay for small items with a tap of his or her smartphone.

Google Wallet changes things a bit by launching its own prepaid credit card, backed by MasterCard, but that should be considered a separate offering from the Google Wallet which is used to store instances of other credit cards.

Google plans to fill that store with coupons and offers, as well as loyalty cards and hopefully boarding passes and train tickets that will hopefully offered soon. And wireless carriers have the same desires, and have launched national consortium in several countries to create storage pockets of their own, housed within SIM cards.

Verizon Wireless, AT&T Mobility and T-Mobile USA have created a new mobile payment system designed to help wireless users easily pay for certain items at physical stores using their mobile phones and MIDs (mobile Internet devices), the three wireless carriers have said earlier today.

Dubbed 'ISIS', the three companies are building the new payment network with the initial goal of setting up a system in which people can use smartphones to easily pay for products or services directly at a retailer, known as PoS (point-of-sale) purchases. A similar system has already been in place for the past two years in many Asian countries.

Google's offering is physically located inside the mobile handset, so one can change wireless carriers or its SIM card without moving one's account to another provider. The consortium systems allow one to change handsets without affecting the account, but lock the user to the network operator.

Banks will probably provide instances of credit cards suitable for all the popular platforms, so users will have to decide if they want to be locked to their network operator, but they'll have to be locked somewhere.

Without Visa's support, Google Wallet could have had a rather difficult time making progress, but with it onboard, the platform now is free to compete with network operators for ownership of the customers' money, at least until Apple steps into the NFC arena and changes the rules for everyone.

ISIS' new mobile payment solution will use a technology called NFC (near-field communication), which provides short-range and encrypted wireless communications between different mobile devices. Verizon Wireless, AT&T Mobility and T-Mobile say the new system will include strong security and privacy protection.

Isis is expected to be available around April or May 2012, the three have said. In Japan, China and other Asian countries, a similar system has been in place for about two years now. It was only a question of time before a similar payment solution would be implemented in North America, some wireless industry observers have said.

In fact some are asking what's taking carriers so long in implementing a working and secure solution, and why will it take them another 18 months for it to be completed.

On Tuesday, Google CEO Eric Schmidt presented an upcoming Android smartphone with a near-field communication chip. Some say it could be the Nexus S, but it's still too early to tell at this time. More is expected from Google in the next few weeks, however.

Isis has already recruited two major financial players to participate in the new joint project. Discover Financial Services will work with Isis to develop the overall infrastructure for the mobile payment network, while Barclay Card U.S., a Barclays Bank subsidiary, will be the first credit issuer on the network.

Meanwhile, Isis is leaving the door open to other banks, financial institutions and other wireless carriers that want to be part of the new venture, and that wish to commit their own expertise and invest in the project.

Additionally, former GE Capital executive Michael Abbott has been hired as Isis CEO. The decision was well received in the wireless community, since Abbott has a lot of experience in the field of corporate finance and related topics.

And beyond the large amount of work that Isis is initially planning, Abbott has sublime goals for the new payment system.

"Through various relationships with merchants, our new mobile commerce network will provide an enhanced, more convenient, more personalized shopping experience for for wireless users. While mobile payments will be at the core of our offering, it's only the start. We plan to create a 'mobile wallet' that ultimately eliminates the need for consumers to carry cash, credit and debit cards, reward cards, coupons, tickets, transit passes, etc, etc," said Abbott in a prepared statement.

Isis marks the first time AT&T and Verizon have worked on a joint venture since the breakup of the AT&T monopoly in 1984, according to a Verizon spokeswoman.

The initiative will change the way people buy products and services. Consumers will no longer have to carry around multiple credit cards in a bulging wallet if they can use a smartphone instead. And since most people have smartphones today, it won't be a problem for most of them.

"Consumers are looking to do more and more with respect to simplifying their lives," said Ryan Hughes, vice president of new business development for Verizon Wireless and a member of Isis’ steering committee.

"What we’re trying to do is, as we’ve seen in many industries that go from analog to digital, is lead the transition from plastic to mobile and simplify the way you shop and pay for the product."

To make a purchase, all a shopper needs to do is to log in to a secure, password-protected application on an Isis-ready phone and hold the phone near an electronic reader at the checkout counter. The microchip allows the customer to transfer encrypted information to a bank or credit card company. Consumers would sign for the amount and receive a bill much like a traditional credit card each month.

Account holders would sign up for these digital credit, debit or prepaid cards through Barclays. Wireless handset makers will create cell phone microchips that consumers will need for wireless payments, and to build point-of-sale phone readers for stores.

Isis purchases will run through Discover’s payment network. A Verizon Wireless spokeswoman declined to comment on whether Discover would charge merchants less per transaction under the program. But merchants have been complaining for many years about the high fees they have been charged by credit card companies, and they are now hoping that Isis will help them pay lower fees on each sale.

In October, Visa and MasterCard settled a U.S. antitrust suit that alleged the companies’ contracts unfairly prevent retailers from steering customers to other cards.

In may, Visa introduced a product that can transform most smartphones, including Apple’s iPhone, into payment devices that can store multiple card accounts in an "e-wallet."

Chip-activated smartphones already exist in Japan, the U.K. and Turkey, while other U.S. companies are working on similar contactless payment technologies.

In December, Google is expected to release its newest version of its Android mobile phone operating system, codenamed GingerBread, which will include special chips and could be used in eCommerce, the company announced yesterday.

Bank of America began testing similar technology more than six weeks ago, while JP Morgan Chase and Wells Fargo are developing their own pilot programs, according to Visa.

Additionally, U.S. Bancorp will begin testing the technology in multiple states in the next two weeks and plans to offer it to select customers in January 2011.

Some industry observers are confident Isis will work where other attempts have failed in the past because of the scale of its partnership, amounting to more than 200 million potential customers between the three largest wireless providers in the U.S.

However, Jeff Kagan, a wireless industry analyst based in Atlanta, Georgia, is only cautiously optimistic about the new initiative.

"This is the right idea and the right direction to go into, but we’ve already seen other similar announcements in the past that sounded just as good, but they never worked. In fact, back in 1997, Microsoft tried to implement its own 'e-wallet' solution but it never took off," added Kagan.

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Source: Visa International Inc.