Aiming to Jump-Start NFC with Banks, MasterCard Pours Money into mFoundry

In a move that could bring mobile payments based on near-field communication (NFC) to a wide array of financial institutions, MasterCard Inc. on Thursday announced it will provide its PayPass contactless-payment technology to mFoundry Inc., a Larkspur, Calif.-based vendor of mobile-banking software. MasterCard also invested an undisclosed sum in mFoundry, the first time in memory the payments network has infused capital in a venture-backed company. Among mFoundry’s current investors are PayPal Inc. and NCR Corp.

“MasterCard has no history of investing in a company that does this kind of thing,” Drew Sievers, chief executive and co-founder of 7-year-old mFoundry, tells Digital Transactions News. “It’s a huge DNA switch for them.”

Sievers says the two companies next summer will introduce a version of mFoundry’s banking application that will include MasterCard’s NFC solution, known as Mobile PayPass. The solution will include Motaps, MasterCard’s provisioning service, which will allow banks to set up customers’ cards on their handsets without the need to use a third-party provider. Sievers expects “two to three” of mFoundry’s clients will offer the NFC app at its launch. “We’re chatting with them now,” he says.

Meanwhile, MasterCard sees its tie-up with mFoundry as a way to speed up bank adoption of mobile payments. “It’s a way to scale it up and make it simpler and easier for people,” says James Anderson, senior vice president of mobile at MasterCard. “It will really reduce the barriers to entry for small financial institutions.”

MasterCard is betting that consumers will adopt mobile payments more readily if the service is easy to use and available through a familiar app from their bank, Anderson says. Meanwhile, he says, banks tell MasterCard they want to provide mobile payments as an “extension” of mobile banking. “It’s a real meat-and-potatoes, common-sense situation,” he says.

MFoundry will have about 600 financial-institution clients by the end of the year, according to Sievers. Its current clients include small institutions as well as major banks like Bank of America Corp., PNC Financial Services Group Inc., and Zions Bancorp. “We’re adding one new client every 26 hours,” Sievers says. BofA is an investor in mFoundry.

MFoundry also provides the technology behind Starbucks Coffee Co.’s bar-code-based mobile-payments system, which uses the coffee retailer’s proprietary card. That system earlier this year extended to 8,100 locations, making it the largest U.S. mobile-payments implementation to date.

But now “all the hard work starts,” says Sievers, as mFoundry must develop the new app in time to take advantage of what is expected to be a significant launch of new NFC-enabled handsets by a wide array of manufacturers in 2012. Currently, only a limited range of smart phone models support NFC. “What’s in the market today is not what we’re planning against,” notes Anderson.

Still, some observers aren’t so sure the MasterCard-mFoundry strategy will succeed. Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group LLC, says banks can’t afford to place all their bets on mobile banking to spark mobile payments. “Ultimately, banks can’t win alone,” he says. “Somebody has to control that ]NFC] chip on the phone, and banks aren’t in the right position to do that. You need Google or Apple or you need the [wirelesss] carriers.” Google Inc.’s NFC-based mobile wallet went live in September. Isis, a joint venture backed by the nation’s largest carriers, expects to introduce its NFC product next year. Apple Inc. has been widely rumored to be working on an NFC solution, but the notoriously tightlipped company has not disclosed any plans.

In addition to its gambit with mFoundry, MasterCard has supported Google’ s mobile wallet. Rival Visa Inc. expects to launch a digital wallet next year. “At a minimum, that successful strategy of working with third parties will continue,” Anderson says, though he won’t rule out the possibility of a wallet from MasterCard.

MasterCard led an investment round for mFoundry that also included Fidelity National Information Services Inc., Intel Capital, and Motorola Mobility Holdings Inc., which is in the process of being acquired by Google. In recent months, card networks have shown keen interest in buying into mobile-payments entities. Visa bought South Africa’s Fundamo in June and has invested in Square Inc. and Mobilise PLC. In April, American Express Co. invested in Payfone Inc., a 3-year-old startup  based in New York City.