Merchant Group Lays Plans for Retailer-Controlled Mobile Payments, With or Without NFC

Dissatisfied with the current crop of mobile-payments systems from tech companies, cell-phone providers, card networks and banks, a group of U.S. retailers is embarking on its own plan to bring smart-phone payments to their customers. The merchants stress that their venture will not necessarily be based on near-field communication (NFC), the interactive, contactless technology that rival services are using.

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The group of about two dozen retailers includes Wal-Mart Stores Inc., Target Corp., Alon Brands Inc., a regional 7-Eleven franchise owner in Texas, as well as drug stores, fast-food restaurants, and vending companies, according to The Wall Street Journal, which broke the story on Friday. Working with the group is payments consultant Steve Mott of Stamford, Conn.-based BetterBuyDesign, a frequent contributor to Digital Transactions magazine.

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A merchant executive familiar with the project who asked not to be identified tells Digital Transactions News the retailers are planning a network that will enable merchants large and small to accept mobile-payment transactions outside of the existing Visa, MasterCard, American Express, and Discover networks and the legacy magnetic-stripe technology and pricing structures on which they’re built. “One would hope that we could create a more efficient system than the existing inefficient, fraud-prone current system,” he says.

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The executive, however, would not comment about the structure of the network, its pricing, or exactly how transactions would work. Asked, however, if the network might have its own brand mark, with consumers downloading software to their mobile devices to enable mobile payments, the executive said, “You’re getting real warm.”

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Regarding pricing, the executive says the network would recover its costs through some sort of charge to merchants, but any charges would be lower than what merchants pay today for card acceptance, he says. With Visa and MasterCard cards, the vast majority of acceptance expense is interchange, a transaction fee set by the network and paid to the card issuer by the acquirer, which passes the cost on to the merchant.

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Nor have the new network’s founders decided on technology. The executive says some blog postings Friday morning that the network has settled on near-field communication (NFC) technology are wrong. “That’s not a foregone conclusion at all,” he says. “There’s plenty of other technologies that don’t include NFC.” He notes that different merchants and industries have different needs, and the network’s technology offerings will reflect that.

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Another early misconception, the executive says, is that the retailers are at odds with banks, the recipients of interchange in the existing card system. “That’s not necessarily the case, there are issuing institutions that are interested in this effort.” The executive would not identify any banks.

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Mott, the consultant working with the group, tells Digital Transactions News the retailers “have been talking to banks and telcos for some time” in an effort to avoid disruptive rivalry, a reference to early news and blog posts on Friday asserting the merchant initiative would hamper the nascent U.S. mobile-payments business.

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Mott characterizes the merchant initiative, which doesn’t yet have a name, as an “olive branch” to any company or institution that agrees with its goal of improving on the existing card-based payment system. “None of the systems out there today address what’s wrong with the payments system,” he argues, referring to what the group sees as the vulnerability of cards—and of mobile systems based on card networks—to fraud.

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The merchant executive also says that a merchant network could do a better job protecting consumers’ privacy than current mobile-payment systems. He cites the example of Google Inc., developer of the NFC-based Google Wallet for mobile payments and merchant loyalty programs. Google has come under fire in recent weeks for its new privacy policy that critics say will give advertisers more consolidated information about users of Google’s vast Web sites. “There would be privacy controls,” says the executive.

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None of the retailers that The Wall Street Journal identified as network participants would comment publicly. Target did issue a statement to the Journal saying, “We are exploring potential solutions that would help us to deliver the fastest, most secure mobile-payment experience possible for our customers.”

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Should it fly, a merchant-controlled network would challenge not only Google, but also the Isis joint venture sponsored by AT&T, Verizon Wireless and T-Mobile, Visa’s nascent V.me mobile-payment system, and a host of other ventures from other networks and tech companies. If anything, the merchants’ plans show that retailers won’t let mobile payments be imposed on them by others, says Todd Ablowitz of Centennial, Colo.-based Double Diamond Group, a consulting firm specializing in mobile commerce. If the early players in mobile payments “do not take retailers’ interests into account, they’re going to have problems getting launched. Retailers demand a seat at the table,” Ablowitz says.