Observers Express Caution About the Carriers’ New NFC Venture

Forty-eight hours after the announcement by a trio of major wireless carriers that they plan to launch a point-of-sale mobile payments system, reaction from expert observers and others in the industry tends toward caution about the immediate prospects for Isis, the carriers’ joint venture. Isis is expected to launch some time within the next 18 months.

While backers AT&T Mobility, T-Mobile USA, and Verizon Wireless boast billing relationships with more than 200 million mobile subscribers and the potential to reach as many as 7 million merchants through their network partner, Discover Financial Services, the experts warn that the new venture may have a long, hard slog ahead of it in actually getting merchants to sign on. One sticking point appears to be price. Isis spokespeople would not discuss pricing, but early indications are that merchants that have been approached by the carriers have seen little advantage in its pricing over the fees they pay for Visa and MasterCard acceptance. “It really has to be a jaw-dropping deal, it can’t just be a few basis points [difference],” says Aaron McPherson, practice director for financial services at Financial Insights, a Boston-based research firm.

Some of the sources who spoke to Digital Transactions News about Isis also lamented the proprietary nature of the venture’s electronic wallet. While Isis spokespeople on Tuesday stressed that the venture is open to including more carriers and banks (Barclaycard U.S. is the first bank participant, managing Isis accounts), they also made it clear that transactions will be processed against proprietary Isis accounts, a disappointment for open-wallet advocates. “There are some positive things we should take from Isis,” says Bill Gajda, head of mobile innovation at Visa Inc. “I hope we can work together on an open wallet.”

The mobile carriers have negotiated for several years with the card networks to forge an agreement on a mobile-payment system for the U.S. that would rely on a technology called near-field communication (NFC), which enables interactive links between mobile phones and contactless readers and other devices equipped with NFC chips. Those negotiations have proved fruitless owing to disagreements over revenue sharing and other issues. Many observers see Isis as the carriers’ effort to create a mobile-payments system without the card networks.

But, as with any new payments network, Isis first and foremost will have to sign up merchants. While the new system’s wallet will offer merchant-friendly products like digital coupons, tickets, and receipts, observers say Isis will have to present better pricing. “I have heard nothing positive from the merchant community,” says Todd Ablowitz, president of Double Diamond Group, a Centennial, Colo.-based consultancy. “[Isis has] a great opportunity but they have to listen. They can’t think they know more than the merchant.”

McPherson says Isis may have misinterpreted merchants’ disgruntlement over card fees. Merchants will file lawsuits and push for interchange regulation, he says, but are much less likely to adopt a payments alternative. “I’m unconvinced merchants really need this or will really come out and support it in a big way,” he says.

That, he adds, could pose substantial risks for the carriers. “They made a conscious strategic decision to go up against two of the most powerful payment brands in the world,” he notes. “It’s a dangerous game they’re playing. If they fail, they will have wasted millions of dollars and years of effort only to go back and get the card companies on board any way.”

Still, the carriers are corporate giants with the resources to absorb losses and setbacks for quite some time, if need be. And with Michael Abbott, a former GE Capital executive, having been recently installed by the carriers as Isis’s chief executive, the company’s direction could change in ways that are difficult to predict. “Isis is a very significant step,” says Gwenn Bezard, research director at Aite Group LLC, Boston. “It’s unprecedented. I like the overall approach they have, but the devil will be in the details.”