The Telecom Carriers’ Mobile Payment Pitch To Retail: Offering What Will Happen Anyway
Written by Evan SchumanThere’s an old joke that perfectly encapsulates today’s mobile payment stalemate, the struggle between retailers, Visa and other card brands and telecom carriers. “When they say it’s not about the money, it’s about the money.”
This comes to mind as the AT&T, Verizon and T-Mobile smartphone payment cabal unveiled itself Tuesday (Nov. 16) as ISIS. (This is the grouping that was widely reported back in August.) The group stressed the 200 million phone-wielding consumers they represent (as if Wal-Mart, Home Depot, Target and Macy’s don’t have their own huge installed base of mobile-equipped customers) and the ease of integration and various other talking points.
They stressed everything except the only thing that will ultimately persuade any major chains to support them: Revenue share, processing fees and other ways for retailers to say “Put a deal on the table that is sharply better than what I now have with Visa and I’ll sign.”
Jaymee Johnson is the director of strategic development for T-Mobile and he was acting as ISIS spokesperson in media interviews. Johnson spoke of “bringing enough compelling value to the merchant side,” but did so without actually addressing interchange.
The ISIS argument is that its three members are going to drive the industry to Near Field Communication (NFC) and that NFC is the only practical way for mobile payments to happen. It is true that NFC will almost certainly be how mobile payments will be made, but that’s going to happen regardless of what ISIS does. Therefore, support for NFC is not a reason to support ISIS.
“Today, in general circulation, there are effectively zero commercially-capable (NFC-friendly) handsets,” Johnson said. He added that the ones used in various retail trials have done it two ways.
Some used stickers—hardly a longterm approach, which was discovered recently by Discover, which happens to doing the payment processing for ISIS. Others, Johnson said, “were handsets that were custom made with a soldering iron.”
One of the group’s plans is to offer a POS add-on kit for about $100 (much less with volume, of course) to help retailers more easily accept NFC payments. But again, if a retailer wants to accept NFC, it can easily do so without joining ISIS.
“Fundamentally, the problem that we’re solving is not one of technology. It’s more of a business problem,” Johnson said. “We need to bring enough compelling value to the merchant side.” Absolutely. But that’s really about the money, right? “There is a value proposition about acceptance cost” and “interchange is a part of it.”
He pointed to Starbucks’ mobile trial—which the retailer is heralding as a success—as an example of where ISIS could make a difference.
If a retail chain “works hard, you can pull something off” such as Starbucks did, but “that retailer will have a ton of friction. They were in 16 stores and now they’re doing it in New York. It’s not available in Peoria. There’s no scalable way. The iPhone has maybe a 10ish marketshare.” He said that Starbucks is saying “I can enable something for a minority of stores for a minority of customers.”
Although that is pretty much true, the conclusion he is drawing seems flawed. No matter what ISIS does, major telecom carriers—including but absolutely not limited to those that are behind ISIS—will continue to advance NFC and retailers will upgrade scanning equipment to support it.
ISIS shares in one point of confusion with the various so-called alternative payment players (BillMeLater, PayPal, Google Checkout, etc.). That shared confusion is that none of these players are actually going to be alternatives to the major card brands as they continue to pay the brands for using their networks.
ISIS, for example, won’t allow consumers to have charges appear on their phone bills. Everything will be traditional credit, debit or prepaid and “the thrust will be in debit.”
But ISIS is right about one thing: It really is about the value being delivered.
-Marc
November 18th, 2010 at 1:40 pm
Three important keys to positioning ISIS to retailers: One, prove the service will result in new customers, and incremental sales to existing ones. Two, accommodate mechanisms for the retailers to target the experience to individual customers, either at the POS, afterwards, or both. Three, accommodate merchant loyalty programs, and offer mechanisms for instant redemption at the POS (e.g., the phone keeps track of number of payments made at that merchant, and can reward the consumer when the “x” purchase is made).
Merchants will pay fees if the service can result in more sales, and allow specific targeting of offers to individuals. Think of all the money merchants pour into untargeted incentives and marketing today.
What ISIS should not do is rush into the market with a blah style offering that only replicates contactless payments from a phone. There needs to be a compelling case for the consumer and the merchant to want to use the phone to purchase first, in front of cash or other payment cards.
November 19th, 2010 at 1:08 pm
Having lived inside a large telco, there is an unbelievably strong gravitational force to frame market opportunity through the prism of their revenue and strategic frameworks. This is a major burden to overcome for internal and externally driven innovation…and also for their ability to reach deeply into enterprise systems value chains to deliver real value. It wasn’t too long ago that the large wireless telcos thought of enterprises themselves as simply a “gaggle of consumers..”…never expressed as bluntly as that, but their pricing and service policies were largely influenced by that perception.
It will take a big stretch of consciousness for the telcos to offer a true alternative payment solution that has any substantial benefit to enterprises.
November 20th, 2010 at 10:16 am
I do not see Isis competing, as as some suggest, with the existing four party model i.e. ACH, MasterCard, Visa … . I see Isis as an enabler. As their spokeman suggests, they will help to drive adoption of NFC within the phone and at the merchant point of sale by helping to create the revenue necessary to justify the investment requried.
The real question is what is ISIS’ source of income. I would suggest it is in establishing the trust necessary to allow all those cards (relationships and means of identification) they plan to move inside the card to assure you are who you are and therfore allow the various participatants to deliver compelling value such as Mobile Loyalty, Mobile Coupons, Push marketing and a raft of services capable of driving sales and enhance the shopping experience.
Time will tell. Let the speculation continue. See my reaction to the ISIS annoucenment on my Blog http://www.andreae.com/blog.
December 3rd, 2010 at 6:17 pm
Mike McCormack is wrong- his 3 success criteria will not sway retailers. ‘Incremental sales, loyalty, etc’ are too hard to prove out- and ultimately are a wash as everyone begins accepting the their pay type. Every Joe Shmo can make a business case for retailers predicated on ‘driving more trips, or increasing basket’- but most retailers are smart enough to take these with a grain of salt. Even the most compelling sounding experience is no gaurantee of incremental behavior. Ultimately, to get retailers to spend money on hardware and push a new pay type that cannibalizes traditional transactions, you’ll have to offer lower interchange fees. Also remember, Visa is smart enough to tier their fees- nobody wants to bump their volume down and lose favorability on Visa rates (unless they can replace it with something much cheaper).
January 19th, 2011 at 8:57 pm
There is value in displacing cash from the purchase transactions and in the developed markets mobile payments should focus on competing with cash especially in segments where dealing with cash is a nuisance (the developing markets is a separate story). The cost of cash processing is high (may be as high as 10% for coins), customers using any electronic payment instrument spend on average 30% more comparing to purchasing with cash, the lost sale impact due to the unavailability of funds is greatly reduced, and the fraud level goes down which is appreciated by the merchant. All of that can we well quantified. Therefore the deal offered to merchants does not have to be that much “better” than the deals offered to by the established payment frameworks. It is very important however that the introduction of mobile payments does not cost the merchant in $$, time, effort, and risk. Adding targeted marketing and loyalty benefits further strengthens the case.
Regarding ISIS, no one knows how they intend to make money, including ISIS itself. They are actually hiring people for which job descriptions include: business case development.
January 21st, 2012 at 11:30 am
Hi Jon, you said I am wrong yet I think we agree, focusing that I used the word “PROVE”. I agree, promises of incremental sales and the ability to target loyalty have been completely worn out by endless pitches of card services, hardware, software, etc etc etc…
I agree with you, another watershed way of getting mobile payments introduced is to shift merchant’s payment modes from higher to lower cost products. I think ISIS has started down a path that completely misses that opportunity by partnering with incumbents who have zero interest in reducing merchant payment costs.