Will Telecom Carriers Ultimately Win?
Despite PayPal's head start, however, IDC Financial Insights' McPherson considers another mobile payments scheme the most likely to win: AT&T, Verizon, T-Mobile, Discover (Riverwoods, Ill.) and Barclaycard (Wilmington, Del.) are working on a joint mobile payments project, according to an unconfirmed Bloomberg report. (Dallas-based AT&T and New York-based Verizon did not respond to requests for comment for this article.)
The participation of both banking and telecommunication players in the project, according to McPherson, is the key to the initiative's likely success. "You need to have both of those in order to have a successful mobile payment system," he says. "Eventually Visa and MasterCard will sign on to what the carriers are doing."
According to the Bloomberg article, however, the carriers are trying to displace MasterCard and Visa -- which would be a profound strategic error on their part, McPherson argues. "If you're not going to include them, you've got to get people to enroll in a new payment network," he says. "You've got to use an ACH network or carrier billing. That's so unwieldy that I have a hard time believing they would really do that."
The telecom carriers are looking for new revenue streams, McPherson notes. In addition, "What Apple has stumbled onto, and now everyone is trying to catch up on, is the fact that apps are big business," he continues. "I don't think the carriers want to let Apple have control of the platform on which the apps run."
According to Visa's Gajda, the card company is working with more than 20 mobile operators around the world. "It's early stages now because this is a fairly nascent area," he says. "But we're in discussions with many mobile operators around how we bring them and banks together to launch mobile payment schemes in their markets."
In a democratic vision of mobile payments, some kind of universal standard or network would allow all the players to accept each other's payments. "Visa does believe the key to growth will be interoperability," relates Gajda. "It will be easier, more scalable and more interoperable for people to have a mobile wallet onto which they can load whatever payment types they want and use it across multiple mobile payment markets." Ideally, he adds, this would work across country borders, too.
But this is unrealistic, asserts IDC Financial Insights' McPherson. "It's unlikely you'll get everybody to buy into the same thing because there's the argument over who owns it," he says. "There's enough fragmentation that you're unlikely to get a majority of consumers in any one scheme, and if the schemes try to actively work together and interoperate, they might be subject to antitrust activity."
One contentious issue among mobile payment competitors is pricing for the service, which McPherson refers to as a "live wire." Another is that banks tend to distrust each other. "I've worked on a few of these multilateral things, and typically, if people show up, it's so they can find out what the other guys are doing," he says.
But there are a few groups working on mobile payment interoperability, including the Financial Services Technology Consortium, the Mobile Payment Forum and the GMS Forum, McPherson notes. These groups have contributed documentation requirements, but they haven't yet worked on messaging standards or pricing, he says.
Advice for Banks
While the battle for mobile payments domination shapes up, PayPal's Chambers, who says banks often ask her for advice on mobile payments, offers some words of wisdom. "Banks should embrace it," she says. "It's important. You cannot ignore mobile. It's going to be 50 percent of Internet access within a few years."
Chambers' other advice is not to just make an online banking site accessible to a smartphone. "It's a very different experience with very different expectations, so you have to create a whole new strategy for mobile," she insists.
And finally, Chambers recommends that banks remain open to partnerships. "That nimbleness and agility and ability to test it out as it evolves will position the banks really well for success," she says.
On a more conservative note, IDC's McPherson advises banks to stay the course. "To the extent that banks have done work on mobile payments systems with their core provider or MoneySend or something, they should keep doing that," he says.
"I wouldn't rush -- I don't think there's any bandwagon to jump on," McPherson continues. "The best thing would be to let the card networks and telcos hash it out, and when there's something to buy into, you can buy into it. For the average bank it's wait and see; it's so undefined at this point that your chances of picking the right partner are low."