"Telcos will Compete with Banks"?

Smartphones using encryption and biometrics will enable telecom companies to compete with banks and credit card companies for retail payment transactions, argues Futurist Patrick Dixon. That might not seem to be the way providers of mobile wallet services such as Google, Isis and PayPal are heading. In most cases, all of those providers require the existing payment providers to provide a complete solution. 


But there might be a difference between the ways new contestants side step into a market, and the efforts such firms might make in the future. As many strategists could argue, a common way new firms get into a market is by starting at the "low end," and then, over time, adding more and more capabilities until, at some point, full head to head competition is feasible. 


Rogers, in Canada, provides an example. Rogers is becoming a "bank," though it likely will confine its early efforts only to some highly-focused applications related to its current customer base. But it would require little imagination to suggest that, once successful, additional functions would become attractive. 


With the caveat that predicting the future is an often-perilous undertaking, and that predictions about the future are more often wrong than right, Dixon thinks big things can happen in mobile commerce, mobile payments and shopping. 


Mobile payments could generate commissions of up to EU2 billion a year in countries like France, Germany, Italy and the UK, he says.  Mobile Payments Future

Isis Thinks Google Wallet Competition is a Good Thing

Mobile wallet providers

Michael Abbott, the CEO of carrier-backed mobile payments joint venture Isis, has an interesting take on rival Google Wallet: "It's the best thing that could happen."


You might think that an odd thing for one competitor to say about another major competitor. But early in the development of a brand-new industry, it actually can help to have multiple substantial contestants promoting the new market.


That is helpful because it reduces the perceived risk, on the part of potential users and customers. Any company executive that has tried to explain "what we do" in a market with no other providers or competitors will immediately grasp the concept. 

Abbott argues that competition from multiple parties is a good thing, early on, as it generates greater consumer awareness and can convince many other essential providers in the ecosystem to participate. Google Wallet is good for mobile payments


One is reminded that Apple under Steve Jobs did not conduct market research to develop new products, as Jobs' philosophy always was that people could not provide meaningful feedback about products they never have seen. 


That's another aspect of new markets, for new products consumers do not have experience using. Since people may not even be aware of why they need a product, it can be hard to sell such products. Having more contestants in such a market contributes to the overall evangelization process that creates better understanding on the part of users of why they "need" a product. 

Is PayPal Card Friend or Foe?

Value in mobile ecosystem

In a complicated ecosystem such as retail payments, no legacy contestant can be completely sure that other new participants in the broader ecosystem are complementary or disruptive.

PayPal, already a payment system for e-commerce transactions, has made no secret lately of its ambitions to move into the world of brick-and-mortar commerce. 


And PayPal might worry card issuers more than Google for a couple of reasons. First, Google clearly wants to build a business around advertising. PayPal wants to grow a transaction fee business, even as it works with traditional card issuers. 


Traditional payments typically involve a merchant, acquirer, issuer, and a consumer in the visible parts of the business. But essential roles also are played by the payment network provider as well. 


The roles of merchants and consumers are obvious. "Acquirers" are responsible for aggregating merchants  and enabling merchants to process payments. 


"Issuers" create payment devices for consumers to use (credit and debit cards, for example) and process the transfer of funds from consumer accounts to merchants. 


In the case of credit and debit cards and other electronic forms of payment, a payment network provider, such as Visa or MasterCard, resides between acquirers and issuers to facilitate the transfer of information and funds. 


The mobile payments business adds other potential participants as well, such as handset suppliers, mobile service providers and application providers that create "wallet" systems. That also means other functions such as daily deals services, loyalty program services, local advertising and other functions likely will be part of the ecosystem as well. 


You might argue that PayPal, up this point, has acted as a payment network of sorts, even though it works with existing clearing networks and card issuers. What does not seem completely clear is what it might mean now that PayPal has decided its "wallet" functions will take the form of a plastic card.  

The PayPal Card is a magnetic-striped plastic card that will become available to its base of 100 million active users some time in the first half of 2012.

The unembossed card, which account holders will have to apply for, will carry the PayPal logo on its face, but will bear no other identifying information—no name, no account number. 

Transactions on the card will be protected by a PIN. PayPal will also introduce at the same time a companion payment product it calls “Empty Hands,” a system that will let account holders pay the point of sale by entering a phone number and a PIN.

The card is intended to let users access the funding sources they have stored in their accounts, or digital wallets. These can include credit and debit cards, but also loyalty points, prepaid and gift cards, and demand-deposit accounts. 

Although it looks like a familiar payment card, its magnetic stripe stores encrypted data that lets consumers access a variety of accounts through PayPal. The card will not carry the customer's name or an account number but only the PayPal logo.


Keep in mind that The PayPal card might be viewed merely as an extension of wallet functions PayPal has had for a decade or more, experts say. For example, PayPal has had a MasterCard-branded credit and debit card for years. In that sense, PayPal already has been an issuer in its own right. 


But some in the banking industry will see a threat. "It is another step in PayPal's march to disintermediate" the traditional card companies, says Andy Schmidt, research director for commercial banking and payments at TowerGroup.

PayPal s New Card Is a Trojan Horse for the Consumer Wallet

Rogers Communications Seeks Bank Status

Rogers Communications has applied to become a bank under the Canadian federal Bank Act. If approved, the proposed "Rogers Bank" will focus mainly on credit, payment and charge card services. In one sense, the move is similar to any other large retail brand creating a branded charge card.

In other ways the move is more significant. Large tier-one service providers might start to find they cannot gain significant revenue growth without moving into adjacent businesses of some size and scope, already dominated by other providers. To be sure, Rogers is proceeding carefully.

"We have no plans to become a full-service deposit-taking financial institution," Rogers Public Affairs Manager Carly Suppa said. "The license, if granted, would give us the flexibility to pursue a niche credit card opportunity to our customers should this make sense at a future date."

In other words, Rogers doesn't want to become a full-fledged retail bank. But becoming a credit card issuer does set Rogers up for a smooth transition to becoming a mobile payments provider in the future.
Credit cards present a distinct opportunity for Rogers to expand its reach, as the media, cable and wireless giant also owns the Toronto Blue Jays and has direct relationships with millions of customers, including many who pay bills using credit or direct-deposit accounts. So there is an incremental opportunity to capture some of the current transaction revenue, at the very least.

Beyond that, analysts say the company can build a broader card business by leveraging those relationships to market its brand of cards, especially by reaching out to customers who have good credit standing in its database. That would create a new revenue stream for the broader number of retail transactions for which its customers use credit cards. Rogers to become a bank

The move by Rogers is highly significant, as it illustrates an important point about where large tier-one providers must look for revenue growth. For an organization such as Rogers, which might book $12 billion in 2011 revenue, even interesting new lines of business that produce scores of millions to hundreds of millions worth of new revenue are too small to "move the needle" overall.

The problem is even worse for organizations such as AT&T or Verizon that book $30 billion to $40 billion a year in revenue. Simply put, there are few realistic new lines of business large enough to matter. That is why you hear so much about machine-to-machine communications, mobile advertising, mobile banking and enterprise-oriented cloud services. Each of those businesses could, in principle, produce $1 billion a year in incremental revenue for any single contestant in a national market.

Keep in mind the scale requirements. A business has to be big enough to produce $1 billion in incremental revenue for each contestant that wishes to compete in the business. By definition, any new line of business must be capable of generating global revenue in the scores of billions of dollars.

To repeat, Rogers will become a bank. It will do so because even "mobile payments" might not produce enough incremental revenue to be interesting. Instead, Rogers will have to explore ways to earn incremental revenue in a range of traditional banking services that match its capabilities in mobile services.

There are some obvious implications. Isis, the joint venture between AT&T, Verizon Wireless and T-Mobile USA, has shifted from a "mobile payments" to a "mobile wallet" focus. The implication is that Isis has decided it does not have time nor money to challenge Visa and MasterCard directly, which it was its original plan.

Even though that is an arguably wise move, the point remains that even a mobile wallet model might not produce revenue large enough to matter. That is not to say a wallet effort could not do so, but that it would have to create a huge advertising ecosystem.

At some point, even Isis might have to consider whether it must become a bank, or that its partners separately might have to become banks. That would still leave them as partners with Visa and MasterCard. But it would not allow Isis to completely avoid all conflict with banks.

Many service providers outside the United States probably are "running the numbers" and coming to similar conclusions.

Rogers applies to become a bank

Isis Shifts Strategy: What Happens Next?

If there is any single issue that will drive any retailer away from a retail payments system it is higher cost per transaction. Forcing a retailer to spend $200 or so per payment terminal also is a huge barrier to adoption. Blocking a merchant’s ability to use a form of payment such as a branded credit card also is a disincentive, particularly since the merchant’s own branded vehicles potentially can provide more information about the customer, and the customer’s preferences, than any third party form of payment.

It appears Isis has stumbled with retailers because its proposed payment system provides all three barriers, says Richard Crone, Crone Consulting principal and payments consultant.

And Crone agrees that, as tough as it would have been to overcome those obstacles, any other revenue model Isis now might adopt could fight Isis facing both well-funded giants such as Google, Apple, PayPal and Amazon, or any number of startups, sufficiently well funded to pose a significant challenge to “near field communications” as the communication method for any number of payment-related systems and applications.

In fact, Crone believes a number of carrier-independent approaches from well-funded start-ups not requiring NFC “could make NFC obsolete.”

“Maybe you don’t need the NFC approach,” says Crone. “There are 16 different ways the communications function can be handled.”

Starbucks, for example, represents the “most successful new payment method, ever,” Crone says. Starbucks reached one million mobile payments  processed in 30 days. “Nobody else ever has received those kind of numbers in that short a period of time.” And all Starbucks did was build on the existing prepaid Starbucks card and 2D barcodes. Starbucks has signed up more than three million of their customers for the program, and they likely include some of the best customers Starbucks has.

Customer contact  is the real advantage, he argues. When a merchant accepts payment from a standard credit or debit card, the data the merchant can capture is slim. The Starbucks approach provides a clear contrast.

When a customer registers for the Starbucks mobile payment service, the customer states their preferences and supplies contact information. As a result, Starbucks can communicate with their customers, before and after any transaction.

Starbucks also enjoys lower transaction costs, as it is prepaid system where customers load credits into their accounts ahead of time.

It might not be incorrect, in essence, to argue that, if merchants were starting today with a payment technology system, they wouldn’t even buy point of sale terminals. They’d simply leverage the technology the customers pay for, including using the customer’s communication services, and process directly from a smart phone, Crone says.

Retailers need a payment strategy, and a a mobile strategy, that provides incentives for customers to use the forms of payment that build loyalty, make customers contactable and provide lower costs. That doesn’t mean abandoning a “portfolio” approach. After all, people still will want the freedom to pay using cash, credit card, debit card, check or gift card. But among those options, retailers benefit when they can use the payment system to build loyalty, knowledge of their customer preferences and gain the ability to add marketing services on top. When possible, transaction costs might also be lower taking that approach.

That doesn’t mean NFC won’t find applications, or that Isis cannot ensure itself some role in the mobile payments business. NFC requires a secure element that carriers want embedded in the subscriber information module. Carriers control the SIM, so they would still be gatekeepers when NFC is used.

“So even if they open up to card associations, they control the loading of credentials,” says Crone. But various players in the ecosystem will contest the location of that loadable data, arguing that it should not be in the SIM, but elsewhere in the device. Device manufacturers, for example, would prefer that approach, as it makes their devices more valuable.

With Isis apparently withdrawing from an effort to compete directly with Visa and MasterCard, it will obviously have to find some other role. But competitors who do not necessarily want to be limited by using NFC, the SIM or getting the carrier’s permission now will have new incentives to push their rival systems in the marketplace.

In a way, Isis had been casting a bit of a shadow over rival approaches. Now, it appears we are headed for a period of wider experimentation, with many participants looking at ways to create payment systems providing higher marketing value, advertising or promotion platforms or customer niches, such as mobile merchants, smaller merchants or merchants primarily seeking loyalty program advantages.

Nor is it entirely clear that the “best” strategy is the “most ubiquitous, most widely used” approach. Large retailers might well conclude that they are best served by their own branded programs, using forms of payment limited to their own establishments and venues. They still will accept all the other popular forms of payment, so they give up nothing to gain the advantages of approaches such as that taken by Starbucks, which is to create a program usable only at Starbucks.

With the shade apparently removed, lots of smaller plants will get sunlight.

Isis Decides Not to Challenge Visa, MasterCard

In a major shift, Isis, the mobile payments venture headed by AT&T, Verizon Wireless and T-Mobile USA, which originally intended to compete with card issuers, now appears to have abandoned that tack, opting instead for a scaled-back effort that essentially amounts to data mining and revenues that might be built on sharing access to such data in some way.

The shift means an end to the "clash of giants" theme that had AT&T and Verizon challenging Visa and MasterCard directly as a payment processor. What new "story" might emerge remains unclear, for the moment, as Isis now will embark on a search for a new narrative.

Some will note that the shift in strategy solves one problem, but creates others. Isis no longer has to spend the time and capital to create a new retail payments brand, a prospect many had pointed out would be time-consuming and expensive. But the new model also must define and then create a viable new revenue model of some size and scope.

There are huge new uncertainties. Despite the obstacles, the original plan had the advantage of a clearly-defined source of revenue, primarily based on per-transaction fees. Now Isis has to search for both a sustainable role and viable revenue streams to match.

It still is possible that Visa and MasterCard might agree to share some part of transaction revenue with Isis, in exchange for support Isis might provide, but that remains to be seen. It also remains to be seen how significant a revenue stream that could provide.

The change also throws into question the future roles for original partners Barclays Bank and Discover Financial Services. Under the original plan, which would have required Isis to create its own functional equivalent of the branded credit or debit card, Barclays would have been an obvious brand to use. Likewise, Discover Financial would have provided the payments clearinghouse functions.

Under the new plan, it isn't clear what role Barclays or Discover Financial might play. The Wall Street Journal reports that Isis concluded that creating a new branded payment network would take too long, given the level of competition in the market. The Journal also reports that retailers were not keen on adding yet one more provider.

Perhaps intriguingly, the shift of Isis strategy means other players in the ecosystem, especially the many smaller providers plumbing some specific roles within the broader "payments" ecosystem, gain attention.

If Isis has to look for new roles and revenue streams, the many smaller providers of various solutions will become more valuable, at least potentially, if they can provide distinct features and revenue streams, either for the actual payments function, the venues where payment is required or helpful, or in related businesses related in some logical way to people shopping.

Isis isn't planning to launch its first payments trial until 2012, as a provider of mobile payment for transit services in Salt Lake City. What isn't so clear now is how relevant that experiment will be for Isis, long term. It still remains possible that Isis will get some small share of transaction revenue, but some will argue that never will be enough to justify Isis as a business proposition.

Lots of thinking now likely is going into ways mobile data and back office capabilities, such as billing, location and other details about devices, operating systems and so forth might be exposed to third parties. But that sort of thinking has been going on for years, and is not new.

Perhaps a key challenge for Isis now is to avoid exchanging one set of difficult competitors with another set of equally-talented competitors. And Isis will face plenty of those.

Wireless Carriers Scrap Plans for Their Own Mobile-Payment Network, Look to Big Credit Card Companies - WSJ.com

The Mobile Future is Now

By Brianna Swales and Lynda Starr, Vantage Communications

We’re at that time of the year again—when everyone dusts off their crystal balls and starts thinking about the upcoming New Year and what it will bring personally and professionally.  At Vantage, we follow trends and breaking news to help our clients prioritize marketing and sales goals for the coming year. Can you believe how quickly the year has gone by?

Here are the trends in no particular order that we think will characterize the mobile landscape.

The circle continues:  Faster data rates and additional bandwidth to spur new applications which will further push bandwidth.

While 3G networks have made strides in download speeds reaching 600 Kbps to 1.4 Mbps, the next-gen network, 4G, offers additional bandwidth of 1 Gbps for stationary reception and 100 Mbps for mobile reception that supports new applications.  This in turn is pushing carriers to further upgrade bandwidth. T-Mobile, Sprint, AT&T, MetroPCS and Verizon Wireless are each upgrading networks to increase capacity and data rates to enable subscribers to take advantage of robust applications and services.

Smile! Mobile video and smart phone adoption to surge upward

The growth of 3G and 4G networks has increased the use of mobile video, running the gamut from mobile TV, video on demand (VOD), and video messaging to mobile advertising, video conferencing and more. By the end of 2010, over 23.9 million people will have viewed mobile video, according to eMarketer, with those numbers expected to double by 2013. For service providers, mobile video opens new revenue streams. Much of this growth is propelled by smartphone adoption, which has reached about 23 percent of U.S. adults. Moreover, new tablet devices are improving video quality and are being seen more and more as replacements for laptops.

Location-based services know where you are and might just reward you for it

Compelling applications and availability of enabling technologies have led to the rise in location-based services, which take advantage of the geographical position of the mobile device to provide consumers with everything from personalized weather to coupon offers. Location-based services (LBS) offers advantages to both consumers and businesses.  For example, with location-based marketing, businesses can provide information to consumers in proximity. Moreover, consumers can check in with Foursquare and Facebook Places and become word-of-mouth marketers for their favorite proprietors. Location-based services increase customer loyalty and create a new class of influencers, which is changing the marketing model.

The Mobile Wallet is coming

Mobile commerce is beginning to change the way we shop and make purchases by allowing consumers to make point-of-sale purchases via mobile devices. Gartner estimates that by the end of 2010, 1.2 billion people will carry handsets capable of rich, mobile commerce. Likewise, mobile commerce is tied to the availability of bandwidth able to handle an onslaught of activity such as recent experiments by Macy’s and Best Buy.

Verizon Wireless, AT&T and T-Mobile USA are jointly launching a mobile commerce initiative dubbed Isis. The Isis network will use Near Field Communications (NFC), through which consumers can make purchases by waving a radio microchip-equipped smartphone at a corresponding retailer reader unit. Google, Apple and Research in Motion have also announced plans to integrate NFC technology into their products.

Anyone who watched The Jetsons is most likely waiting for “the future” to get here.  But as these mobile trends and others come to fruition, it might just seem like the future is now.