Will the Mobile Payments JV Trounce MasterCard and Visa?
by David S. Evans
Judging by the breathy press reports yesterday of the new, sort of, kind of, maybe joint venture between mobile behemoths AT&T and Verizon (with T-Mobile in the mix too) MasterCard and Visa are sitting around conference tables today white-knuckle-gripping their blackberries and iPhones. Bloomberg first broke the story that these carriers were teaming up with card network laggard Discover and Barclay’s, a big worldwide bank with a small US footprint, to take on the big guys. The plan is to turn the smart phone into a contactless debit and credit card killer. Discover would run the transactions over its network and Barclay’s would manage the accounts.
Details were sketchy so we will need to wait for more of them to really know what this is all about. Based on what I know, I have two observations. First, as I have been saying for about the last 18 months I’m a firm believer that smart phones will eventually become the main way to pay at the point of sale. Second, that we’ll see a lot of shipwrecks on the way to this destination. This purported match up sounds destined for the ocean floor to me. Here’s why.
Most joint ventures fail because the partners can’t agree on things. If they actually get to signing on the dotted line—the article suggests they have since they are in search for a CEO—they will have gotten farther than Simpay, the proposed mobile carrier payment JV that cratered in Europe in 2005. Starting a new payment system is hard enough without having to get AT&T, Verizon and Discover to agree with each other.
Then there’s the contactless smart phone angle which who knows how many wet-behind-the-ear entrepreneurs assume is the path to payments Nirvana. In the near term it does not seem likely that pursuing this approach could ignite a new payment system.
The first problem involves the smart phone, the very form factor that this new network has embraced. You, me, and our circle of friends probably all have smart phones and because of that we have a tendency to think most people do. They don’t. This is still is very expensive technology that has a small share of mobile phone subscribers.
The second problem is that merchants just haven’t been interested in installing contactless terminals. One of the articles on the new JV emphasized that there were 140,000 merchant locations that have contactless readers. Wow—140,000. Of course anyone who knows this business knows, to use a highly technical economic term, that represents just about bubkus.
These two problems are interrelated. If more people had smart phones with the new solution and wanted to use it more merchants would install contactless. And if more merchants had contactless maybe more people would go out and get smart phones. The fraction of smartphone users who may adopt this new payments solution isn’t going to be big enough to get merchants to install contactless and the penetration of contactless isn’t large enough to make people want to go to the effort of switching payment methods, especially if it involves buying an expensive new phone. These problems are solvable with money: the JV could subsidize the installation of terminals. If we hear they are prepared to bankroll merchants then that’s a sign they are a contender.
The real test of whether the JV is really serious or just another dopey mobile phone proposal is whether they have a really cool payments solution up their sleeve that adds a lot of value to consumers or merchants. If this is nothing more than you can wave your mobile phone at the checkout counter then it is probably a non-starter. That’s not good enough to beat the fast swipe and to change habits. But maybe they really do have something that is so compelling people will want to use it. After all, many people switched from very reliable mobile phones with long battery lives to the iPhone that drops calls just about every five minutes. They got so many other features (most importantly the app store) that they were willing to tolerate a lousier phone experience. As this mobile payments joint venture makes further announcements which aren’t filtered through the gullible media we may all learn that these companies have developed a very compelling solution.
For now, though, the announcement of this JV doesn’t pass my five screening rules for identifying ventures that could go somewhere from those that can’t. Investors in payments companies should be looking, in particular, for whether they have come up with an offering that is a lot better than swiping a card and whether they have a plausible ignition strategy for getting a critical mass of consumers and merchants on board.
In the meantime, while there are many reasons why the folks at MasterCard and Visa may not be sleeping well at night, this hookup of rivals AT&T and Verizon with Discover and Barclays shouldn't be one of them.
David S. Evans is an economist and a business advisor to payment companies around the world. His recent work has focused on helping companies create, ignite and profit from payments innovation. He is the originator of the Innovation Ignition Framework® , a tool provides a systematic way for companies to evaluate and implement innovative ideas and achieve critical mass.
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AT&T or Verizon are infrastuctire providers. Besides technology, only financial institutions that would efficiently manage consumer risk, settlement failure risk, dispute resolution etc and have a credible global accepatance could replace visa/mastercard, at least in the near future.
In m-commerce (a la e-commerce or even online payments), IRRESPECTIVE of the access/transmission mechanism/vehicle, commerce, ie exchange of goods & services for payments, remains the core concern. Hence the vital issue of those risk management and credibility. TMobile or Nokia may readily replace BT or Verifone, not Visa/MasterCard (as institutions, not the plastic card).
Visa/MasterCard (and the 4,000 odd banks behind them) have always been adapting to new technology when it becomes commercially imperative and economically viable. They don't need to have "first mover" advantage because with their global branding/network and deep pockets they always eventually capture the market (even IBM did similarly with the advent of PCs).
Let's not get confused with new technology. "Plastic" cards' plastic handling technology is temporal, but the underlying FINANCIAL relationship handling is more fundamental. [Let's recall that even historically Visa (as BankAmericard) started with no processing capability of its own -- with FDR's help.]
Posted by Andy Ray, 09/08/2010 2:53pm (2 years ago)
AT&T or Verizon are infrastuctire providers. Besides technology, only financial institutions that would efficiently manage consumer risk, settlement failure risk, dispute resolution etc and have a credible global accepatance could replace visa/mastercard, at least in the near future.
In m-commerce (a la e-commerce or even online payments), IRRESPECTIVE of the access/transmission mechanism/vehicle, commerce, ie exchange of goods & services for payments, remains the core concern. Hence the vital issue of those risk management and credibility. TMobile or Nokia may readily replace BT or Verifone, not Visa/MasterCard (as institutions, not the plastic card).
Visa/MasterCard (and the 4,000 odd banks behind them) have always been adapting to new technology when it becomes commercially imperative and economically viable. They don't need to have "first mover" advantage because with their global branding/network and deep pockets they always eventually capture the market (even IBM did similarly with the advent of PCs).
Let's not get confused with new technology. "Plastic" cards' plastic handling technology is temporal, but the underlying FINANCIAL relationship handling is more fundamental. [Let's recall that even historically Visa (as BankAmericard) started with no processing capability of its own -- with FDR's help.]
Posted by Andy Ray, 09/08/2010 2:52pm (2 years ago)
AT&T or Verizon are infrastuctire providers. Besides technology, only financial institutions that would efficiently manage consumer risk, settlement failure risk, dispute resolution etc and have a credible global accepatance could replace visa/mastercard, at least in the near future.
In m-commerce (a la e-commerce or even online payments), IRRESPECTIVE of the access/transmission mechanism/vehicle, commerce, ie exchange of goods & services for payments, remains the core concern. Hence the vital issue of those risk management and credibility. TMobile or Nokia may readily replace BT or Verifone, not Visa/MasterCard (as institutions, not the plastic card).
Visa/MasterCard (and the 4,000 odd banks behind them) have always been adapting to new technology when it becomes commercially imperative and economically viable. They don't need to have "first mover" advantage because with their global branding/network and deep pockets they always eventually capture the market (even IBM did similarly with the advent of PCs).
Let's not get confused with new technology. "Plastic" cards' plastic handling technology is temporal, but the underlying FINANCIAL relationship handling is more fundamental. [Let's recall that even historically Visa (as BankAmericard) started with no processing capability of its own -- with FDR's help.]
Posted by Andy Ray, 09/08/2010 2:52pm (2 years ago)
AT&T or Verizon are infrastuctire providers. Besides technology, only financial institutions that would efficiently manage consumer risk, settlement failure risk, dispute resolution etc and have a credible global accepatance could replace visa/mastercard, at least in the near future.
In m-commerce (a la e-commerce or even online payments), IRRESPECTIVE of the access/transmission mechanism/vehicle, commerce, ie exchange of goods & services for payments, remains the core concern. Hence the vital issue of those risk management and credibility. TMobile or Nokia may readily replace BT or Verifone, not Visa/MasterCard (as institutions, not the plastic card).
Visa/MasterCard (and the 4,000 odd banks behind them) have always been adapting to new technology when it becomes commercially imperative and economically viable. They don't need to have "first mover" advantage because with their global branding/network and deep pockets they always eventually capture the market (even IBM did similarly with the advent of PCs).
Let's not get confused with new technology. "Plastic" cards' plastic handling technology is temporal, but the underlying FINANCIAL relationship handling is more fundamental. [Let's recall that even historically Visa (as BankAmericard) started with no processing capability of its own -- with FDR's help.]
Posted by Andy Ray, 09/08/2010 2:52pm (2 years ago)
David,
You called this one right on. Having all the right players is just the first step...the easiest. Having a bank that will act like a bank, a network that will act as a network and two Telcos, is just the beginning of the problem. These companies have so many layers that they won't get anything done. First things to decide is who owns the customer, the transaction and the account. I am sure that discussion will be interesting...
Posted by Philllp Huston, 07/08/2010 9:36pm (2 years ago)
Mobile payment devices (i.e., phones) are only another form factor; simply an alternative to a plastic card at the POS in the US. AT&T and Verizon rightly want to gain some form of rental for the extended use of their hardware. However, it's doubtful that consumers will pay a meaningful premium for ability to use their phone instead of a card. The larger barriers are (a) the need to support a "universal" merchant network and (b) learning how to manage credit losses inherent in a payment network. The phone companies have generally been selling their own goods with virtually no hard dollar cost to them if a consumer fails to pay. This also sets them up as competitors to banks if they are extending credit and an unwelcome intermediary if the transaction is debit. Using the phone to execute POS payments in the US will be a long time coming.
Posted by Warren, 05/08/2010 6:00pm (2 years ago)
Nonissue. Fact is there are so many unexamined verticles, that the business for mobile apps will boom. I am certain of it. MC and VISA view the world through filters, AMex has their owm plans and Disc is still in their parking spot from 1991, and that is their collective problem. Let's talk Visa and MC ~ Neither will be as big of market % in 15 years and if US Congress and other governemnt change interchage, which amounts to a toll charge for us ine the brand, they are toasted. They simly do not have the MOJO on board to position themselves for the long haul. Too busy looking in the rear view mirror, vs trying to peek around the corner ahead. Plus the US will not lead the MObile assault. Carrier greed, endorsed by Congress and FCC, inhibits competition. http://www.whitehall.ws
Posted by Tom, 05/08/2010 5:59pm (2 years ago)
Well, as many people feel, the hype is great but the practicality of mobile payment networks is a difficult one to swallow. There is virtually no infrastructure, as the article mentions. Moreover, as the economy continues to slowly recover I feel merchants will be slow to take on unproven payment methods. From that perspective I say we are at least 4 years from any significant change...and by then who knows, Visa and MasterCard will more than likely introduce their own version of mobile payment.
Posted by Ted, 05/08/2010 9:59am (2 years ago)
Technology will rule tomorrow world. As all of us agree to this view, this will be one more add a feather to the cap of technology. I am not sure if we can completely get rid of credit and debit cards as educating the merchants would constantly be a challenge to the bank. My only guess is it may result in banks shrinking the number of ATMs or due to mobile payments resulting in lesser and lesser cash withdrawl. There may be a situation wherein cash is required only for any non-vendor related payments like travel in local bus, pay a local vegetable vendor etc due to this facility. With consolidations happening every industry, there may be few banks that may even merge with the feasible telecom operator to make the processes internal, more stringent, confidential and economical.
Posted by Shreevidhya, 05/08/2010 9:48am (2 years ago)
This JV, regardless of distinctive success near or long term, has ignited the debate.Mobile Commerce will no longer viewed as a niche sector.
The m-pesa movement has been singular in its Continental environment success. This JV could become the start of ubiquitous future everyday occurrences on a global basis.
This type of JV history has a successful member Enstream of Canada, albeit a long frustrating existence as WPS Wireless Payment Systems before being re-branded and re-purposed with Robin Dua and Aran Hamilton as the new exec team and they have a nascent service called zoompass.
The Visa / MC hierarchy are hardly concerned yet....
I hear they are looking for someone to steer this ship as well, a challenge that would be daunting to say the least however fun as well.
I will observe this play with great interest
Ciao for now
Posted by Charles, 03/08/2010 6:22pm (2 years ago)
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