Mobile 206 Lesson 2: Emerging Mobile Evolution
Lesson 2 Discussion Board: What kind of incremental and unique value proposition might make a new mobile NFC private label credit product more successful? Click Here to respond.
Mobile Payments from Mobile Players: As we wrapped our last class we were discussing how a mobile operator might decide to engage more directly in originating consumer payments from a mobile device, particularly for products and services provided outside of the operator’s direct model. While adding services to the operator bill might make sense for small transactions, digital goods, or operator-related services, it is a much more complicated thing to negotiate the provision of payments into a registered card –on file with the operator for recurring bill payments—for products or services ordered remotely where the operator may have to assume risk on the bill during the period between consumer purchase and mobile bill settlement. This gets particularly challenging if the size of the purchase is large (i.e.: greater than the consumer’s average monthly bill) or if the purchase of the item may be disputed or the item may be returned.
Certainly these are not insignificant challenges – managing a consumer payment system usually comes with all of these operational challenges, as many who have tried to start a new payment service have learned. However, these challenges are not new, just perhaps new to a mobile operator contemplating the provision of a payments service through its network. The solutions to most of the challenges presented are available within existing general purpose card networks, so why not adopt one of those –especially one with a broad base of current merchant acceptors– as the payment mechanism? Why not engage with the largest payments networks to use the existing card on file registered by your consumers as the payment vehicle for new transactions, negotiating for a share in the transaction revenues associated with bringing new transactions to the network? Who knows?
You might decide the answer lies down that path, but perhaps your only direct experience of engagement with those networks was in trying to work through the Gordian knot that is the GPC mobile NFC business case – a question of “who gets what from whom for spending where to generate what new transactions from which consumers?” Perhaps your experience of that interaction comes from back in the time when the top networks were both owned and governed by their largest beneficiaries – the major issuers of network cards—and you’ve concluded that banks are not interested in sharing revenues with mobile operators? Who can say for certain, but some combination of frustration with major networks and brands, combined with anticipation of the potential to capture first-mover advantage in general purpose mobile payments, has informed recent news about three of the major operators in North America. And the solution proposed, while wholly owned and managed by the operator triumvirate, will be challenging to seed and grow in the marketplace.
New Phone, New PoS Terminal, New Consumer Behavior, New Payment Type, New Provider, Existing Network Used in New Way? No Problem. We ask this question, slightly extend here, from the last class: Could it be that the place the mobile and payments industries decided to begin in their quest to create the killer consumer combination might have been the last place they should go? As announced by Bloomberg in early August, three US carriers (AT&T, Verizon, and T-Mobile) are planning to market a new private label credit card to consumers that will ride the Discover acceptance network, originate transactions via NFC processing at the point of sale, and access a credit account facility underwritten and managed by the US division of Barclay’s. Rather than repeat the operational and business hurdles faced associated with this proposed new payments network, we may refer to the following article on PYMNTS.com for initial analysis. The challenges may perhaps best be summarized as a combination of all the market adoption hurdles associated with mobile NFC for GPC payments, as outlined in our last class, with the additional challenge of persuading consumers to adopt a new private label credit product from a new provider.
What is most interesting for our debate, is “why this approach” to launching a mobile payments product in the US marketplace? If the recent history of failed innovation ignition of contactless payments in the US has taught payments executives anything, it is that a new form factor must have a unique value, broadly applicable, and improve a current consumer behavioral need. This is particularly true of new technologies that need both sides of the transaction, merchants and consumers, to adopt at the same time to ignite the innovation and drive growth. Requiring the consumer and merchant to also adopt a new payment form – private label credit – even if on an existing network, introduces even more challenge to the success of the enterprise.
So why go down this path as a first step? From the outside-in, it seems a pretty complicated approach to going after the opportunity to drive consumer payments from a mobile device. Perhaps – but only if it this seemingly more complex approach is viewed in the context of the other options the operators reviewed. In the last course we’ll take a look at one of the approaches they may have considered, and why it may or may not have made more sense as a mobile payment launch. We’ll also ask some questions about what other value propositions may be a part of the mobile product launch that could make it more compelling.
But before we get to that question tomorrow, let’s hear your opinions today on the question below…
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