The Isis Mobile Wallet initiative has suffered a setback with Capital One and Barclays pulling out of current testing, but the Isis venture has many issuers staying on to fuel its upcoming nationwide launch.

Isis has already confirmed that it will continue to work with JPMorgan Chase and American Express, and Isis is forging new relationships with payment terminal providers. But Capital One informed its cardholders this week that its own credit and debit cards are no longer available in the Isis Mobile Wallet, Capital One spokesperson Chris O’Neill says.

“We will continue to work with Isis to evaluate options for a continued presence in the Isis Mobile Wallet,” O’Neill stated in an email message.

O’Neill declined to comment about options it is evaluating for a future relationship with Isis, a joint venture backed by wireless carriers AT&T, Verizon Wireless and T-Mobile. The bank supported Isis before its year-long tests in Salt Lake City and Austin, Texas.

Isis issued a similar statement, indicating it would continue to work with Capital One. Isis also confirmed it would continue to work with Barclaycard, whose cards are no longer available through the Isis wallet. Barclaycard, the first issuer to sign on with Isis, did not respond to inquiries before deadline.

Isis allows issuers to place their own mobile-wallet widgets in the Isis app. Consumers can also use any credit or debit card to fund the app’s Isis Cash card, a virtual prepaid card issued by JPMorgan Chase. Isis relies on phones with a built-in Near Field Communication chip to make contactless payments at the point of sale.

Capital One told its customers that it gained “valuable feedback” from the cardholders who used Isis to make mobile payments, but it did not elaborate on whether the feedback was negative or positive. The bank also did not say whether that feedback would help it negotiate a future relationship with Isis.

The news from Capital One creates some uncertainty alround the Isis project, but the venture can still point to JPMorgan Chase, which has publicly stated it will continue its support of Isis during the national launch.

Isis also considers its partnership with American Express a significant victory. The companies are integrating Amex’s software with the Isis app to enable users to access Isis accounts with Amex’s Serve prepaid accounts.

In a recent interview for the print edition of ISO&Agent, Isis’ business development executive Tony Abruzzio noted that Isis also holds strong appeal for prepaid card users.

“People were buzzing about Isis at the recent prepaid conferences,” Abruzzio said. “It means that consumers unhappy with banks, or who don’t use credit cards, can get the Isis wallet in their hands through Serve.”

Consumers participating in the Isis test were essentially using the wallet to replace cash for everyday spending at gas stations and grocery stores, Abruzzio says.

It’s too early to tell if Isis plans to refocus on debit and prepaid consumers, in light of the departure of Capital One, which does not provide a prepaid product, says industry analyst Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group LLC.

JPMorgan Chase lists its credit and debit cards on the Isis site, but not its Liquid prepaid product. Chase did not respond to inquiries before deadline.

“Everyday spend matters most in terms of building the consumer habit and confidence level in the wallet,” Ablowitz says. “But for Isis to be successful, it has to have ubiquity in options and acceptance.”

It’s possible Capital One will reconsider its stance after Isis makes its national launch or adds new features through a software upgrade, Ablowitz says. Isis has hired Mutual Mobile, the developer behind the iPhone version of Google Wallet, to overhaul the Isis app.

Abruzzio acknowledged Isis has upgraded its wallet since its first version began testing.

“We had Isis Wallet 1.0, and you have to expect improvements to the wallet, putting in place what we’ve learned and improved,” Abruzzio said in the interview last month.

It’s always disappointing for a mobile wallet provider to lose a card-issuing bank, but Isis’ biggest challenge remains the lack of smartphones with NFC capabilities, especially Apple’s iPhone, Ablowitz says. Isis has acknowledged plans for an iPhone version, and in January Incipio Technologies unveiled an Isis-compatible NFC case for iPhone users.

The competing Google Wallet, an initiative also founded on NFC technology, made its move recently to get around the slow buildup of NFC infrastructure by revealing a new iPhone and Android mobile app that places more emphasis on person-to-person payments.

Even though Isis has provided “limited information” on how consumers are responding to the tests, the fact that the joint venture continues to spend money and keeps moving forward toward a national launch seems to indicate the consortium remains confident about its product, Ablowitz says.

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