First Data Corp. signaled its plans to become a major player in the emerging mobile-payments arena when it launched a new m-commerce division early this year led by Barry McCarthy.
Mobile commerce is still in its formative stages, but McCarthy, president of mobile commerce solutions at First Data, predicts payment systems that enable consumers to conduct many transactions using their cell phones will be a significant force globally by 2010.
With its own global presence, First Data is well-positioned to play an intermediary role in the evolving m-commerce arena, McCarthy believes. One of the Greenwood Village, Colo.-based transaction processor's objectives is to help connect the various parties involved, including banks, card networks, merchants and mobile telecommunication carriers. In this role, termed by some as "trusted service manager," First Data would manage m-commerce services and act as a liaison among the various parties.
Though such an opportunity has yet to take shape, First Data is not waiting for others to take action to propel the m-commerce market. This year, the processor participated in its first m-commerce pilot, and it plans to roll out a prepaid contactless offering later this year. Although prepaid is the first stage, McCarthy says full mobile payments, with mobile banking and account services, will eventually follow, with mobile marketing playing a big role in driving retailer incentives and development.
First Data's m-commerce pilot took place in San Francisco between Jan. 30 and May 30. During the test, 230 participating consumers were able to cover payments for Bay Area Rapid Transit District fares and purchase food from Jack in the Box restaurants by tapping specially equipped mobile phones on contactless-payment terminals. The test used Samsung-manufactured cell phones provided by Sprint that were embedded with Near Field Communication technology. The chips enable two-way communication with payment terminals and other devices also equipped with NFC chips.
Stored-value technology enabled users to load up to $48 (30.20 euros) into their m-payment accounts. Participants could reload the phones with more funds wirelessly or in person at Sprint retail stores, or they could opt to have funds automatically loaded to the phones using their card information when balances dropped below $10.
The pilot also showcased the role marketing and promotions could play in propelling m-commerce development, McCarthy says. By tapping their phones on NFC-enabled advertisements placed on transit-station walls, for example, participants received information from Jack in the Box.
First Data next plans to roll out a prepaid contactless-payment sticker called the "Go-Tag," which McCarthy hopes will bridge the gap between the marketplace's burgeoning number of contactless-payment terminals and its lack of NFC-ready phones. The Go-Tag sticker, approximately one-inch square, attaches to the outside of a cell phone and functions much like a contactless prepaid card. The goal, says McCarthy, is to get consumers into the habit of tapping their cell phones on contactless terminals for most payments. First Data could not confirm plans to link Go-Tag to Visa, MasterCard and other card network brands.
When NFC phones become widely available, which McCarthy expects to occur within about two years, consumers already will know the drill. Two Go-Tag pilots began earlier this year at undisclosed corporate cafeterias, according to McCarthy.
Kate Fitzgerald, Cards&Payments associate editor, spoke to McCarthy recently to get his views on why First Data is betting on mobile commerce, where the opportunities lie and what roles First Data expects to play.
Q: Why is First Data entering mobile commerce, and what is your mission within the division?
A: Last year, First Data's leaders started looking at a handful of emerging markets to determine their potential and to see if there was a play for the company. We quickly determined that the entire payments landscape ultimately will migrate to cell-phone handsets that just about every consumer carries today. This movement represents an enormous opportunity for us to take our core magnetic stripe product and find a way to put it into the wireless world so that payments can be managed on a mobile device. My mission is helping the company find a path to build the right products, in the right sequence, and eventually help increase our share of payments as part of this evolution.
Q: Why is it taking so long for mobile commerce to arrive?
A: The biggest obstacle we have faced is the fact that mobile-commerce technology has not been ready. NFC technology has gone through many different variations. The cost of NFC needed to come down. The point-of-sale environment wasn't ready with contactless terminals. All of those things are starting to come together. We are starting to see more and more contactless-payment terminals. Phone manufacturers, including Nokia, Samsung, Motorola, LG, Sony Ericsson and others all are readying mobile-commerce technology right now. The final obstacle is finding the various business models and formulas that will make mobile commerce possible on a broad scale among many players.
Q: Is a tug-of-war for control among banks, card networks, telcos and retailers also hobbling mobile-commerce development?
A: Yes. Banks would probably tell you all the customers are theirs first, and other parties are less important. The telcos would probably say every consumer has a cell phone, so they should lead the charge. Every party seems to want the other guys to go in the back seat while they drive. The problem we want to solve is how to get all parties working together in a collaborative fashion. That's where we see a role for First Data acting as an intermediary between parties.
Q: Describe the "trusted service manager" role and why First Data is eyeing this opportunity.
A: The trusted service manager is a neutral third party that would link banks, card networks, other payment systems, retailers and telcos participating in mobile commerce. In First Data's present role in payment processing, we enable payments between all parties agnostically. That's our core business. Whether the payment is originated with any kind of credit, debit or stored-value card, and is made to any kind of business, we facilitate the commerce between all parties. We intend to play a similar role as the trusted service manager in mobile commerce: an agnostic, Switzerland-like company that brings all the parties together. It is not clear yet exactly how that role will evolve, or when. Also, First Data is not the only company that could play this role; it seems reasonable to assume there will be others as well.
Q: In mobile commerce, the U.S. lags behind other regions such as Europe and Asia, where the Japanese telco NTT DoCoMo has successfully enabled some 28 million cell phones for mobile payments. Did First Data wait too long to make its move in mobile commerce?
A: If mobile commerce were a football game, I believe we are very late in the first quarter and things are about to explode. In the U.S., there is a feeling that mobile commerce has been promised for a long time, but it is still very far away. That is mistaken thinking. This year we saw many partnership deals struck between telcos and payment companies in the U.S. Carriers, financial institutions, handset manufacturers and chip manufacturers all have very robust mobile-commerce products in the development pipeline. We are getting involved just as all of these forces intersect.
Q: What lessons can be learned from Asia's mobile-commerce efforts?
A: There are some very good lessons we can learn from Asia, and particularly from DoCoMo's success enabling cell phones for a variety of payments. We can see from it that integrating telecom, banking and payments works. We learned that the more content that can be accessed through the handset, the higher the degree of customer satisfaction. Granted, the marketplace structure in Japan is different from in other countries, but there is no reason the benefits of that structure cannot be replicated. Integration of functions, rich content and driving new channels of revenue are the goals for mobile commerce.
Q: How do you rate the U.S. mobile-commerce pilots?
A: If you take a look at most of the mobile-commerce pilots launched so far, you see a common theme of limited scope. It's usually one mobile-phone carrier and one payment brand and one bank. Bank X issues a Visa or MasterCard to test mobile commerce with Carrier Y, which provides a very narrow focus. To be really useful, a cell phone deployed for mobile commerce must be multidimensional, so a consumer can check bank balances and loyalty points in all membership programs. The consumer should be able to pay for transit and fast food and movie tickets, and should be able to get coupons and discounts on that phone.
Q: First Data's mobile-commerce test did not directly involve MasterCard or Visa (though participants could reload their cell phones using any payment card). Are you competing directly with them?
A: (McCarthy offers no comment on direct competition.) Mobile commerce is so broad and deep, success will require the cooperation of all the players in payments to reach its potential.
Q: How should costs and revenues be divided among the potential mobile-commerce players?
A: There are many different variables and models that could emerge. For example, one model might be that card issuers, which today pay to produce plastic cards, would pay for mobile-commerce software applications to be loaded onto consumers' cell phones. Or the consumer might pay a bank to have a mobile-commerce option added to his phone. The telco might offer mobile commerce as a consumer option, much the way data plans are handled today. Any of these parties might trade mobile-commerce services for marketing offers so that a consumer might get access to free mobile commerce if he agrees to receive advertisements and promotions. It is too early to tell exactly how mobile commerce will play out for everyone, and different models may coexist.
Q: How will consumers load funds for use with the Go-Tag?
A: The Go-Tag can be reloaded in a variety of ways, depending entirely upon the objectives of the organization issuing the Go-Tag. For example, a merchant may direct its customers to a Web site for reloading using a credit, debit or virtual check. The same merchant might also accept cash reloads at its registers. A financial institution might elect to tie a Go-Tag account to an existing demand deposit account or accept cash at the teller window. Eventually, when the chip is embedded in phones, many other reload options maybe become viable.
Q: Does Go-Tag support existing card brands?
A: Go-Tag supports all existing card brands and their independent specifications. The first Go-Tag customers happen to be merchants attaching the Go-Tag to their existing consumer stored-value accounts.
Q: What type and level of fraud are we likely to see with mobile payments, including Go-Tag?
A: I believe fraud will be lower with mobile-commerce payments. Contactless payments already show much lower fraud levels than magnetic stripe cards. Retailers could require a PIN to authorize transactions, set a maximum level for transactions or register the mobile-payment service with the retailer. (Go-Tag funds are stored on a server, for easier management of lost or stolen tags.) Also, consider the fact that the mean time for consumers to report a lost or stolen cell phone is 60 minutes, compared with seven hours to report a lost or stolen traditional leather wallet. People tend to keep their phones with them at all times.
Q: So far, First Data only has tested prepaid services for mobile commerce. Any plans to enable direct payments from card or bank accounts through cell phones?
A: Prepaid is just the very first step, and a logical one given the significant footprint First Data has in the prepaid marketplace with nearly 2 billion active prepaid cards on file. Our mobile strategy eventually will include mobile account services and banking, mobile payments and mobile marketing, but we cannot disclose our exact plans yet.
Q: What incentive exists for retailers to get involved with your Go-Tag stickers?
A: We don't need all merchants, but we need a few big national brands with high volumes and lower ticket prices to come on board and put their name on Go-Tag stickers that will go on phones so that consumers can suddenly understand how convenient it is to swipe a phone to pay for things. Marketing and promotional opportunities for retailers will be a big part of this, and an incentive for retailers to be first. I envision a race among retailers to be part of this, and you will see that within 12 months.
Q: Do consumers want to be spammed by coupons when they use their phones for mobile commerce?
A: Our vision is that all advertisements and promotions would strictly be opt-in, but people would want to take advantage of these deals. They would be a lot more convenient than the way coupons are handled today, and it would require very little effort.
Q: What missing link must fall into place to ignite mobile commerce?
A: Banks and telcos seem to want to dictate what the consumer wants from mobile commerce. The truth is that mobile commerce will be driven by what consumers want, and merchants will play a much bigger role in building the model than anyone realizes. CP