PARIS–Amid the steady drumbeat of recent mobile-payments announcements, interoperability has emerged as the watchword for developers as they bring their new innovations to market.
In the U.S., where mobile-payments systems are in their infancy, competing approaches to enabling consumers to transact with their phones are taking root. That several parties are involved in the development generally would be considered good from an innovation standpoint, ensuring that when the right model or models emerge the physical infrastructure would be available to support them.
But there is also the risk of creating too much fragmentation, leading to a tangled web of hardware and software certification standards by which participants must abide, industry executives said here this week at the Cartes & Identification conference and exhibition. That, in turn, could make it difficult for any one system to attract the level of consumer adoption that experts say is necessary for a mobile-payments system to last.
“The customer must have the opportunity to have the same experience whatever his operator and whatever his bank,” Nicolas Houery, the director of the European Mobile Payment Association, said Dec. 7 through an interpreter.
Experts point to the strategy that the association, a consortium of European banks and telecommunication companies, has taken in piloting mobile payments based on Near Field Communication technology embedded inside of mobile phones as a potentially successful model other regions could replicate.
In late 2007, the group launched two pilots in the French cities of Caen and Strasbourg that involved about 1,000 customers and 500 retailers. That the group has participation from several wireless carriers, including Bouygues Telecom and Orange, which is part of France Telecom SA, and from financial institutions has helped in developing a system scalable nationwide, Houery said.
“Interoperability ... is crucial to our operations,” Houery said, noting industry stakeholders have been able to work in concert with Visa Europe and MasterCard Worldwide and with organizations in charge of developing certifications to build standards that encompass all participants.
The group has since started testing in the French city of Nice and plans for a nationwide rollout of its Payez Mobile system in 2012.
Indeed, consistent standards play a crucial role in consumers’ satisfaction, Patricia Partelow, vice president of network emerging payments at American Express Co., said during a presentation at Cartes, pointing to France as an example of a smart approach. “What we’ve heard is that when customers do get a good experience, as they have in France, satisfaction is high,” Partelow said.
That satisfaction helps companies participating in different systems to build their business case, with “the key factors being ubiquity, ease of use [and] interoperability,” Partelow said.
“That really just drives the need ... for standards,” she added.
The European Mobile Payment Association’s approach hinges on systems “that are very much already in existence” on the banking side, Houery said. “It’s true for a dialogue between mobile handsets and payment terminals, that’s pretty new,” he said.
In May 2009, the association published 600 pages of technical documents covering all aspects of mobile payments “using Visa bricks and MasterCard bricks,” Houery said.
Ideally, a successful mobile-payments system in the U.S. would be able to scale globally, Partelow said.
Because of that, payments networks, banks and other parties should carefully weigh the speed with which they go to market with new technology and how they devise an approach applicable in multiple settings.
In the U.S., much of the development taking place is by “first movers” who are “wanting to come out ahead and capture a certain share, a position, in the market,” Partelow said. Ideally, a mobile-payments system would be open enough so that if a consumer is “a Sprint customer and an AmEx cardmember” they “wouldn’t have to choose” a different carrier or card brand to participate.
There is recognition that collaboration is needed between multiple parties, Partelow said, noting that the Federal Reserve banks of Boston and Atlanta have hosted a series of meetings on mobile payments in recent months with payments and telecommunication executives (see story).
Mobile payments in the U.S. could reach $214 billion in gross dollar volume by 2015, up from $16 billion in 2010, according to a report from Aite Group LLC in Boston. The figures include transactions involving mobile bill payments, mobile contactless payments, carrier billing transactions and others.
Mobile contactless payments could account for $22.6 billion of the 2015 projection, according to the report.
Mobile payments, particularly those made with contactless technology, still face several barriers to adoption.
The Federal Reserve Bank of Boston noted in a May 2010 report that mass “deployment of NFC-enabled mobile phones, along with the requisite merchant readers, is costly, and the immediate benefits to each party appear to be small, given the widespread adoption and use of credit and debit cards in the United States.”
There is evidence that U.S. players are attempting to work together to bring mobile contactless payments to the masses, though their approaches are limited in their own ways, experts have said.
Visa is working with four U.S. banks–Bank of America Corp., JPMorgan Chase & Co., U.S. Bancorp and Wells Fargo & Co.–on mobile-payments trials that involve issuing microSD cards to consumers to use with certain Apple Inc. iPhone, Research in Motion Ltd. BlackBerry devices and smart phones that use Google Inc.’s Android operating system.
Visa on Dec. 7 said it was making its specifications for the hardware and software needed to offer the system commercially available to its issuing banks. DeviceFidelity Inc. is supplying the microSD chips, which banks would provide to their customers (see story).
Analysts and industry executives have debated whether such an approach will be eclipsed by handsets that come pre-embedded with NFC chips from the onset, but experts agree that it allows financial institutions to go to market with a contactless system that works with existing payment-terminal technology.
Deepak Jain, DeviceFidelity president and CEO, said during a presentation Dec. 7 that its microSD approach is compatible with the major mobile operating systems in use today.
Data projections from recent years have predicted an explosion in the number of mobile NFC users and mobile-payments transactions, but “there has been a disconnect in what some of those numbers project and what is actually happening in the field,” Jain said.
He cited a lack of an agreement on a business model that satisfies all players, including wireless carriers, banks and payments networks. For a system to succeed, “you need to have a very large number of developers ... that are developing on the” platform “to really inspire adoption,” Jain said.
Isis, the mobile-payments network being developed by a joint venture that includes AT&T Inc., T-Mobile USA and Verizon Wireless, represents some movement toward cooperation among the various players in the U.S. Isis transactions are to be routed over Discover Financial Services’ network. Barclaycard US, part of Barclays PLC, is the first issuer that has agreed to participate (see story).
Competitors to Isis, including the other card networks, say the system will be challenged to gain adoption because of its closed nature, though Isis’ operators have said their goal is to collaborate with other carriers and banks.
“The challenge that Isis will have is to reterminalize all those merchants to a terminal specification that is proprietary,” Geoff Iddison, MasterCard group executive for e-commerce and mobile, said during a Dec. 7 presentation. MasterCard has done about 100 NFC trials in 38 countries since 2008, Iddison said.
On Dec. 7, the payments network announced it was moving from pilot to commercialization with an NFC mobile payments application in Turkey. It also plans to begin a trial with a major U.S. issuer in the first quarter of 2011 involving microSD cards, the company said in November (see story).
Depending on how Isis moves forward, the system “won’t have applicability to our card members,” American Express’ Partelow said in an interview.
“They would have to have a value proposition that would get [our card members] to migrate” to Isis, Partelow said. “At the end of the day, from the data we’ve seen, people want choice,” she said.
Still, the fact that Isis’ participants are working on the system should have a positive effect on efforts to advance mobile payments in general.
“It just helps to reinforce that mobile payments are important, and many different players need to be involved,” Dave Wentker, Visa head of mobile development, said in a Dec. 7 interview.
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