Isis, a consortium of three major U.S. wireless carriers, has reportedly decided to back off plans for a new, separate mobile payment network and will instead work within traditional systems that include major credit card processors such as Visa and MasterCard for mobile transactions.
The carriers in Isis -- AT&T, Verizon Wireless and T-Mobile USA -- will still move ahead with a pilot test planned for 2012 in Salt Lake City using near field communication (NFC) technology inside smartphones . Isis will continue to work with Discover Financial Services, a smaller credit card processor, and Barclaycard U.S. in the venture, but not exclusively as before, according to unnamed sources cited by the Wall Street Journal .
Isis officials did not respond to a request for comment.
The change in Isis' direction is a recognition that setting up mobile payment systems are enormously more difficult than putting NFC chips in a smartphone and installing NFC readers in stores and at transit stops, at least in the U.S., analysts said. Isis originally wanted payments made by smartphone-carrying consumers for their transit trips and drug store visits to be made to the carriers rather than to their banks. However, U.S. consumers are used to working with credit cards such as Visa, which processes payments for many of the largest U.S. banks and accounts for more than half of annual U.S. credit and debit card payments.
"The wireless phone companies are never going to own the customers, especially when it comes to payments," said Avivah Litan, an analyst at Gartner in reaction to the Isis news. "Consumers will never change from banks to phone companies for payments and this development is clearly an indication of that."
Mark Hung, another Gartner analyst, said the Isis move had been rumored for a while and makes the most sense. "Different players in the new NFC ecosystem clearly want to make NFC payments work on the smartphone, and they want to make sure that it's widely adopted without any splintering at the outset," he said. "Isis very quickly understood that, despite having the support of three of the top four carriers in the U.S." (Hung said Sprint was also included originally but backed out over the perceived costs involved.)
What Isis realized is that "carriers aren't the best payment processors ... and Visa and MasterCard are much more recognizable brands than 'Pay with Isis,' " he said. Isis not only reached out to Visa and MasterCard , but to banks other than Barclays, including Citibank, which has already run NFC trials globally.
While some perceive a battle over which parties control the secure element in a smartphone used for making NFC payments, Hung said "it is not as big of a deal," since the owner of a payment application will have a cryptographic key to fully control the app regardless of who provisioned the smartphone. Secure elements inside credit cards, whether on a smart chip or magnetic strip, contain personal information about a user to allow a payment to be made.
Wireless carriers are hoping to have a secure element put in a SIM chip, while smartphone makers, such as Research in Motion, and Android maker Google want to store the security credentials on an NFC chip or embedded in the phone itself, Hung said.
Initial smartphones with NFC will probably have both embedded and SIM-based solutions. A group of companies, called trusted service managers, that include companies such as smart-card vendor Gemalto , will emerge to act as neutral third parties to provision NFC capabilities.
In Japan, where NFC smartphone payments are widely used for small retail purchases and transit rides, wireless carrier NTT Docomo "played the role of the trusted service manager and brought together a cooperative of merchants, banks and carriers to make things work," Litan said.
Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed . His e-mail address is mhamblen@computerworld.com .
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