Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Would you be willing to pay for coffee, a new sweater, or a movie ticket simply by tapping your cell phone against a terminal? Major U.S. wireless carriers are betting that you will.
Considering that most people would rather lose their wallet than misplace their cell phone, it’s fitting that the mobile world is quickly becoming a new hub for business. This change in the consumer dynamic is gaining momentum with the telecommunications giants in the United States. AT&T Mobility, T-Mobile USA Inc. and Verizon Wireless recently announced the formation of a joint venture chartered with building ISIS, a national mobile commerce network that aims to fundamentally transform how people shop, pay and save. ISIS will build a mobile payment network that enables mobile phones to make point-of-sale purchases by utilizing smart phone and near-field communication technology to modernize the payments process. NFC uses short-range, wireless technology to enable the encrypted exchange of information between devices at a short distance. The new system is being designed and built to include strong security and privacy safeguards, and will deliver new levels of competition and value to consumers and merchants.
While the concept and hype that surround mobile payments is not new, the ISIS venture is quickly establishing credibility. Led by CEO, Michael Abbott, a former executive at GE Capital, ISIS has partnered with Barclay’s plc and Discover Financial Service’s network to utilize their global payment network, which is a capability that has been lacking in other failed adoption initiatives of years past. Although ISIS is just getting started, there is an indication that it will open up its “PayWithThis” solution to other carriers, banks and merchants and plans to expand over the next 18 months to key markets in the United States. Essential to the success of this project will be the willingness of U.S. consumers to change their way of paying for just about everything; similar to the previous adoption of ACH payments in lieu of checks. NFC technology is not new to the mobile commerce world either. For example, NFC use in Japan and Korea is proving to be useful in many applications of everyday life; however, NFC adoption in the United States will be dependent upon three major factors; handset functionality, banking direct acceptance and merchant adoption.
Handset functionality
NFC hardware adoption has been an issue because it requires users to replace their phones for devices with the capable technology. Today things are starting to change and in the coming years NFC, like GPS, may well be a defacto component of most phones. The three major carriers within ISIS represent more than 200 million users, and the vast majority of those users get their handsets from the three major carriers. Each mobile operator in the joint venture has committed to ramping their lineup of phones to include NFC-enabled devices over the next two years. Going forward, the majority of smart phones shipped will support no-contact mobile payment solutions. NFC will be included in handsets from Nokia Corp. (~40% share of global smart phone shipments), handsets from Research In Motion Ltd. (~24% U.S. smart phone shipments), Apple Inc.’s iPhone 5 (iPhone accounts for ~26% of U.S. smart phone shipments) and possibly Google Inc.’s Android OS (~44% of U.S. smart phone shipments), though some Android handsets may not include an NFC chip. There is definitely big momentum behind NFC. The stakes are high for companies looking for a piece of the mobile-payments market, and it makes sense to go after what Juniper Forecast estimates to be a $633 billion market for mobile payments by 2014. However, it remains to be seen how much the carriers’ efforts with ISIS will contribute to that total.
Banking direct acceptance
ISIS has said its payment process will work though applications – the consumer would essentially walk into a store with a capable device, open up the app, tap the phone near a capable NFC terminal and their purchase would be complete with a digital receipt. They plan to create a mobile wallet that ultimately eliminates the need for consumers to carry cash, credit and debit cards, reward cards, coupons, tickets, building IDs and transit passes. The mobile industry will be in direct competition with the credit card industry. The traditional card networks, such as Visa and MasterCard, are not taking ISIS’ new initiatives lightly as they too have been working on their own NFC initiatives. In December 2010, Visa said it supported commercialization of a technology from Device Fidelity that puts NFC capability on microSD cards, which can be inserted into certain existing smart phones. Visa tested the technology for 18 months, and additional trials are ongoing with such banks as Wells Fargo, JPMorgan Chase, US Bancorp and Bank of America.
Merchant adoption
Getting the merchants to install capable technology may be another challenge, but it is likely that major players will create demand for the service through broader and tighter integrated solutions. Convenience and value will ultimately drive adoption and consumers can look forward to financial benefits such as: credit and rewards management, budgeting, person-to-person domestic and international transfers, and financial planning. The user will be able to take advantage of time saving integrations like self-checkout without a kiosk, scan and go solutions such as AisleBuyer, digital wallet integration for transit passes, health insurance, medical info, employee and building identification cards, location enabled mobile coupons, and tickets. Consequently, improving service with faster credits and rebates, and aiding in vital storage management of receipts and warranty information. Not to mention interconnected communities enabling users to share ratings of vendors and product reviews. Merchants will quickly realize that letting people pay with their phones can lead to beneficial experiences for all of those involved.
We are entering a highly innovative and creative period for retail. Never before has it been so easy to shop, anywhere, anytime from the palm of your hand. There is an enormous amount of ongoing market research, and though there have been a variety of estimates, all conclude that mobile commerce is a profitable and rapidly growing market. Mobile online shopping growth and the new mobile payment technology in the United States have been fueled this year by the massive migration of consumers to smart phones, the explosion of innovative use-cases deployed by retailers and third-party players and a significant shift in consumer behavior as more consumers choose mobile commerce over traditional shopping. By bringing together merchants and consumers, the mobile commerce network is set to provide an enhanced, more convenient and more personal shopping experience. It’s going to be a slow ramp, but, ISIS and the wave of mobile payment startups that spring up will finally bring mobile payments to the mainstream with greater benefit than ever imagined.
Elizabeth Foster is responsible for leading business development efforts, managing client relationships, strategic partnering, and delivering program engagements for selected tier-one clients. Foster is recognized for her telecom industry insight having over twelve years of professional experience with leading edge technologies and strategic sales in the telecommunication industry. Prior to joining TMNG Global, Foster had a distinguished career with Intergraph Technologies, MCI, Digital Media Technologies, and Verizon. More industry research, analysis, and consulting services available from TMNG Global can be found online at http://www.tmng.com.
