Isis, a consortium of three major U.S. wireless carriers, has reportedly decided to back off plans to develop a new, separate mobile payment network and will instead work within traditional systems that rely on major credit card companies like Visa and MasterCard to process 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 of a system using near field communication (NFC) technology inside smartphones. And Isis will continue to work with Discover Financial Services, a smaller credit card processor, and Barclaycard U.S., 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.
Isis' change in direction is an acknowledgement that setting up a mobile payment system is much more challenging than putting NFC chips in smartphones and installing NFC reader terminals in stores and in public transit stations, at least in the U.S., analysts said. In its original plan, Isis wanted payments that people made with smartphones to be made to the carriers rather than to banks. However, U.S. consumers are accustomed to having their payments handled by companies like Visa, which processes payments for many of the largest U.S. banks and whose cards account for more than half of all U.S. credit and debit card transactions.
"The wireless phone companies are never going to own the customers, especially when it comes to payments," said Gartner analyst Avivah Litan 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 a good deal of 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 concerns about the 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 reached out not only to Visa and MasterCard, but also to banks other than Barclays, including Citibank, which has already run NFC trials globally.
While some point out that there's a battle over which parties control the secure element in a smartphone used for making NFC payments, Hung said that issue "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 in a smart chip or on a magnetic stripe, 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 companies, such as BlackBerry maker Research In Motion and Android developer Google, want to store the security credentials on an NFC chip or embed them in the phone itself, Hung said.
Initial smartphones with NFC will probably have both embedded and SIM-based systems. A group of companies called trusted service managers, including companies such as smart-card vendor Gemalto, will emerge to act as neutral third parties to provision NFC capabilities.
In Japan, where NFC-equipped smartphones are widely used to pay for small retail purchases and transit tickets, 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 email address is firstname.lastname@example.org.