Visa's mobile payment plan 'most comprehensive to date'

Merchant acceptance could still be obstacle

Visa's plan to launch a digital wallet system in the U.S. and Canada this fall is by far the largest and most ambitious of any similar initiative announced by credit card processors, banks or wireless carriers.

Visa digital wallet
Visa announced a digital wallet service that will enable people to use their smartphones to make retail purchases. (Image courtesy of Visa)

Still, Visa faces challenges when it comes to merchant acceptance of near field communication (NFC) terminals that work with smartphones and when it comes to merchants' willingness to pay transaction fees to Visa's partner banks, analysts said.

Part of what makes the announced plan so impressive, analysts said, is that Visa is already enormous: There are 1.8 billion Visa cards in use globally. More than half of U.S. credit card transactions each year are handled by Visa. MasterCard, American Express and Discover are the next largest credit card companies.

Visa runs a credit card network for 16,000 banks. On Wednesday, it named 14 banks and financial institutions that will be directly involved with the new digital wallet system, including US Bank and TD Bank Group (in the U.S. and Canada). Visa cards are accepted by more than 30 million stores and other merchants, and Visa said that its size will make it easier to encourage merchants to accept the new technology.

Visa officials said that the company's goal with its digital wallet initiative is to use NFC, a short-range wireless technology, to make it possible to complete transactions using smartphones, tablets and other mobile devices at stores and transit stops. It also wants to converge that newer technology with one-click desktop-PC e-commerce payment systems and to support easy person-to-person transactions within social networks and other online settings.

"We believe [payment] convergence is here, primarily driven by the mobile phone," said Jim McCarthy, head of global products for Visa, in a conference call. "Reliability, security and interoperability are critical to drive the electronification of payments. [This] will fundamentally change the way we interact with merchants."

Visa's announcement is "obviously the most comprehensive solution that's been announced to date," said Gartner analyst Mark Hung. "If anybody can make it happen, it would be Visa and [secondly] MasterCard. The fall 2011 availability date in North America is impressive. This is a significant step forward for the mobile wallet application."

In contrast, Isis, a consortium of three wireless carriers, has only announced a mid-2012 pilot of NFC payments in Salt Lake City, Hung noted. Visa said it will work with Isis, but it explained that Isis is not a part of the Visa plan.

Hung and other analysts said that NFC and other technologies are mature enough to make Visa's plan "definitely feasible."

Visa has been deploying NFC with digital smartcards in its PayWave technology for about five years. It already has 150,000 terminals in place with various merchants, including McDonalds restaurants and New York taxis, said Bill Gajda, head of mobile technology at Visa, in an interview. More recently, Visa has supported its PayWave NFC with microSD cards inserted in some smartphones, but Gajda said that almost all new smartphones will soon be embedded with NFC.

Hung said phone makers will need to support the PayWave application inside each phone's secure element for the Visa service to move ahead. Visa said it plans to license PayWave technology in new phones and other mobile devices, such as tablets.

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