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Fear and Greed are often discussed among investors and others as the great emotional motivators among capitalists. Looking through this filter let’s take a look at the big recent news in mobile payments: a big deal between three of the largest US mobile carriers, a bank and a card network.
AT&T, Verizon and T-Mobile made big news Monday when Bloomberg reported the three of them joining in a mobile payments venture to bring Near Field Communications (NFC) payments to US consumers and merchants. Adding to the frenzy of excitement, the deal reportedly includes Barclays as the banking and account management entity and Discover Network as the payment “rails”. For those of us who have been involved in and seen results of consumer NFC trials, this is welcome news and has been a long time coming. In the trials I’ve seen, consumers absolutely loved using the phone as a contactless payment device, and gave the experience outstanding ratings. But, as has happened so far, greed and fear will govern the future of NFC, and how those dynamics play out will determine what happens in this market.
Much has been made of why NFC has not yet come to market, and the consensus has been a euphemism, “lack of business model”. Translated into our fear and greed filter, it’s simply greed. It’s widely known that the limiting factor to NFC adoption has been that the very large players have not been able to agree on how the proceeds from this new payment type should be shared. Actually, they don’t even agree that it should be shared. Each of the major players is looking to make sure they can extract maximum value from this inevitable new paradigm. The major card brands and banks say, “it’s OUR consumer – we’re the trusted financial relationship and we shouldn’t have to share interchange.” The carriers say, “it’s OUR customer. WE are the ones who supply and support the phone, so we deserve a (big) piece of the pie.” The retailers then turn around and say, “this is just payment! The whole reason OUR customer is paying for something is because they’re loyal to OUR store! We pay too much already for payments and this new technology should lower our costs substantially. And, by the way, we’re fresh off victory in Congress, and we’re going to get this whole interchange thing fixed there.”
The banks and card brands have been working on and piloting various forms of NFC payments for some time, and we’ve seen plenty of activity around their attempts to add NFC to a phone without carrier involvement. This new venture appears to be their response to the major card brands approach, which have reportedly refused to share interchange. The real question becomes how will greed play into the negotiations on pricing vs. adoption, and what will that mean for the market? I’ve said that I believe these are very smart players who have been trialing and studying this market for years, and they undoubtedly know what we all do: price of acceptance is critical to retailers. I don’t know what kind of pricing has been proposed in those closed-door meetings, but reports have already come back that the large retailers were underwhelmed at best.
To be successful, this new entity must recognize retailers’ strong motivation for lower cost payments and factor that concern into its pricing. But, it’s equally important to recognize that the retailers who are undoubtedly planning to drive a hard bargain should make sure that greed doesn’t blind them to the possible benefits of a successful rollout. Competition in the new mobile payments realm will take a very strong consumer outreach with an enormous amount of education. The carriers have the background of educating consumers on new ways to use their phone, and as consumers get more comfortable making payments with their phone, they’ll also be open to much more seamless interaction with the mobile offers they will get from retailers. Equally, the launch of NFC based mobile payments from the carriers will instill fear in the banks and card brands ONLY if it is successful. In that event, this venture could set off an intense competition to drive adoption by the card brands, benefitting retailers and consumers alike.
If retailers want to drive cost of payments down, they should engage in the competitive process as mobile payments rolls out. This could mean that retailers drive their own payment type on the mobile phone. To do that, you need the technology to be adopted – the sooner the better. If carriers want a piece of mobile payments revenue they need to engage in a reasonable way with retailers. As for the lowly consumers, they get to sit and wait as usual.
For more on NFC, and other mobile payments and payments industry topics, check out www.doublediamondgroup.net. For more on mobile payments, including a breakdown of the types of remote mobile payments generating interest and revenue today, check out my column in Transaction Trends magazine : Remote Mobile Payments.
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