I’m surprised this move, of cell phone providers getting into the payments game, hasn’t come sooner. Visa and MaserCard charge fees vastly in excess of their costs, which is usually an invitation to competition, but payment services have high barriers to entry. But cell phone carriers already have some of the key elements of the needed infrastructure: the ability to track and bill for transactions, and a large existing customer base, so it has the major elements of a payments system. Its missing components are customer service/chargebacks and (the real biggie) a merchant network.
I was hearing about mobile phones as a payment system more than ten years ago (one network, MobilCash, had 500 million customers in 15 countries as of 2007; my dim recollection was that early versions of this type of service was on offer in some parts of Europe in 1997). The merchant fees charged by Visa and MasterCard on debit transactions are particularly high; competing vendors will force some useful price discipline.
From Bloomberg:
AT&T Inc. and Verizon Wireless, the biggest U.S. mobile carriers, are planning a venture to displace credit and debit cards with smartphones, posing a new threat to Visa Inc. and MasterCard Inc., three people with direct knowledge of the plan said.
The partnership, which also includes Deutsche Telekom AG unit T-Mobile USA, may work with Discover Financial Services and Barclays Plc to test a system at stores in Atlanta and three other U.S. cities that would let a consumer pay with the contactless wave of a smartphone….
The service, similar to those already available in Japan, Turkey and the U.K., would use contactless technology to complete purchases in stores. They’d be processed through Discover’s payments network, currently the fourth-biggest behind Visa, MasterCard and American Express Co. Barclays would be the bank helping to manage the accounts, said the people, who requested anonymity because of confidentiality agreements.
AT&T and Verizon Wireless are equal partners in the venture and T-Mobile has a smaller stake, one person said….
“This is definitely a game-changer,” said industry consultant Richard Crone of San Carlos, California-based Crone Consulting LLC….The mobile carriers “are the biggest recurring billers in every market. They are experts at processing payments,” Crone said.
Mobile technology for banking and payments is reaching “a tipping point,” with younger consumers leading the way, Mercatus LLC, a Boston-based consulting firm, said in a June 7 study. More than half of U.S. consumers, and almost 80 percent of those between the ages of 18 and 34, will use mobile financial services within five years, according to Mercatus….
Merchants would have to spend an estimated $200 per reader, and updating mobile phones with embedded microchips would increase manufacturing costs by $10 to $15 per handset, according to the Boston Fed. That may be worthwhile if accepting mobile payments allows retailers to send rewards and information about promotions to their customers’ phones at checkout.
The wireless carriers have an advantage over Visa and MasterCard in the race to control the U.S. payments market because the phone companies have access to their customers’ mobile numbers and bank account information, said Crone, the industry consultant.
“A mobile device is online, real-time interactivity that changes the customer relationship,” he said. “A card is dumb.”
17 comments
Comments are closed.
may be this will push ATT to upgrade their database servers so the could combine two phone (from “different markets”) numbers into one account… but who am I kidding?…
So if it’s one entrenched, stagnant oligopoly poaching on the turf of another, should we expect real competition on price (which is normally eschewed by entrneched oligopolists), or will it revert immediately to a struggle for market share at the existing rent-seeking price level?
Of course the payments rackets may try to buy artificial “legal” barriers to entry. I’ve been reading up on the net neutrality struggle. It wouldn’t surprise me if the card companies get into the fray, trying to make their support against net neutrality a payoff for the telecom rackets to stay out of payments.
That seems along the lines of the way our “capitalism” works.
Why has this taken so long? The technology is nothing new.
How does the verification work? What happens if someone steals your phone and makes purchases with it? There should be at least some sort of pin number.
I really doubt that visa and MC are going to let their competition into this game without a fight. How do most people pay their cell phone bills? I bet the clearing time on a Visa payment to AT&T just went up.
Do not underestimate AT&T’s ability to f_ _ _ up. UNIX, anyone? http://en.wikipedia.org/wiki/UNIX
Here’s another AT&T fail story:
———-
Bad Connection: Inside the iPhone Network Meltdown
* By Fred Vogelstein
* July 19, 2010 |
* 3:12 pm |
* Wired August 2010
http://www.wired.com/magazine/2010/07/ff_att_fail/
The real question is why MC/Visa hasn’t already done this themselves? Lock up the biz before the telcomm companies can get a foothold.
When two entrenched oligopies decide the most productive
use of resources is to do battle with each other, you know the economic orchard has been picked clean and burned to the ground already. There is not enough gruel left to feed everyone to the degree of which they are accustomed
Indeed, the technology involved has been around but not exploited for payment systems. (For that matter, there are quite a few cell phone technologies used in other countries not used in the US.) I don’t expect the consumer to gain from a competition between the old and new payment systems. Airline tickets and Ma Bell are probably the only example when competition has benefited consumers. Take car rental as an example. In addition to local vendors, there are many national vendors. Still, the price of a basic car rental is about $300 per week (two weeks ago) no matter which vendor one selects. While the same car cost me (a month and a half ago) $380 for two weeks in Spain. In my experience, not a systematic survey, the competition is very seldom price centered.
When talking about mobile payment and banking systems then I wouldn’t focus on their presence in Europe. It is far more advanced in Africa for much the same reason that landlines never really took off there and people went straight for mobiles.
You have systems like M-Pesa which are being rolled out in a whole slew of countries.
A few months ago, I was in a conversation with an Open Source developer who told me that in (I think it was Kenya), as much as 30% of income is going to cell phones. I don’t have a citation for that info, and don’t recall the speaker. However, if that is even close to correct, then the implications of this move are interesting.
This should take the whole AT&T “dropped calls” and Apple’s “antenagate” issues to a whole new level.
Let’s explore the possibilities:
Unemployed homeless guy using stolen iPhone 4, charged $1,000,000 for a cup of regular coffee at Starbucks. Steve Jobs denies problems with iPhone’s design, and offers homeless dude a free bumper case, plus $1 a day job at Apple’s Beijing, China, plant.
Vinny
The original payment system, the USPS, was part of the original intent of the founding fathers, with Ben Franklin as the first Post Master Gerneral, a cabinet level position, in line of succession for the Presidency. It is written into the US Constitution. When the system for carrying the medium of exchange costs only .44, even if you are mailing a $2000. mortgage payment, why should Visa or Master Charge get a percentage of what they transport? Is non corporeal transmission of information deserving of such expensive toll gate behavior? If the phone services get into this racket, aren’t they usurping the lawful monopoly to coin money from the government? Shouldn’t a universal electronic money be the sole purview of the government, and the transmission of some encrypted code, merely be no different from any email transmission? If I send a message via cell phone or ipad, involving payment, why is it any different than a message that I would tweet, email, text etc.? Because it involves the de jure spending of money, the system for transporting payment can become the de facto currency. It is easy to see the difference between the check I write and the stamped envelope I place it in, to make the payment. But with smart phones, it will become a confiscatory tax of a certain percentage of the money supply if they behave with a distinct difference from the flat fee of a .44 cent stamped envelope. Money now has a non corporeal specie, and needs to minted by the government, not the wireless communication industry.
Good for them.
I hope they gut Visa&Mastercard.
Pay with your phone, done right, could be a game changer..
I’m late, but this is already as good as dead.
They mention adding a contactless chip to the phone. There is *no* way the phone manufacturers will absorb that cost. And it’s larger than the claimed $10-$15 cost too. I reckon it to be about $45 ea.
The chip in some phone systems is already capable of doing the cryptography. They don’t need another chip. But the decision makers in this scheme have been mislead, or already got a hard ‘no’ from the AT&T’s developers who write the SIM code. Probably some combination of the two.
This looks like a dog from the merchant’s end too. Typical payments industry scheme would entail charging the merchant more for these kinds of transactions. I don’t see how any merchant would do this.
Most people really, really don’t comprehend how bad the whole Visa/Mastercard duopoly increases their retail prices. 3% of the cost of everything you buy goes to Visa/MC. At the end of the year, that’s a big number.
“Most people really, really don’t comprehend how bad the whole Visa/Mastercard duopoly increases their retail prices. 3% of the cost of everything you buy goes to Visa/MC. At the end of the year, that’s a big number.”
Which pisses me off, since I pay cash for almost everything, yet I don’t get a 3% discount.
I remember the days when there was a surcharge for paying with plastic.
Vinny
“I’m surprised this move, of cell phone providers getting into the payments game, hasn’t come sooner.”
You can already shop and make payments with debit accounts and most any credit card by smart phones through Paypal on line. Paypal is currently rolling out its Mobile Express Checkout …
Excerpt:
“We are in the early stages with Mobile Express Checkout, and it’s being initially rolled out on the iPhone and Android 2.0 (and higher) devices by a few innovative retailers, including Nike and Buy.com, over the next few weeks. Jeff Wisot, vice president of marketing at Buy.com shared a few words about Mobile Express Checkout recently saying, “We’re seeing a huge opportunity in mobile commerce right now. PayPal’s Mobile Express Checkout will allow us to enhance the convenient shopping experience for on-the-go customers.”
Mobile Express Checkout will be available for the rest of our merchants later this summer. Here are just a few of the features it will include:
* One-stop payment service that allows merchants to sell to millions of mobile shoppers
* Quick deployment and integration to get merchants in the mobile game fast
* A seamless customer experience which is especially important with smaller screens and keyboards – no cumbersome data entry, just a few clicks and customers are done
* Strong fraud detection”
More here …
https://www.thepaypalblog.com/2010/07/paypal-mobile-express-checkout-makes-it-easier-for-consumers-to-shop-from-their-phones/
It will be a game changer in that it extends impulse buying credit (read usury chains) ease by allowing more and easier access.
Not to worry — Elizabeth Warren will provide “Easy to understand contracts.” for the rape victims (she is really going to have her hands full with AT@T :-)).
Deception is the strongest political force on the planet.
My cell phone bill (Verizon) is 14 pages of gobbledygook in 4.5 pt font packed with mysterious charges that increase from month to month. What sort of coercion would Verizon have to institute for me to ever consider using their payments scheme? Merchants already track everything you buy with a card. The ability to send spam (or 25-cents off coupons) direct to my cell phone is not a plus.
I’m positive Verizon won’t be able to resist tacking on a use fee for this “new feature”, double-dipping merchant and customer. This is an industry that makes 160-byte text messages more expensive than telegrams.