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The four major U.S. payment networks will work with mobile carrier joint venture Isis as it rolls out NFC-based mobile commerce in the United States, it was announced today.

The move could reduce expected fragmentation among NFC mobile wallets in the United States and help Isis recruit major banks and other credit, debit and prepaid issuers for its planned Isis wallet, said observers.

While Isis, made up of AT&T, Verizon Wireless and T-Mobile USA, had earlier this year said it would open its NFC mobile wallets to all the major U.S. payment brands, the agreements announced today formalize the arrangement with Visa Inc., MasterCard Worldwide, America Express and Discover Financial Services.

“What this does, having all of the networks in place, it greatly expands the pool of applicable issuers,” Jaymee Johnson, head of marketing for Isis, told NFC Times, adding that the agreements also could convince more merchants to accept contactless payment and offers. Only about 125,000 U.S. merchants accept contactless payment, at present.

Isis has been talking with major U.S. financial institutions, but has not announced any issuers planning to put their applications in the Isis wallets the telcos plan to roll out, except for small credit card issuer Barclaycard US.

Johnson said the agreements also cover issues around certification of the Isis handsets by the card schemes and provisioning of their contactless applications on the phones. Moreover, the agreements address business-model issues, including some of the fees Isis would charge banks and other service providers for hosting and managing their applications on the phones, said Johnson, who declined to elaborate.

“These are real contractual agreements focused on issues around commercialization,” he said.

Those agreements will apply to Isis rollouts planned to launch in the first half of 2012 in Salt Lake City, Utah and Austin, Texas. Other cities would follow, but not until the end of 2012 or early 2013, said Johnson.

The agreements with the card brands will also bring some order to what is shaping up to be a wallet war in the United States as NFC phones begin to roll out this year. The Isis wallet is expected to compete directly with a mobile wallet from search giant Google, which MasterCard is also supporting. Other wallets are expected, as well.

Visa Signs on
Visa, the largest payment network in the United States, is planning to introduce its own branded mobile wallet in August or September, but some observers have said Visa has had difficulty building up a head of steam behind the launch of the “digital wallet,” which targets both Web and NFC payments. With respect to NFC phones, neither Visa nor its issuing banks will control secure elements in the phones, outside of microSD cards the banks could issue.  

Update: The deal with Isis introduces a new platform that Visa banks could use to reach customers. But some observers see it as a defensive move by the card network, to make sure Visa is not left behind by other wallets and is sufficiently involved with its banking customers as they introduce payment on these other platforms. 

Jim McCarthy, Visa Inc.’s head of global product, is characterizing the move as an example of Visa's “global strategy” of offering consumers the ability to pay from a variety of devices, although he had earlier talked about that in terms of Visa's own digital wallet. End update.

“With Isis now enabling Visa payments in its open mobile wallet, Visa has added another element to its global strategy announced in May giving consumers more ways and places to pay, whether using a card, a computer or a mobile device,” said in a blog post today. “Bottom line: Visa payWave, Visa’s mobile payment application, is designed to enable Visa payments from third party open wallets, including Isis and Visa’s own digital wallet.”

It remains to be seen whether Visa will work with Google on the latter’s wallet. But many observers believe that, in general, payment brands will try to spread their brands to as many open mobile wallets as possible.

“The card associations long ago conceded that their branded cards would be resident in third-party “wallet” applications,” said Hans Reisgies, head of sales and product for U.S.-based Sequent Software, a specialist trusted service manager working with secure element and wallet owners. 

MasterCard: Isis Support Adds More Consumer Choice
Like Visa, MasterCard also sees working with Isis as a way to expand the rollout of mobile payment for its PayPass application.

“Isis will serve as an enabling platform to provide consumers with the freedom of choice to load a MasterCard card of a participating issuer into their mobile wallets,” a MasterCard spokeswoman told NFC Times. She said MasterCard’s partnership arrangements would vary according to the country. While it is working with both Google and Isis in the United States, in the United Kingdom, MasterCard has partnered only with issuer Barclaycard and telco Orange UK, so far. In Latin America, the card network is working with Telefónica group, though not yet for NFC rollouts.  

Ed McLaughlin, MasterCard’s chief emerging payments officer, said in a video that the agreement with Isis adds options for consumers.

“We absolutely believe that mobile payments have to be open,” he said. “So working with banks, working with mobile network operators, working with merchants, working with companies like Isis, allow us to leverage PayPass technology and everything we’ve been doing in mobile, to give as much access as possible to our customers.”

ExpressPay in Isis Wallet?
American Express is promoting its Serve mobile-payment service, which is now mainly targeted at online peer-to-peer payments. AmEx, which is a member of the NFC Forum, is widely believed to be planning to introduce its ExpressPay contactless application on NFC phones. Isis’ Johnson said the agreement between the joint venture and AmEx would cover the issuing of ExpressPay on Isis phones. AmEx has not announced such a move yet, however. But that is the implication of the deal with Isis. To date, AmEx has held no public NFC trials, only internal tests. 

Update: Discover Financial Services was already working directly with Isis and was the first payment network that aligned with the carrier joint venture, back when the telcos planned to introduce their own payment brand. Discover would have served as the sole retail acceptance network for the Isis payment application. With the new agreement, Discover is expected to issue its own Zip contactless application on Isis phones. A Discover spokeswoman told NFC Times that “our role will be in processing mobile payments that run over the Discover network. Readers at the POS will be ZIP-enabled.” End update.

Isis announced the plan for its own branded payment scheme last November, but by May had already abandoned the idea. The Isis telcos had found signing up merchants a tough slog and their own business case became increasingly tenuous after the U.S. Congress passed legislation mandating lower merchant fees on debit transactions, the so-called Durbin Amendment, which will take effect this year.

Changing course, however, has taken some of the sheen off of the Isis initiative for the industry. Today’s announcement gives it a much-needed boost, said Todd Ablowitz, president of U.S.-based consulting firm Double Diamond Group.

Competition with Google
“If you are Isis, it’s very important for you get a win in the world of public relations right now,” Ablowitz told NFC Times. “You have to show you are focused on aggressively driving toward rollout and adoption, given the competitive environment. You'd try to one-up Google any way you could.” 

While Google has enjoyed much of the buzz the past couple of months around NFC-based mobile wallets, Isis’ Johnson contends the joint venture’s agreements with all of the major card brands represent one more area in which Isis has extended its reach beyond that of the Google Wallet.

At present, only one major payment brand, MasterCard, has announced support for the Google initiative. The wallet, which is
launching first in New York and San Francisco, is only available on Google’s own Nexus S 4G on the Sprint carrier network, so far.

“Isis is focused on the right experience and the right experience is multifaceted,” Johnson said. “It’s having technology and handset breadth behind you, so you are not limited to a single handset for a single operating system from a single carrier.”

Google reportedly said in a statement that “MasterCard is still a valuable partner to Google Wallet.”