Paying to Play: Planned Isis Fees Rankle Some Issuers
One or more issuers are privately complaining about fees that the Isis joint venture is seeking to charge to host their payment applications in the Isis Wallet, NFC Times has learned.
The fees are about $5 per consumer account per year, sources told NFC Times. That is much more expensive than issuing plastic cards, note the sources.
Four banks or credit card companies have announced they plan to make their payment applications available for the Isis Wallet starting with trials in Salt Lake City, Utah, and Austin, Texas, planned for this summer: JPMorgan Chase, Capital One, Barclaycard US and American Express.
“It’s (NFC application) really not a replacement, it’s an addition. We still have to issue plastic cards,” one of the issuers told NFC Times, asking not to be named.
He said he believes that Isis is trying to become “profitable from day one” by charging “high fees.”
“When you’re just getting started, this is when you want to build the ecosystem.” said the issuer. “There is so much you can do with NFC. It just feels a little shortsighted how this is being rolled out.”
The fees are for enabling the credit, debit or prepaid applications on NFC SIMs issued by Isis joint venture partners, Verizon Wireless, AT&T and T-Mobile USA, for the trials and perhaps beyond.
In effect, the banks or credit card companies are renting space in secure elements created on the SIMs. The fees include the secure platform to deliver and manage the applications, as well.
And there would be added fees for events, such as canceling an application on lost or stolen phones or upgrading an application over the air. These would add several cents per event, say observers.
Isis, in response, disagreed with the idea that issuers are unhappy about the fees, although it did not confirm the amount of the charges, citing confidential contractual relationships with the issuers.
“To date, Isis has announced a roster of market-leading issuers–Chase, American Express, Capital One and Barclaycard US,” Isis said in a statement to NFC Times. “We continue to receive positive feedback from issuers and look forward to sharing more information about additional issuer partners.”
The joint venture added that Isis offers a “strong value-proposition” for banks and other payment issuers that “fundamentally extends an issuer’s existing cardholder relationships into mobile, enabling new consumer and servicing experiences.”
Seeking NFC Revenue
Other telcos talking about their NFC business models in the past have indicated they would base their SIM rental fees not necessarily on the cost of replacing cards but on enabling banks and other service providers to use the mobile operator’s resources to reach their customers with services not possible with static cards.
The telcos say this requires them to set up a secure NFC infrastructure, including drafting software specifications and business rules, offering the mobile wallet, hiring a trusted service manager, subsidizing NFC phones and buying NFC SIMs. NFC SIMs cost as much as three to four times or more than conventional SIMs cost, depending on the memory available on the cards.
Isis has hired Gemalto as its TSM to manage the secure elements in the Isis Wallet phones. A source told NFC Times that Gemalto is planning to charge Isis $2 per account, probably per year, for the service.
This would presumably be built into the fees Isis charges the payment issuers, though Isis, as a separate company, JVL Ventures, might bill its three owner telcos for this cost.
With few NFC mobile-payment projects having launched to date, standard fees charged by wallet providers and secure element issuers have yet to be established.
Mobile operators, which fear being cut out of the mobile-commerce revenue loop, especially by Internet-based over-the-top players, see NFC as a potentially lucrative revenue source.
They have been trying to make the SIM the de facto secure element in NFC phones, hoping to use this to control revenue from NFC services.
Paying on Both Ends
Google is one such over-the-top, or OTT, player, though it’s noteworthy that despite the fact Google says it is not charging banks to be part of its wallet, it still has announced only one bank-issuing partner for the wallet, U.S.-based Citigroup. Google’s business model is to make money by charging advertisers to send wallet users targeted offers and promotions.
As part of its launch last year, Google hired a single TSM, First Data and its technology partner SK C&C, to handle both the embedded secure element supporting the wallet and provisioning applications on the chip.
Isis has more of a split TSM model, in which banks will hire their own TSMs to download and provision their payment applications to the Isis secure elements, in communication with the Isis TSM, Gemalto. The banks, therefore, will have to pay fees not only to Isis but to their own TSMs for provisioning of the applications.
Gemalto is also a TSM on the issuing side, to provision applications for banks and other service providers. One of the Isis issuers, JPMorgan Chase, has hired the vendor for the Isis project and possibly others.
Gemalto’s CEO, Olivier Piou, speaking to financial analysts in March, estimated that TSMs could charge €2 (US$2.50) to €3 (US$3.75) for each mobile banking card they provision over-the-air.
He didn’t specify, but he was likely talking about fees to banks for provisioning applications. But he didn’t say whether the fee would be charged every two to three years, similar to card issuing costs, or more often.
Some industry observers see the fees issuers will be required to pay to be part of Isis as threatening to discourage more banks and credit card companies from participating in the Isis program or similar NFC wallet initiatives.
“To make a business model work, the lifecycle cost for maintaining a (mobile) card for two years should be 60% to 70% of their current (card) cost, which for EMV plastic cards is $4 to $5,” said one industry supplier. The card fees he quoted would be due every two to three years.
Isis Telcos Look to Hire Other TSMs
The roughly $5-per-year fee sources say Isis is quoting issuers only apply to payment and related services. Other service providers would do business with the individual Isis telcos directly and would have to pay the telcos fees to access their NFC SIMs.
Verizon, AT&T and possibly T-Mobile are preparing to recruit their own TSMs to handle nonpayment applications, NFC Times has learned.
These applications would include access control, transit and other secure applications. For example, Verizon could enable hotel keys or corporate badges to be downloaded to its NFC SIMs. The applications may or may not be part of the Isis wallets the carriers roll out.
The split between payment and nonpayment applications was planned and the fact individual Isis telcos are seeking to hire their own TSMs doesn’t mean they are less committed to Isis, sources working on the project told NFC Times.
“Isis’ mandate is NFC payments at the point of sale,” said one source. “That puts them in a box. Their investors, AT&T and Verizon, are definitely looking at monetizing that secure element in nonpayment.”