Big U.S. Telcos and Banks Pursue M-Payment Separately

If there is one thing the big U.S. telcos and banks seem to agree on is that it’s possible to roll out contactless-mobile payment in America without working together.

As NFC Times reported last week in an exclusive story, the four largest U.S. mobile carriers, Verizon, AT&T, Sprint and T-Mobile, are laying the foundations for the launch of mobile payment using contactless technology, such as microSD memory cards embedded with tiny antennas and secure chips, NFC-enabled stickers and actual NFC phones, if they can find the latter.

The telcos want chips and software complying with international payment-industry standards and are in the process of hiring a trusted service manager, or TSM, to deliver payment applications to the contactless microSDs or other devices. If they go forward with the plans, they would launch m-payment services individually, using the platform they are building, perhaps working with other payments partners. But it’s becoming increasingly clear those potential payments partners do not include the big U.S. banks, sources have told NFC Times. The telcos are not talking to the banks.

For their part, the big banks are evaluating the same contactless technology and products, including microSD cards and stickers, the latter either passive stickers that mimic cards or those packing NFC chips along with Bluetooth chips to communicate with the handset. The cards or stickers would enable banks to launch contactless mobile payment with minimal involvement with mobile operators. And the banks haven’t given up on NFC phones for the longer-term.

Dave Wentker, head of mobile contactless at Visa Inc., called demand for contactless microSDs “really high,” as the card scheme announced plans to market contactless microSDs packing the Visa payWave application from U.S.-based DeviceFidelity. Visa plans to test the microSDs with banks in the second quarter. The company made the announcement this week at the Mobile World Congress in Barcelona, where it is exhibiting.

Wentker told NFC Times the announcement had nothing to do with any “rumored” plans by the big U.S. mobile operators to launch contactless-mobile payment. And the SD card tests won’t all take place in the U.S., he said. “It (Visa announcement) was ready; it was the right time for us,” he said, adding:

“If the operators are investing in contactless payment based on mobile standards for contactless, that’s a great thing for our mobile payment. We have competition with other brands all the time, day-in and day out.”

Just the same, Visa’s big bank issuers are no doubt feeling a bit of anxiety over possible competition from the telcos, especially giants Verizon and AT&T, each of which boast more than 85 million customers. Mobile carriers are also reportedly the biggest distributors of SD cards in the U.S.

Of course, neither Verizon nor AT&T nor the other carriers are talking yet about the m-payment initiative. Sources told NFC Times a payment offer from one or more of the carriers could happen as early as mid-2010, if they go forward.

That time line would be ambitious. And if they want to use microSDs, they’d have to make sure the technology works—just as Visa is doing.

Suppliers of the contactless microSDs, such as DeviceFidelity and another U.S.-based company, Tyfone, say the cards do, in fact, work and can conduct transactions as fast as those of conventional contactless bank cards at a range of about half that of the conventional cards. To accomplish this with such small contactless antennas, the companies have designed the SDs to draw power from the phones.

But if consumers tap their phones in the wrong place on the handset at the point of sale, the transaction data might not get sent. Moreover, contactless microSDs don’t work in microSD card slots situated underneath the battery, which would block the transmissions. And, of course, owners of phones without microSD slots–most notably the iPhone–could not use the service.

Still, the interest in the U.S. in contactless microSDs is undeniable, especially as prospective issuers wait for NFC. Unlike passive contactless stickers, payment or other applications on the SD cards could link to mobile-wallet applications on the phones, giving the consumers a pleasing user interface.

The applications could also communicate with the network, which means issuers could download and manage them over the air through trusted service managers and also send promotions tied to the payment applications.

But what kind of payment application the mobile operators would use is still unclear. Most people with knowledge of the telcos’ plans doubt they would try to build their own acceptance infrastructure. They would likely use the estimated 80,000 to 90,000 merchant locations already accepting contactless payment from open-loop bank cards and try to build on it.

Contactless-card use by consumers has been disappointing, however, in the nearly five years since banks began rolling out the cards. Most observers cite poor awareness of the contactless feature on the cards among consumers as a major reason for the poor take-up.

That could change with contactless payment on mobile phones, especially if issuers combine the payment applications with compelling incentive programs using the mobile network and phone’s user interface.

That, in fact, may be one of the few other things U.S. telcos and banks can agree on—that mobile phones could breathe new life into the contactless-payment concept.

Dan Balaban is editor of NFC Times.

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