Visa and MasterCard Offer Little Response to Telco Payment Plans

Visa Inc. and MasterCard Worldwide haven’t said much in response to plans by major U.S. mobile carriers to turn their subscribers’ phones into payment devices. But what they have said indicates the card schemes will brand the telcos’ initiative as closed and bad for consumers.

In probably its first official statement regarding the plans by the telco joint venture made up of Verizon, AT&T and T-Mobile USA, a Visa spokeswoman told NFC Times last week that Visa "believes clients are best served by an 'open' approach to mobile innovation, enabling consumers to choose which accounts they would like to enable for payment."

MasterCard’s new CEO, Ajay Banga, in response to a question from an analyst during a conference call last week following release of MasterCard’s second-quarter earnings, also remarked that what mobile carriers, handset makers, banks and card schemes need is an "open-payment" system.

"What you do not need is a payment system that is built off one brand," he said.

Of course, this new embrace of openness and freedom of choice for consumers by the big card schemes might strike many merchants as a bit ironic. They see MasterCard and especially Visa as far too dominant in the payment system.

I’m told by one source connected with the mobile carrier project that the telcos may have given Visa an opportunity to be part of the initiative, but that Visa refused to cede any control to the telcos, including on certification, processing, and presumably, interchange. The telcos are reportedly working with more flexible partners, Discover Financial Services and the U.S.-arm of UK-based Barclays bank, both of which have much more to gain working on a new card scheme than does Visa, the top dog in the payments business.

Among other things, Visa, MasterCard and their big banking partners appear to be concerned about losing access to the secure chips that will store payment applications in NFC phones that could be rolled out by the three telcos. The telcos could lock the Visa- and MasterCard-affiliated banks out of these secure elements, such as SIM cards issued by the telcos or embedded chips controlled by them.

Together, Verizon, AT&T and T-Mobile USA have more than 200 million subscribers, so if they manage to get the new scheme off the ground nationally with their joint venture, as originally reported here, it will be a matter of considerable concern to the big U.S. banks and card schemes. The telcos are in the process of hiring a trusted service manager to handle the downloads of the payment applications and keep them updated.

One source told me that representatives of big banks have been the most eager participants of an initiative begun by some officials of the Federal Reserve, or the U.S. central bank, to hold informal discussions among players in the budding NFC mobile-payment landscape. The Fed has hosted three informal meetings since January attended by reps of major banks, telcos and card schemes, among other participants. The meetings are intended to provide a forum for the parties to hash out issues of standards, infrastructure and broad business models.

A Fed official told me there is nothing to stop the telcos from keeping Visa and MasterCard and the big U.S. banks out of their NFC phones. But the informal discussions are designed to reduce the likelihood of that happening.

Threat? What Threat?
At present, it appears the strategy of Visa and MasterCard is to play down the potential threat from the telcos. And their major bank issuers are not commenting at all.

MasterCard’s Banga prefaced his remarks Tuesday about the need for an "open" payment system by calling the telcos’ project just an "unconfirmed pilot."

But he appears to have been well-briefed before the conference call with financial analysts in anticipation of questions about how MasterCard will respond. And according to a transcript of the call, he got one from the first analyst during the Q&A session.

Banga then trotted some of what he said were nearly 20 trials and "commercial rollouts" of NFC and other mobile technologies. Together, they show MasterCard can work with telcos on mobile payment, too, he said.

That includes the planned NFC commercial launch in the United Kingdom by Barclaycard and France Telecom-Orange UK involving MasterCard’s contactless application PayPass, and a project in Turkey involving the third largest telco there, Avea, and Garanti Bank, which will use a SIM card and flexible antenna, also carrying PayPass. Neither project has launched yet.

Banga also mentioned the PayPass-enabled sticker Citigroup began issuing last spring, which is still largely in soft launch and doesn’t involve a particular mobile operator or bank; as well as a passive-sticker trial by the Bank of Montreal using BlackBerry phones.

That’s in addition to MasterCard’s network-based remittance system MoneySend, which has a mobile aspect. And it also includes the well-timed release last Tuesday of MasterCard’s agreement with Spain-based Telefónica group for co-branded credit cards in Latin America, which was first mentioned back in April by NFC Times, along with a Telefónica co-branding deal with Visa Europe.

The deals with Telefónica could eventually extend to NFC phones. And MasterCard can accurately call itself a pioneer in both contactless payment and NFC, with among the first contactless-mobile payment trials under its belt. Both Visa and MasterCard have each been involved in 20 or more NFC trials.

More Innovation Unit Retooling
But nagging questions remain about whether Visa and MasterCard’s are prepared to meet the challenge of the U.S. telcos.

Changes in MasterCard’s innovation unit continue. In a surprise move July 30, the card company named Ed McLaughlin as chief of emerging payments, replacing the 30-something Joshua Peirez, who had served as group executive for innovative platforms.

Peirez, a lawyer by training, had been expanding MasterCard’s MoneySend funds-transfer program and its inControl transaction-control system and playing up their mobile possibilities during his roughly 18 months on the job.

He was not necessarily forced out by Banga’s new team, however. In fact, it may have been his idea to leave and some believe he is headed for the mobile operators’ joint venture, though likely not as CEO.

Before joining MasterCard in 2005, McLaughlin had served as group vice president for product and strategy at financial services company Metavante, which he joined when his online payments company, Paytrust was acquired. MasterCard earlier eliminated the position of chief emerging technology officer, which had been held by Art Kranzley, a PayPass pioneer. It now looks as if Kranzley was encouraged to take early retirement last spring.

At Visa, Bill Gajda, head of mobile, has inexplicably kept a low profile since starting work in April. His arrival had been much anticipated, since he comes not from the payments business but the mobile industry, in which he last served as chief commercial officer for the GSM Association. Perhaps he is busy negotiating contracts with mobile operators, but none of the fruits of those talks have surfaced so far.

Visa has been promoting an alternative to full NFC-based payment for its banking customers–contactless microSD cards. At the time it announced plans to offer banks the microSDs packing its payWave application, last February, Visa assured me the announcement had nothing to do with the mobile carriers’ m-payment plans.

But the operators' planned scheme no doubt is fueling hot demand by banks for the microSDs, despite the fact the cards are likely still months away from being ready for the market. Banks could issue the cards, which consumers would insert into phones with appropriate slots, and would not have to deal directly with mobile operators.

The threat from the mobile carriers aside, Visa, like MasterCard, has enough problems on its hands, especially dealing with the potential impact of the U.S. financial-reform law’s so-called Durbin Amendment. Among other things, the law will likely lower debit interchange. Visa has more exposure than MasterCard because of its much higher market share. Visa is also digesting its recent $2 billion purchase of online-payments company CyberSource.

Despite their huge subscriber bases and deep pockets, the telcos face an uphill battle to establish their new payment service against the established brands. But if they are successful, MasterCard and perhaps even Visa would be willing to cut a deal.


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