Without Own Payment Service, Isis Recasts Itself as ‘Delivery Engine’

The Isis joint venture has revealed more details of the new business model for its planned NFC rollouts, following its decision to abandon plans to launch its own payment network at the retail point of sale.

Isis, which is made up of three of the four major U.S. mobile carriers,  AT&T, Verizon Wireless and T-Mobile USA, has recast its role as a “delivery engine” for banks and payment networks to provision and manage their applications on NFC phones. Isis said it will also serve as a distribution channel for merchants and consumer product companies for their digital coupons, loyalty programs and other offers, Isis chief marketing officer Ryan Hughes told NFC Times.

For this, it would charge fees to the banks and payment service providers for managing their applications on the carriers’ SIM cards or other secure chips that the telcos control on the phones. Isis would also take a small fee when it delivers a coupon or enables consumers to receive advertising or other offers on their phones, Hughes said.

These mobile offers could be initiated by the consumer tapping a smart poster in or near a store, for example. Isis could take a small fee for delivering the advertisement, when the consumer clicks on an offer or when he redeems a coupon–or all three. All are part of the pricing model, said Jaymee Johnson, head of marketing for Isis. “(It’s) the same way it exists today in the online world.”

According to the new business model, the consumer’s mobile-commerce experience would center around the Isis wallet, which the mobile operators would offer to their subscribers on the NFC phones they distribute. The wallet would store various bank card accounts supported by different payment brands, along with the loyalty accounts, coupons and other offers.

“We do customer service very well,” contends Hughes. “We distribute handsets on a large scale very well, and with respect to Isis, we create a (single) TSM (trusted service manager). The banks don’t want to do this five, six or seven times over. If they can define it with us, that’s a collaborative discussion.”

Seeking to Remain Relevant
After the joint venture confirmed earlier this month that it would no longer launch an Isis-branded payment scheme at the point of sale, many in the industry interpreted it as a retreat from the market.

Isis is more aggressively communicating its plans for NFC as it seeks to retain its relevancy in what is shaping up to be a hotly competitive U.S. mobile-payment market. There are plans for NFC-enabled wallets from Google, Visa and competing telco Sprint, though Isis insists it could work with all of these parties.

“The industry is still emerging; there is a bit of a fog around different players in the industry and how services will eventually compete or complement,” Johnson told NFC Times.

Isis’ Hughes confirmed earlier statements by a top AT&T executive, John Stankey, head of business solutions, who told Reuters recently that the Durbin amendment of the Dodd-Frank financial reform law was partly to blame for killing the plans for the Isis payment scheme, which would have competed directly with Visa Inc. and MasterCard Worldwide.

Durbin’s Impact
The amendment, which will slash interchange rates on debit purchases, “changed the business model,” Stankey reportedly said, making it less profitable for the telcos to launch a payment network since the transaction fees Isis could collect from merchants would be much lower.

“We recognized there was going to be an investment required to get the merchants deployed, and we were participating in discussions with them,” Hughes told NFC Times.

Isis representatives also insist the joint venture scrubbed the plans for the new payment scheme because it became clear that it wasn’t necessary, since banks, established payment networks and merchants are willing to roll out NFC without it.

Some observers have said, however, that taking on Visa and MasterCard was a losing battle to begin with, and the joint venture found it was not making much headway in recruiting merchants to accept the Isis brand of mobile payment.

Competitive Landscape
Even with a new business model that welcomes established payment networks, Isis faces a challenge in getting its wallet established on consumer handsets.

Visa Inc. last week announced its own digital-wallet program, which seeks to put Visa-branded wallets onto the various devices consumers might use for payment and to store their payment applications in them.

And Google and other mobile platform providers and device makers are vying for a share of the “secure-NFC” market, planning to use embedded chips on their NFC phones to store bank applications and other services. Google plans to unlock the embedded secure chip on its Nexus S NFC phones for a prepaid application to be issued by U.S.-based Citigroup, supporting MasterCard PayPass, NFC Times has learned.

Google would control the chip, sources have told NFC Times. There are apparently no plans to include mobile operators directly in the launch.

Isis’ Hughes told NFC Times the Isis-branded wallets would not conflict with Visa’s plans, though he declined to provide details.

“What Visa announced last week is not competitive with Isis, period, end of story,” Hughes said. “We are talking with them. What we bring to them, and they bring to us, is very much hand in glove,” adding: “We don’t have any deals to announce.”

As for Google, Hughes, formerly director of new business development at Verizon, said U.S. mobile carriers have been “huge partners with Google.” He added Google has released few details of its plans for NFC phones or whether it would control the secure element on the handsets.

Isis’ Johnson added that the Nexus S is one of the few handsets sold outside of carrier distribution channels in the United States. The Isis telcos plan to control the secure elements of the phones they sell, both embedded chips or on SIM cards, he said, adding he has no direct knowledge that Google’s plans to enable Citi and MasterCard to put an application on the embedded chip in the Nexus S.

In addition, Google’s mobile-commerce plans could be complementary to those of Isis, since Google likely would serve smaller, more localized, merchants seeking access to mobile consumers, compared with the larger merchants Isis is targeting, he added.

Still, by dropping its own payment plans, questions persist over whether the Isis joint venture remains an important NFC player.

Johnson said that even with the large footprints AT&T and Verizon could offer separately, banks and merchants want to reach all of their customers with their NFC payment or loyalty applications. Sticking together enables the Isis telcos to deliver almost all of those customers, he contends.

“You need a way to solve the complexity and fragmentation of mobile, which is what Isis provides, reaching the handsets of three quarters of the U.S–220 million subscribers,” he said.

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