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Mobile Wallets: Big Opportunity, Big Hurdles

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What's the role of banks in the new mobile payments model?

Sitting in front of a room full of bankers at the Mobile Banking and Commerce Summit in San Francisco, some of the biggest players in the burgeoning mobile wallet space wasted no time Tuesday tackling that question. The query itself suggested that banks still don't know enough about the power of mobile wallets and the potential benefits of partnering with their developers.

"Banks, telecoms and payment companies are part of the ecosystem as [participants]; at MasterCard, we want to work with ISIS, Google and banks," said MasterCard Worldwide (MA) Group Head and Senior Vice President James Anderson, who acknowledged the difficulty of a fully open mobile wallet model among stakeholders who will retain some propriety. "A single wallet is unlikely, at least in a free market."

The mobile wallet space also includes Google and banks such as PNC (PNC) and USAA, which is working on expanded capabilities. Since control of the processing rails and control over distribution of payments revenue is at stake — IDC Financial Insights research director Aaron McPherson once told Bank Technology News that "whoever has control over the tech model gets to charge the rent" — mobile wallet developers are vacillating between viewing other providers along the payments chain as competitors and seeing them as affinity partners. This has slowed development of open markets.

In Tuesday morning's panel, for example, Stefen Happ, American Express' (AXP) general manager of online and mobile North America, acknowledged the competitive nature between firms, but added "partnership is better…as opposed to exclusivity."

ISIS, which earlier expanded its model to include card networks, has been working since to lure banks into the system as it preps for tests this summer in Salt Lake City and Austin, Texas.

At the conference this week, ISIS Chief Sales Officer Jim Stapleton said the telecom-led ISIS, which is owned by Verizon Wireless (VZ), AT&T (T) and T-Mobile (DT), had signed up four banks thus far and is in talks with a number of others.

He said the mobile wallet enables banks to use ISIS as a means to deliver loyalty offers and expanded services tied to payments.

"The bank can put their brand in the wallet, and that exposes consumers to the bank's value proposition," he said.

PayPal General Manager of Financial Services Innovations Dan Schatt noted that PayPal is a "pass-through" for mobile payments. This allows PayPal's bank and merchant partners to extend new capabilities, such as barcode-enabled "near proximity" payments, transactions executed in an aisle at the store by scanning the phone over a product's QR code. PayPal developed the technology following parent eBay's (EBAY) acquisition of RedLaser.

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