MIAMI - Unless bankers act now to cut deals with telephone companies, credit card issuers may be shut out of the new payments arena being created by wireless technology, warned Robert W. Selander, president and chief executive officer of MasterCard International.
Telephone companies - particularly mobile phone providers - are already beginning to let consumers in some countries buy goods by phone and charge them to their phone bill, Mr. Selander said. There is a real threat that "financial institutions and payment companies will be completely disintermediated by new and emerging competitors who have mobile phone connectivity," he said.
Mr. Selander was the keynote speaker at Faulkner & Gray's annual credit card conference, which opened here Thursday. In an interview after his speech, he pointed to a test in Italy, where a telephone company he declined to name lets people "make a payment to a merchant and have the charge put on your mobile phone bill. You can dial up and download money from the telephone company onto your mobile phone and then transfer that money directly to a merchant."
Bankers worldwide are newly fascinated by the potential for electronic commerce and banking using wireless devices, and at least one banking company - Citigroup Inc. - foresees the competition Mr. Selander described. Its Citibank unit is courting deals with telecommunications companies everywhere, trying to make arrangements that will put its brand name on the start-up screen of mobile communications devices.
Mr. Selander said in the interview that the telephone industry is well aware of the "appetizing opportunity" it has to "take a bit out of the pie that would otherwise have been our business opportunity."
Electronic commerce, he said, "is a business that is our birthright our fundamental reason for being. And it is a business that is ours to lose."
In November, MasterCard formed a Global Mobile Commerce Team to address some of these competitive issues. The Purchase, N.Y.-based association is working with partners including Oberthur Smart Cards Inc. and Motorola Inc., the mobile phone company. In late March, it announced a partnership with 724 Solutions Inc., a company in Toronto that makes software for wireless transactions.
Mr. Selander is serving as a guinea pig. He said one of MasterCard's partners - he would not name it - gave him a phone that will have Internet access later this quarter. It is a multiband device, he said, that allows him to carry one phone instead of two when he travels abroad.
Web-enabled phones exist in Asia and in Europe, and "they are coming to North America," he said.
"As you get into the mobile commerce world, the phone companies are definitely a huge threat," said Richard Cornelius, an associate partner at Andersen Consulting who heard Mr. Selander's speech. Traditional banking companies bring brand power and credit and risk management capabilities, he said, but nonbank companies are increasingly able to do these things too.
Michael Auriemma, president of Auriemma Consulting of Westbury, N.Y., said cable TV providers are also competitors. But Mr. Selander said banks have an inherent advantage over cable companies and telecoms.
"It may be one thing for the phone company to agree to download a couple of thousand lira to my phone for a Coke," Mr. Selander said. "But if I want to buy an Armani suit, I wonder how the phone company will feel about carrying the risk of a loan for five million lira. That's going to be a problem. I doubt mobile phone companies want to be in the business of making loans."
Banks can make an especially valuable contribution to mobile and electronic commerce by supplying security and authentication frameworks, Mr. Selander said. One way banks can do this, he said, is by urging greater acceptance of the Secure Electronic Transaction protocol, or SET, an Internet security standard developed by MasterCard and Visa.
MasterCard has been working with SetCo, the company that was created to manage and develop SET, to offer banks and merchants more options at different costs. The traditional SET model requires certificates to authenticate a transaction. But a new model for SET called the Three Domain Model, or 3D-SET, lets merchants accept other secure SET-enhanced payment besides a certificate.
Mr. Selander said these other forms could reduce the cost of adopting SET - one of the biggest hurdles it faces. 3D-SET will be "in the market- place soon," Mr. Selander said. Ultimately, it will let Internet merchants accept all forms of payment from all sorts of devices - including mobile phones.
Stanley Anderson, president of the consulting firm Anderson & Associates of Arvada, Colo., identified a separate threat in the e-commerce realm. He said card companies' policies of charging higher interchange rates for Internet transactionsmay impede their success in the business-to-business market.
Safer Internet sellers - like government agencies and established companies - should be charged lower interchange for Internet transactions than newer, riskier merchants, he said. Mr. Anderson challenged the card companies, processors, and other industry experts to hold a "summit" and look at this issue.
"You can't punish legitimate buying in the government and corporate world with old-line thinking in interchange rates," he said.
Helen Stock contributed to this article.
