Banks that are rolling out mobile phone payments services are discovering that the wireless carriers have become a critical gatekeeper in the effort to put this emerging capability in the hands of their customers.
A handful of banks are offering or testing mobile payments, generally using software from one of the two vendors that have carved out an early lead in this space. However, it is the carriers that decide which vendor's software they are willing to support on their phones, which means that banks must choose their software provider, in part, based on which wireless service provider they think will help them reach their customers.
Whether the carriers pose a serious problem to broad adoption remains to be seen. But those banks that have been active have adopted a range of rationales and workarounds in effect kicking the can down the road when it comes to finding a platform that might support all of their customers equally well.
At this point, the market is split into two dominant camps. The payments software provider Firethorn Holdings LLC has struck deals with the two largest carriers, AT&T Inc. and Verizon Wireless, while mFoundry Inc. is working with Sprint Nextel Corp. However, none of their relationships are exclusive. (Firethorn's deal with AT&T comes closest: AT&T says it is not seeking additional tech partners "at this time.")
But even lacking exclusives, Firethorn's and mFoundry's first-mover advantage has been powerful and has shaped the field to date. Of the several banks now offering or testing mobile banking, almost all use either the carrier-approved platforms offered by Firethorn or mFoundry, or else applications developed in-house.
Michael Lindsey, a senior vice president at BancorpSouth Inc. of Tupelo, Miss., and its manager of electronic delivery services, said, "We took a chance by making a bet early in the process" that working with Firethorn would enable BancorpSouth to reach a significant portion of its customers. "Cingular's footprint in the Southeast and BancorpSouth's footprint matched up pretty well," he said. (AT&T acquired Cingular Wireless LLC in December.)
But Mr. Lindsey suggested that BancorpSouth's decision was also constrained by a desire to limit the resources it expended on the project. Though it could have chosen multiple vendors, it is "not in a position to do it twice," he said. It began testing Firethorn's software in November and is offering it to customers now.
Spencer White, AT&T's director of mobile services, said the carrier plans to work exclusively with Firethorn for the foreseeable future. "We don't have the ability to support multiple enablement partners at this time," he said, though the carrier has encouraged Firethorn to offer its service to other cellular companies.
Tripp Rackley, Firethorn's chairman and chief executive, compares the mobile banking market to the video format battles of the 1980s, when VHS famously bested Beta. He emphasizes the ease of access to consumers that a large carrier relationship offers and not surprisingly says Firethorn's relationships with the two largest carriers gives it a clear edge.
"VHS had the most distribution you had to go out of your way to find a Beta tape," he said. In mobile payments, "it's all going to be about which applications consumers are going to find and which ones they are going to use."
Sounding more like the underdog, John Pizzi, mFoundry's vice president of product development, said the battle is just beginning to heat up, and said he doesn't accept that the current configuration of carrier/technology partnerships is set in stone.
"We're fighting for the operators and we're fighting for the banks," Mr. Pizzi said. "They may elect to work with one of us, or they may elect to work with both of us." mFoundry announced its agreement with Sprint last month, and Mr. Pizzi said the vendor expects to announce additional contracts with other carriers.
Jennifer Walsh Kiefer, a spokeswoman for Sprint, would not say whether the carrier plans to support other vendors' applications, or discuss any other aspects of its plans in mobile banking.
Citigroup Inc. unveiled its mobile banking service last month, which uses software from mFoundry. The New York banking company said that it selected mFoundry because the application can work on a wide variety of mobile devices, and because it could customize the application to deliver what Charles O. Prince, Citi's chairman and chief executive, called "putting the whole bank on your cell phone."
James Straight, the senior vice president of the consumer products unit at Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, said the carrier plans to work with multiple vendors. "Some banks like the ASP model. Other banks will not like the ASP model and will want to do it themselves," he said. "We have the ability to provide multiple options."
Some banks are pursuing dual-pronged strategies. Wachovia Corp., for example, is working with Firethorn and also offers a home-grown mobile banking service that uses an Internet browser.
Ilieva Ageenko, the director of emerging applications in Wachovia's e-commerce division, said that as long as the relationships between the vendors and carriers are in play, their applications are "going to be limited in the functionality they can offer to consumers."
Ms. Ageenko said this will not be permanent. "What is happening now is inevitable, because of the emerging nature of mobile banking and bill pay and the lack of standards," she said.
In the meantime, the Charlotte banking company is offering its "vendor-agnostic" Wachovia Mobile, which can work on any mobile device that has a browser, though users must seek it out. Even though Wachovia is not yet promoting the service, it is processing 50,000 user sessions a week on mobile devices.
In contrast, she said that working with Firethorn means the vendor's banking application will be in the coveted "top of deck" position with participating carriers, and easier for users to find.
Jean M. Garascia, a research associate at Javelin Strategy and Research in Pleasanton, Calif., cautioned that the buzz over mobile banking is well ahead of the reality, and that the technology remains largely untested.
"I think banks are feeling a lot of pressure to do something, because of the carrier relationships and the vendor relationships," Ms. Garascia said. "Banks shouldn't necessarily feel trapped by having to go with one solution."
Asaf Buchner, an analyst at JupiterResearch LLC, said younger consumers showed the greatest interest in mobile banking in a survey conducted by his company in February, but even there the interest level barely topped 15%; in most age groups and for most types of transactions the interest level was around 5%.
"It's hard for a consumer to answer a question about something that doesn't exist," he said. "Maybe once the service is there, we'll see more demand."
