Why Two Big Banks Let Carriers Control the Mobile Wallet

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Banks have been loath to cede any ground to carriers and handset makers in designing mobile wallets, so it seems out of character for two major issuers to support Isis, the carrier-controlled entrant in the mobile payments race.

And yet JPMorgan Chase & Co. and Capital One Financial Corp. said Monday that they have signed on with Isis, the mobile wallet venture of AT&T Inc., T-Mobile USA and Verizon Wireless.

For banks, the draw of any mobile payment system is that it will display the bank's logo every time a customer needs to make a transaction. The account linked to the mobile wallet could then become consumer's favored account, earning more transaction revenue for the issuer and creating opportunities for cross-sales.

But if the bank is not in control of the mobile wallet technology, it has less control over how — or whether — its brand is displayed. For example, most bank accounts that are used to fund Google Inc.'s digital wallet are hidden behind a Google prepaid account logo (Citigroup Inc., which has a direct pact with Google, is the sole exception).

Isis seeks to allay banks' concerns by giving banks a "widget" area within its mobile wallet app. Within the widget, banks have complete control over the messages and ads that appear whenever their card is selected.

In this way, Isis banks keep their grip on the customer relationship and even much of the branding within the mobile wallet app.

"There is going to be a consistent place, an integrated place within the wallet called the Isis feed, where messages can come in from the merchants and the banks," says Jim Stapleton, who leads sales for Isis. The Isis wallet "is a servicing platform for the issuer, but it's also a marketing platform, where they can market other products to their customers."

Isis also does not prohibit its bank partners from using other mobile payment systems.

"I would not read it as, 'This is the exclusive thing that we will be doing,' " says Richard Quigley, president of JPMorgan Chase's credit-card unit.

"I think what you are going to be seeing is a variety of initiatives and a range of experiments," he says, "some of which are with Isis [and] some of which will be outside of Isis."

By the middle of the year, customers of JPMorgan Chase, Capital One and Barclays PLC (Isis' original bank partner) will be able to link their card accounts to the Isis app. Initially those users will be able to use the digital wallet in pilot programs staged in Austin and Salt Lake City. A national rollout will follow, Isis says.

Isis is winning over banks by casting itself as a technology vendor that doesn't want to get in the middle of transactions, experts say.

"Isis lets the issuers [stay] in control of the customer relationship and associated data, and yet is doing the heavy lifting of enlisting merchants, handset manufacturers, wireless carriers and other stakeholders," says Gwenn Bezard, co-founder and research director of the Aite Group. "It's a pretty compelling offer for issuers."

Isis is already working with Visa Inc., MasterCard Inc., American Express Co. and Discover Financial Services, Stapleton says.

Transactions that utilize the mobile wallet will work just as they do with contactless cards today. Any merchant that allows its customers to make contactless payments should be able to accept Isis transactions.

To securely load cards to the Isis mobile wallet, each issuer will have to contract with a trusted service manager that will encrypt the card information and then pass it off to Isis' trusted service manager, Gemalto NV.

Isis may also allow banks to access these loaded credentials through the banks' own mobile payments apps, says Celent senior analyst Zil Bareisis.

Visa is separately developing partnerships with other carriers. Vodafone Group PLC said Monday that it and Visa are developing a digital wallet that the companies will initially roll out in Germany, the Netherlands, Spain, Turkey and the U.K.

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