Discover Financial Services' execution of its long-expected "mobile wallet" will define its role in mobile commerce, a future where consumers make contactless payments with their cell phones and receive wireless deals as they enter stores. "Unlike existing mobile technologies that are transactional in nature, the mobile wallet truly facilitates mobile commerce," predicts Gloria Colgan, Discover's svp of emerging payments.
To get there, Discover is pursuing a two-pronged strategy, involving NFC-embedded phones and contactless stickers. The dual approach is meant to ensure it can grow the firm's two main revenue streams-the fees it collects from use of its network and the money produced by its Discover Card users-in an emerging wireless world
Isis, the new NFC-based mobile payment system joint venture Discover forged with the nation's three largest mobile carriers, AT&T, Verizon and T-Mobile, represents the network revenue stream, where transactions consumers make with NFC-embedded mobile phones will be processed over Zip, Discover's contactless payment network. Transactions tallied from Discover Card's current rollout of contactless stickers to card customers are part of the card stream, but they will also ride the Zip network.
Discover CEO David Nelms has said that while he doesn't expect to see any significant volume from Isis until 2012, at the earliest, he said that if the venture works as planned it could produce substantial revenues within five years. The willingness to wait 60 months for results may better gauge Discover's seriousness about the endeavor, and the size of the project.
Skeptics say Discover's underdog status to much larger rivals MasterCard and Visa has essentially forced it to do innovative deals like Isis, to grab for customers and transaction share. They also say its smaller network and lower merchant acceptance means it's incapable of bringing sufficient volume to pivot payments to NFC phones alone.
To truly be successful, these analysts say, Isis needs participation of at least one domestic bank issuer. And UK bank Barclays, owner of Barclaycard US, Isis' first issuer, is but a blip in the stateside market.
Isis "could be an interesting opportunity for a large regional bank to expand its offerings," mobile analyst Bob Egan offers. But he points to what's perhaps a larger problem: "In talking to large banks, I don't see one today that wants to jump in the ISIS bandwagon."
Jaymee Johnson, director of strategic development at T-Mobile, and Isis spokesperson, refutes that, saying Isis has "sincere interest from several big, forward-thinking banks," and "conversations are ongoing."
Isis NFC phone payment apps will be co-branded with one of the names of the carriers; and the issuing bank- Barclays, so far; and the Isis network badge. An issuer can choose to offer a companion card, Johnson says; and in the case of Barclaycard US, its name will appear on the back, but designs are set individually with issuers.
Eventually, Isis users will be able to "check-in" upon entering participating stores by placing their phone near a merchant or Isis acceptance tag to receive mobile real-time discounts, merchandise reviews or to purchase out-of-store items.
Still, terminals are few. Bruce Harting, a Barclays Capital analyst, calls the 100,000 or so RFID Zip terminals that NFC is backwards compatible with currently, which Discover has already deployed among merchants, "a very low fraction of all the terminal readers today." Nelms said Discover is addressing the issue: "This next year's going to be one of getting the terminals in place and working with our retailer partners."
Some say Discover's nimbler strategy could give it the advantage in a shift from plastic to mobile phones. The generally warmer relations Discover enjoys with merchants-Discover was created by Sears-give it a fair shot at besting rivals more entrenched with the big banks.
Discover also has a more elegant, consumer-friendly NFC solution, says Gwenn Bezard, analyst at Aite Group. MasterCard and Visa are issuing microSD cards users must insert into existing slots in their phones, or slide them into a cradle that fits over handsets.
Juniper analyst Howard Wilcox says Discover's sticker rollout is "also an interim NFC solution." And Bezard has said Isis will need to bring MasterCard and Visa onto the network to engender truly sizeable adoption.
