The news that Isis is seeking to expand its model by working with traditional card systems reveals the importance of wide cooperation in developing an NFC payments ecosystem.
"This helps prove that carriers can’t dictate consumer preferences and that unless they have some unique and super value proposition, they need to work with the brands consumers already work with," says Avivah Litan, a vp at Gartner Research.
According to multiple wire reports, Isis, which consists of AT&T, Verizon Wireless and T-Mobile, still plans to test its system in Salt Lake City next year as part of a transit payment pilot, but also plans to work within systems that leverage Visa and MasterCard card as transaction processors (
Jaymee Johnson, a spokesperson for Isis, attributes the move to a wider interest in Isis. Johnson did not identify new bank participants or provide detail on the progress of integrating with MasterCard and Visa networks, but says Isis is "totally open and is in conversation with many of the leading banks around bringing their existing card portfolios to mobile phones. Conversations are ongoing, and we expect to be able to make announcements [soon] about the first issuers." He didn’t reveal the terms of those discussions, but decisions about sharing technology, revenue and the resource burden among banks, carriers and merchants will have to be worked out.
"As you can imagine, the practical realities of getting your card on the phone [are complex]," Johnson says. "The issuer has to integrate into the Isis provisioning system, there’s also the technical discussion that happens around the provisioning, and how we create a safe tunnel between the user’s credential and the secure element on the handset," he says.
Johnson also disagreed with myriad media reports that Isis was stepping back from its original model (
"The practical reality is if [stakeholders] want to do this to scale, there needs to be an open platform to facilitate that connection," Johnson says.
Isis’ move is good news for traditional card networks, and bad news for the concept that mobile payments can be made to carriers rather than banks. It also pressures other consortiums to consider the role of wider cooperation in developing contactless point of sale payments networks. Other ventures include Sprint Nextel, which is working with payment networks and handset makers to launch its own NFC service. And Google has partnered with Citigroup and MasterCard, enabling consumers with Citi credit and debit cards to make payments by waving Androids against terminals.
"Wide scale mobile payment adoption depends on interoperability across the major players. The carriers don’t have enough of a value proposition to essentially go it alone," Litan says.
Congressional action will also impact Isis going forward.
"What no one is talking about is the cold water effect of the proposed Durbin changes on Isis--or any other mobile payment venture based on debit cards," says Mary T. Monahan, evp and research director for Javelin Research.
Monahan says the Durbin amendment to the Dodd Frank legislation, which was passed in late 2010—right after the announcement of the ISIS model in November—includes a potential cut in debit interchange fees of 73 percent to 79 percent for issuers of at least $10 billion in assets.
"The proposed changes significantly put the Isis model in jeopardy as the ROI could swing too much for possible participants," Monahan says.
Isis’ Johnson says the Durbin amendment will have particular impact on merchants. "Prior to Durbin, merchants would have used mobile as a potential acceptance cost play," Johnson says. "But with Durbin, there’s a significant reduction around the acceptance costs for debit."
As a result, merchants will likely have to broaden their view on how to monetize the mobile channel.
"It’s an important consideration as merchants think about mobile payments," Johnson says, adding attention will turn to loyalty and open loop cards. "It’s shifted to more of an opportunity for retailers to drive increased revenue through card programs."
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