What Isis' Situation Reveals About Mobile Users' Habits

As Isis forges ahead with its nationwide launch — despite losing the active participation of two of its four issuer partners — it's becoming clearer that mobile may not displace credit cards as easily as it can displace prepaid and cash.

Capital One and Barclays pulled their card products out of the Isis tests ahead of the telecom-driven wallet's nationwide launch. By contrast, JPMorgan Chase and American Express are keeping their cards on board for Isis' next phase. So what's the difference between these companies?

Capital One and Barclays do not offer prepaid cards in the U.S., whereas JPMorgan Chase and Amex do.

"If you look at the mobile phone space there are a lot of people using mobile that understand prepaid…because they're pre-paying for minutes or service," says Ben Jackson, a senior analyst at Mercator Advisory Group. "Prepaid … is a much easier concept for those people to grasp."

Barclays is currently testing a mobile commerce initiative linked with prepaid in Delaware, says Kevin Sullivan, a spokesperson with Barclays.  That pilot focuses on cloud computing rather than Near Field Communication, the technology behind the Isis wallet, he says.

Capital One did not respond to inquiries for this story prior to deadline. In an e-mail to PaymentsSource last week, Capital One spokesperson Chris O'Neill said it "will continue to work with Isis to evaluate options." Barclays will still work with Isis despite not being an active participant in its ongoing tests, Sullivan says.

Banks and other emerging payments players are taking pointers from the most successful mobile wallet initiative, Starbucks, which uses a cloud-based prepaid account, says Jackson. In June, Starbucks reported that mobile payments account for more than 10% of its U.S. transactions.

American Express' Bluebird prepaid program has also seen success, and those consumers would be more likely to adopt a mobile wallet like Isis because Bluebird comes with a mobile app, says Jackson.

Amex is integrating its software with the Isis app to allow users to access Isis accounts with Amex's Serve prepaid account.

Isis, a venture of AT&T, Verizon Wireless and T-Mobile, did not provide comment by deadline.

Boost Mobile and Metro PCS, two prepaid phone services, are launching their own mobile wallets. Sprint's Boost Mobile prepaid phone service developed a mobile wallet targeted to the underbanked in May.

But not all mobile prepaid products last. Notably, Google scrapped a consumer-facing virtual prepaid account it built into Google Wallet about a year after the product's introduction. Though Google still relies on a virtual MasterCard account for many transactions, this account is largely invisible to the end user.

But Capital One and Barclays removing their card products from the Isis test might have less to do with Isis' performance and more to do with broader competitive issues.

At a September 2012 investor conference, Richard Fairbank, chairman and chief executive at Capital One, said he sees the digital wallet as "more of a threat … than an opportunity."

Capital One and Barclays "are both very heavily focused credit companies that use rewards as a big marketing push," says Jackson. "Part of the issue might be that they're worried about their brand getting lost in Isis…with the digital wallet now in between the customer and the brand."

Isis is also forging partnerships with payment terminal providers before its launch. The relationships will enable Isis to reach approximately 90% of the addressable market for point of sale hardware in the U.S.

Amex did not respond to inquiries prior to deadline. JPMorgan Chase did not provide comment beyond an earlier statement in the press release announcing Isis' nationwide launch.

"Based on the positive results in Austin and Salt Lake, we are pleased to expand our relationship with Isis and provide Chase cardholders nationwide with another quick, convenient and secure way to use their credit cards for everyday spending while on-the-go," said Richard Quigley, president of Chase Card Services, in the Aug. 12 release.