Mobile Phone Payments and a Cashless Society By 2013

The Three Largest U.S. Cell Phone Carriers Announce Joint Venture for Nationwide Mobile Phone Payments By 2013

In an effort to turn phones into wireless credit cards, AT&T Mobility, T-Mobile USA and Verizon Wireless intend to release software for handsets and payment terminals in select U.S. regions over the next 18 months, with a nationwide rollout planned by 2013.

November 17, 2010

RFID Journal - After two years of discussions, the three largest U.S. mobile phone carriers have launched a joint venture intended to develop a single platform on which technology based on the Near Field Communication (NFC) specifications can be used by their customers to make mobile payments.

The new venture, known as ISIS, is designed to usher in the broad deployment of NFC technology, allowing NFC-enabled cell phones to function similarly to credit cards for the 200 million customers using cell phone service provided by any of the three carriers throughout the United States.

NFC is an RFID technology that can be used to enable the exchange of information between a passive 13.56 MHz RFID chip built into a cell phone or attached to a credit card, and a reader located at a store's point of sale.

Participating merchants can allow consumers to use NFC-enabled cards and devices to pay for products, or to receive discounts or coupons via the transfer of data between the interrogator and their mobile phone or card.

To date, the deployment of NFC technology in mobile phones has most commonly been in the form of pilots only, though NFC-enabled credit cards—such as MasterCard's PayPass, Visa's PayWave and Discover's Zip—have been issued to consumers in larger, full-scale deployments.

The ISIS platform is designed for mobile phones only, and does not involve NFC-enabled cards, which will continue to be operated as they currently are.

ISIS has begun developing a software platform that can be utilized by customers of AT&T Mobility, T-Mobile USA and Verizon Wireless, as well as by merchants. The platform includes software to be used in cell phones with NFC technology, as well as a software upgrade for NFC readers at merchants' POS terminals.

The first NFC-enabled cell phones sold by the three carriers and based on the platform are expected to be made available to consumers in some geographic areas of the United States within the next 18 months, ISIS has announced, with a full rollout to all regions nationwide slated to be accomplished by 2013.

The ISIS venture is significant, says John Devlin, ABI Research's principal analyst for smart cards and embedded security, not only because it will provide a single platform for merchants, consumers, financial institutions and mobile carriers to use with NFC payments, but also because "it sets a timeline for [mobile service provider] partners, suppliers... and competitors to work toward."

Merchants have been seeking a standard platform on which NFC systems can be based, says Jaime Johnson, T-Mobile's director of strategic development and a spokesperson for ISIS, rather than each purchasing NFC-enabled point-of-sale (POS) readers and software that may be incompatible with systems employed by other retailers, or by major financial institutions and mobile carriers.

"Merchants have been telling us [the carriers] we need commonality, a standard platform that merchants can invest in," Johnson states.

To accomplish this, he says, the three carriers have been meeting for the past two years to discuss how to proceed.

"Bringing together three competitors takes vigorous discussion to accomplish that collective head nod."

Within the next 18 months, he adds, some mobile phone stores for each of the three carriers will offer NFC-enabled phones for mobile payments based on the ISIS platform, with all stores anticipated to provide the phones by 2013.

In the meantime, ISIS is working with merchants to recruit them to invest in NFC technology (readers at the point of sale, in addition to any necessary software), as the platform becomes available, in order to set up a system to accept mobile payments at their stores.

Although ISIS is currently in discussions with some national retailers, Johnson emphasizes that the solution is intended for both small independent merchants as well as chain retailers. Consumers, he notes, would want to use the technology not only at a supermarket or electronics store, but also at a corner dry cleaner, or at other locally owned businesses.

"The thing that has been inhibiting growth for NFC is the lack of a business model, the lack of open architecture," Johnson says.

ISIS hopes the platform it develops will be something that merchants, carriers, banks and credit-card companies can all use to build payment solutions. The system will enable a consumer to purchase an NFC-enabled phone from the mobile carrier through which they already have a contract, and to take the phone to a merchant and use NFC technology to load data, such as information related to that individual's customer loyalty account.

The consumer can then utilize the phone as a payment device if the user loads bank account or credit-card account information from a participating bank, and the phone can also receive coupons wirelessly from participating merchants, via an NFC-enabled RFID interrogator communicating over a short distance with the handset's NFC chip.

Initially, ISIS is working with Barclaycard US and Discover Financial Services, so that the bank and credit-card firm will be able to offer ISIS-based mobile payment services to early-adopting consumers of mobile services using NFC technology. However, ISIS intends to work with any bank or credit-card company that would like to use the platform.

"We are welcoming any bank that wants to set up mobile payments using this platform," he says. "There's an open door."

When it comes to the phasing in of NFC-enabled phones, Johnson says, consumers can expect the mobile-payment technology to become available on phones very rapidly. Inside Contactless, a manufacturer of NFC RFID chips, has told RFID Journal that it estimates that only about 50 million NFC-enabled phones will be manufactured for sale worldwide in 2011.

The three mobile carriers sell 100 million new phones annually, Johnson notes, which means their purchasing power will prompt handset manufacturers, over the next 18 months, to produce NFC-enabled phones in large numbers.

"We've been working with multiple OEMs [original equipment manufacturers]," Johnson says, adding that ISIS fully expects the number of NFC-enabled phones necessary for the deployment of NFC payment solutions in stores across the country to be reached in the next 18 months, and by 2013.

"Today," Johnson states, "a trip to the grocer can include presenting a loyalty card, payment card and coupons." By the time a transaction is completed, a consumer will have had to submit cards, key fobs or paper coupons at least three times in order to pay for a product and receive the desired discounts. By 2013, ISIS envisions, shoppers at many stores will have all of those functions on their mobile phone, and will use a built-in NFC chip to complete a transaction with a single tap of the phone against a store's NFC reader.

"From a merchant perspective," Devlin says, "[the ISIS platform] places a requirement on them to install suitable contactless readers at the POS," that would work on that platform, and to compete with other merchants launching NFC systems to meet ISIS' deadlines. "Mobile coupons and loyalty programs can all be incorporated [all on one phone] to offer targeted programs to their customers."

ISIS' mobile solution platform, he predicts, will bring an element of competition into the market, "between ISIS, the mobile service and the current card-based offerings"—such as those from Visa, MasterCard, and other credit-card service providers that charge a transaction fee—which will require the credit-card companies to determine such fees, as well as the level of service for any ISIS-based payment transactions processed. Each credit-card firm, including the first to participate—Discover—will determine the transaction fee to be charged, though ISIS is not yet providing details regarding what those fees might be.

Because ISIS membership carriers represent two different mobile-phone technologies—Code Division Multiple Access (CDMA) and Global System for Mobile Communications (GSM)—ISIS will also need its platform to accommodate both standards.

There are already millions of NFC-based RFID-enabled credit cards in circulation—including PayPass and PayWave—and hundreds of thousands of merchants that support them. As of the second quarter of 2010, MasterCard Worldwide reports, there are approximately 78 million PayPass cards and devices in use at more than 245,000 merchant locations around the globe.

When it comes to payment networks and card issuers, Devlin says, "with partnerships between both Visa and MasterCard and various banks [in previous NFC trials]," these financial institutions have already displayed an interest in working with NFC technology to provide payment solutions.

The use of existing NFC-enabled cards would not be affected by the ISIS platform.

Mobile-phone manufacturers are increasing their production of NFC-enabled phones for 2011 as well, including Nokia (see RFID News Roundup: Nokia Pledges All New Smart-Phone Models Will Come With NFC). During the Web 2.0 Summit, held this week in San Francisco, Google's CEO, Eric Schmidt, indicated that the next version of its Android phone operating system will support NFC technology.

When Jim Balsillie, Research in Motion's co-CEO, was asked at the event if his company intends to incorporate NFC chips into future BlackBerry models, he responded, "We'd be fools not to have it in the near future... and we're not fools."

Michael Abbott, the former chief marketing officer for credit cards at GE Capital, has been named as ISIS' CEO. Abbott is a veteran financial services executive, with experience in the payment and technology industries.