ATT, Verizon, and T-Mobile reportedly have formed a joint venture for mobile payments

August 3rd, 2010

What will be the impact?

For a time, we’ve been saying in this space that the tipping point for mobile payments in the United States was upon us.  A story covered by Bloomberg news yesterday serves as corroboration of this belief. Shortly after the final bell rang on the NYSE yesterday, Bloomberg reported that unnamed sources claimed AT&T and Verizon Wireless were planning a joint venture(JV) to uproot the hold traditional plastic credit cards have on electronic transactions by developing a smart phone based payment system. T-Mobile was also reportedly a minor player in this consortium.

• The pilot of this JV is reported to be in 4 cities with smart phones and proximity payments as the key application (instead of swiping a card you wave your phone in front of a special retail terminal).
• Discover and Barclays are participating as financial services partners
• They don’t yet have a CEO for the JV and are undertaking a search.
• This is being seen as a potential threat to Visa and Mastercard and their 82% share of consumer retail payments in the US.  This could also have a big effect on banks since they have significant revenue from “interchange” – the fees tied to MC and Visa transactions.

It is too soon to predict the full impact and the speed at which this new venture will be rolled out.  If, however, it is successful the potential is huge since more than half of all the new phones shipped in the market today are smart phones. What is predictable is a response from the other players in the US. Some, like banks, VISA, Mastercard, retailers, have had a “wait and see” attitude about mobile money in the US. Compared to their counterparts in other parts of the world, the US-based companies have been slower to invest in mobile.  This news will accelerate their plans, serving as a call to action for financial institutions in the US to quickly begin planning how to enter the mobile payments market, not just launch mobile banking solutions.

Is the opportunity for mobile payments in proximity payments or wireless payments?

Both, only proximity payments take a lot more time to gain broad adoption.   In Japan it took a decade.  The opportunity is very large – the biggest segments are retail, check replacement, money transfer, and online commerce.  All four represent significant opportunity.

One of the big questions is what will get things started here. We think the US market is more likely to ignite around wireless payments first, then move into proximity due to challenges in bringing together the number of players required to roll out proximity payments and the expense involved.  Once started, people will expand their use to other types of payments. We see this in every country where we are – it starts with one compelling reason but once the consumer trusts it they are looking for other uses.

This  venture into retail proximity payments could change how we pay for things when we are doing in person transactions. Visa and MasterCard were responsible for processing 82 percent, representing $2.45 trillion of consumer spending on cards in the US according to the Nilson Report. If mobile payments from the mobile operators take off, this could be impacted. This would also impact the banks since they generate revenue from VISA and Mastercard payments.

Do you think the mobile carriers will be successful in payments?

They can be. And mobile carriers playing a lead role in mobile payments in the US may be a concern for financial institutions, which have traditionally played that role here.  We see and even work with mobile carriers in other markets who are creating successful solutions. However, in the US the mobile payment market is the financial service providers’ to lose. But they must act quickly, and move into a full range of mobile money  transactions because the carrier efforts have already begun—and they have already seen some success in other areas like “text to donate” and digital content billings. In the US consumers are first looking to other financial service providers to provide mobile money. If they move quickly, they definitely can be a part of consumer solutions. There is a window open right now for financial service providers to move quickly into wireless payments, since proximity payments will take some time to rollout.   The necessary physical changes required in phone and merchant terminals will increase the time for implementation.

How will Obopay respond and what does this mean for Obopay

We offer a comprehensive mobile money service operating in 4 countries. Today, we offer our partners Mobile Money solutions which will allow them to deploy their own branded mobile money service. Designed to make the bank’s accounts or existing prepaid offerings the anchor for all current and future mobile money transactions, the service combines complete brand control, and a full range of mobile transactions and applications with simple low-cost integration and deployment. Obopay’s Mobile Money for includes the ability to send and transfer money as well as payment card acceptance available to everyone. It can be implemented in 30 days or less.

We know that this JV will accelerate interest in mobile payments and with it the adoption of our service. And those financial service providers that prefer to get the capability from MasterCard can adopt MasterCard’s Mobile MoneySend or FIS Global’s People Pay solution–both of which are offered in partnership with Obopay.