ISIS Delay Points Out Mobile Payments Problem: No Leadership

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ISIS has dodged a bullet. Just after Apple launched the iPhone 5 on September 12 without a surprise mobile-payments announcement, ISIS said its long-expected summer trial in Salt Lake City and Austin won't start this summer after all. Some coincidence, huh?

An Apple surprise might have forced the mobile-operator consortium to rush into its launch. That's not something ISIS wants to do, especially now that Google has already tried and abandoned ISIS's chosen technical approach and the number of ISIS-supporting retailers still isn't up to what ISIS wants it to be. And that's not the worst of it: There's still no leadership in mobile payments.

No one will step up. Big retail chains won't really promote anything but magstripe cards carrying Visa or MasterCard logos until they're guaranteed volume (though what they really want is interchange relief). PayPal and Google don't want to put their brands on the line in a big way for in-store payment. The card brands want retailers to move to Chip-and-PIN and contactless, and they aren't about to push consumers or issuing banks on mobile payments.

And everybody is waiting for Apple, which has dipped a toe in with its everything-but-payments mobile wallet, Passbook, but won't go any further until it sees customers actually using it. For Apple, this is actually a big step forward—Apple-watchers have been expecting NFC-based payments in every iPhone since at least the beginning of 2011.

ISIS's official position is that none of this is a problem. The delay is just for a little fine-tuning of the customer experience, the consortium says. There's "overwhelming" support from all the partners, and no changes in strategy or business model are on the horizon.

None of which is exactly true. The issuing banks are grumbling because ISIS reportedly wants them to pay $5 for every card number it puts inside a phone. The technical strategy of putting card numbers inside the phone's NFC Secure Element is looking iffy now that PayPal, Google and (probably) Apple will be using a cloud-based approach. As for the most important partners—retailers and customers—last spring ISIS insisted it had done plenty of customer education and was ready to launch in the summer, or even sooner if it got a big uptick in the number of stores signing on.

Now ISIS says it will make an announcement in October—not necessarily to set a date for the trials, but to offer more information about "updated launch specifics and momentum news."

Maybe ISIS will even announce when it's actually going to give us a launch date.

Let's be clear: ISIS's case of cold feet isn't really much worse than Apple's hesitancy or the fecklessness of Google and PayPal. The main difference is that those last three have something to show for their efforts, like custom in-store PIN pads and in-phone apps—although still no significant transaction volume for in-store mobile payments.

That's not about to change without some real leadership—which can only come from one place.That's not about to change without some real leadership. And it won't come from any of the current offerings. Google and PayPal can't move the needle. Apple and ISIS are afraid to try.

And it remains true that the only players in mobile payments who could make mobile payments work are big chains, whose finance guys have decided that their desire to dump interchange fees will magically overcome their own infighting and technical naïveté. Um, right.

Don't forget, there was a time (several business plans ago) when ISIS, too, was going to do without Visa, MasterCard and interchange. The chains didn't jump on board. Now ISIS is tied up with the card brands, just like the other big mobile-payment schemes.

Can anyone pull this situation out of the fire? Sure—big chains can, if they can make interchange relief a long-term goal instead of a first-rev requirement.

Starbucks has already shown that customers will use their phones to pay, so long as it gets them through the line faster. In France, McDonald's has pushed the model a little farther forward by giving mobile users their own lane at the counter.

Those aren't unique situations. Most retailers can figure out ways to get mobile-payment customers through the checkout ordeal faster, even it it's just mimicking McDonald's France and designating a special "mobile express" lane. That would require a little traffic-flow work and a lot of promotion, including an enthusiastic push from store managers and associates. Then again, it would be a lot cheaper than self-checkout was—no expensive new machines, just a dedicated lane.

Chains can make mobile payments happen by giving customers who use it a benefit: faster out the door. That means they really do control whether mobile payments can get any traction.

It also means the chains that jump in first will have real leverage with whatever mobile-payments schemes they're feeding transactions to. Once they get that transaction stream going, those chains will have real power over Google, PayPal, Apple or ISIS because the chain could turn off the transaction stream with the flip of a switch. (That type of cutoff wouldn't even have to irritate customers much—they could still use their phones to pay, the phones would just mimic contactless cards.)

And once those chains have sold mobile payments to customers—and convinced mobile-payments providers that the chains are in the driver's seat—it would become much easier for a mobile-payment effort to try a non-Visa/MasterCard offering that, say, debited funds from a bank account directly instead of using a branded debit card. That would finally cut out the card brands' interchange fee, delivering the relief that chains crave.

Even if it just provided competition to Visa and MasterCard, interchange-free payments would provide the first real competition to the card brands' model in decades. It's clear from the recent legal settlement that going to court isn't going to put effective pressure on the card brands. That will have to come from a competitive threat. Without that, Visa and MasterCard have no reason to negotiate, much less deliver interchange relief.

But it can't happen until someone gets mobile payments working—actually delivering transactions—first. And if chains don't provide the leadership, who can?